| Your dream has become a reality. The cause that | | | | even organizations exempt from state taxes |
| is your passion has been transformed into a | | | | must still file some form of annual return. In |
| functional organization. You've established a board, | | | | addition to state tax considerations, each year the |
| clarified your mission, adopted bylaws, | | | | organization must file an annual report with their |
| incorporated, and achieved 501(c)(3) status from | | | | state to remain an active corporation. While these |
| the Internal Revenue Service. While extensive | | | | forms typically require a minimal amount of |
| efforts have been undertaken to bring the | | | | information, failure to file may lead to an |
| organization up to par with the standards | | | | administrative dissolution of the organization. |
| expected of a quality organization within the | | | | A final state level compliance issue to remain |
| nonprofit sector, assiduous attention to | | | | abreast of is concerned with charitable solicitation |
| compliance issues must take place if the | | | | registration requirements. Such laws have been |
| organization is to remain reputable. Thus, | | | | implemented in most states in an effort to |
| organizational administrators must be diligent in | | | | protect consumers, and the statutes require |
| educating themselves on all state and federal | | | | charitable organizations to register and become |
| regulations. | | | | licensed prior to the initiation of any solicitation |
| First and foremost, as mandated by state and | | | | activities. Generally, these laws require charities |
| federal statutes, an operating nonprofit | | | | and their fundraisers to register with the state, |
| organization must assume the maintenance of | | | | describe their fundraising activities, file financial |
| adequate financial records. It is imperative that | | | | documents, and pay a fee that covers the |
| administrators, both at the board and staff level, | | | | administrative expenses of monitoring charities. |
| document all sources of receipts and | | | | These registrations typically require annual |
| expenditures. A sufficient electronic donor | | | | renewal, and come with stiff penalties for |
| database is ideal, though not authoritative. It is, | | | | violations. If an organization will solicit in more than |
| however, critical to retain all supporting | | | | one state, a valid registration must be in place in |
| documents, such as grant applications and award | | | | each state where representatives will seek |
| notifications, sales slips, paid invoices, deposit slips, | | | | donations. |
| and cancelled checks. This will allow for easy | | | | Possibly most importantly, you must remain |
| preparation of financial statements, include | | | | aware of what activities may jeopardize your |
| statements of activities (known as an income | | | | exempt status. The most common offenses that |
| statement in the for-profit world) and statements | | | | lead to the revocation of a 501(c)(3) are private |
| of financial position (also known as a balance | | | | inurement and political campaign intervention. |
| sheet). | | | | Private inurement occurs when an insider receives |
| A 501(c)(3) organization's annually mandated filing | | | | excess benefit from the existence of the |
| with the IRS is the form 990. As of the 2007 | | | | organization, either in the form of direct financial |
| fiscal year all organizations are required to file, | | | | gain or in more indirect means such as the |
| regardless of revenue; however the version of | | | | provision of business to a for-profit in which an |
| the form will differ based upon the year's total | | | | insider has an ownership interest. Excess benefit |
| receipts. The filing is due on the 15th day of the | | | | may also occur in transactions with outsiders, |
| 5th month after the fiscal year end (For example, | | | | however the benefit in the situation must be |
| if the fiscal year ends December 31, the 990 is | | | | substantial. Lobbying activities, or attempts to |
| due on May 15th), but it may be submitted | | | | influence legislation, may be conducted; however |
| anytime after the fiscal year end. To remain in full | | | | these activities must be kept to a minimum. |
| compliance, administrators must be aware of all | | | | 501(c)(3) nonprofits are strictly prohibited from |
| forms and schedules that must be filed, including | | | | undertaking any political campaign intervention. |
| the 990-T for unrelated business income, and | | | | While organizations may provide voter education |
| special filing requirements for supporting | | | | or a review of the issues supported by all |
| organizations. | | | | candidates, a public charity may not, directly or |
| In addition to annual reporting, organizations with | | | | indirectly, support or oppose any candidate for |
| paid employees will be faced with additional | | | | political office. Lobbying activities, or attempts to |
| quarterly filings. Like all employers, charities who | | | | influence legislation, may be conducted; however |
| pay wages must withhold, deposit, and pay | | | | these activities must be kept to a minimum. |
| employment taxes, including federal income tax | | | | Finally, organizations must be diligent in filing annual |
| withholding, Social Security, and Medicare (FICA) | | | | returns on a timely basis each year. Not only can |
| taxes. This must be done for each individual paid | | | | the IRS revoke the exempt status of any |
| more than $100 per year and reported on form | | | | organization that fails to file returns for more than |
| 941. To know how much income tax to withhold, | | | | two years, it also reserves the right to impose |
| an organization should have a Form W-4, | | | | penalties upon late filers. While an organization |
| Employee's Withholding Allowance Certificate, on | | | | may not have a federal income tax obligation, the |
| file for each employee. Public charities do not pay | | | | standard penalty for late filing of the annual |
| federal unemployment (FUTA) taxes. | | | | information return is $20 per day, up to a |
| In addition to IRS compliance, some states, | | | | maximum of $10,000 per year. Remaining in |
| though not all, will require annual state level tax | | | | compliance after attainment of 501(c)(3) status |
| filings. Upon commencement of the activities, | | | | may seem a daunting task; however with careful |
| organizational administrators must be sure to | | | | attention and cooperation of organizational |
| obtain state level sales and income tax | | | | administrators and their staff, exempt |
| exemptions, if they are available in their state. If | | | | organizations can function successfully and fulfill |
| the organization is not granted state exemption, | | | | their missions abundantly. |
| they must file and pay taxes! In some states, | | | | |