Charitable organizations must meet various requirements in order to maintain compliance with the multitude of laws and regulations that are applicable to their purposes and operations.
Books and Records
Public charities are required to maintain detailed books and records to document their compliance with the applicable tax and nonprofit laws and regulations. This requires nonprofits to maintain a “minute book” which includes a copy of the company’s Certificate of Incorporation, bylaws, IRS Determination Letter, and all of the minutes of the meetings held by the company’s members and board of directors. In addition, nonprofits must track the sources of their revenue, including the names of donors and the amounts of their contributions, as well as maintaining detailed records of the organization’s expenses. This information is reported on the informational tax return (form 990 or Form 990-EZ) that is filed with the IRS each year. If an organization has employees, employment tax records must be retained for a minimum period of four years after filing the fourth quarter for the year.
Open a Bank Account
Once the nonprofit is formed and has obtained its Employer Identification Number from the IRS, the officers should immediately proceed to open a bank account in the name of the nonprofit. It is critical that the organization’s funds be maintained in a separate account from any personal accounts, and to diligently maintain books and records showing all company expenditures. To open a bank account, the board of directors will approve a resolution at the organizational meeting authorizing the respective officers to open the account. The officer opening the account should bring the Employer Identification Number and a copy of the Certificate of Incorporation to the bank. They will require the officers to indicate the date that the board of directors approved the resolution to open the account.
Track and Substantiate Donations
Charitable organizations are required to maintain records of their donors and the amounts donated, which may be reported on the annual IRS information tax return, depending on the size of the organization and the donation. In turn, donors are required to receive written communication from the charitable organization as a record of the contribution. Donors claiming a deduction of $250 or more are required to obtain a written acknowledgment for a charitable contribution from the nonprofit no later than the date the donor files the return for the year the contribution is made.
In addition, a charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution in excess of $75. This is a payment made to a charitable foundation by someone who is both contributing to the organization and also obtaining something of value in exchange for the contribution, such as a ticket for a fundraising gala. The charity will disclose the value of the event ticket, and state that the remainder is the amount that is considered a tax-deductible contribution. The substantiation letter should provide an estimate of the value of the goods or services that the donor received. This is not required if the goods and services provided to a donor are of insubstantial value.
Annual Compliance Actions
Each year tax-exempt organizations are responsible for filing the IRS form 990, 990-EZ, or 990-N, depending on the amount of revenue and size of the company’s assets. This form is due within five months of the end of the organization’s fiscal year. In addition, charitable organizations must file the CHAR500 each year with the New York Attorney General’s Charities Bureau. Lastly, the company should hold an annual meeting of the members and the board of directors to approve certain actions each year. These include electing the board, appointing the officers, approving the financial statements, adopting the budget, appointing the auditor, approving executive compensation, and other pertinent actions.
Claudia Pollak, Esq. is a nonprofit lawyer based in New York.