Keeping Your Nonprofit Compliant

Here are 8 things your organization should & shouldn’t do to protect your nonprofit status:

1. File your Form 990 on time, annually.

If your nonprofit fails to file its annual return (Form 990) for three consecutive years, the IRS will automatically revoke your organization’s tax-exempt status. This automatic revocation happens by operation of law – there are no exceptions. Read more

2. Adopt a Conflict of Interest Policy.

A policy governing conflicts of interests is perhaps the most important policy a nonprofit board can adopt. To have the most impact, the policy should be in writing, and the board and staff should review the policy regularly. Read more

3. Do not contribute to a political campaign.

Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Read more

4. Do not earn substantial income from “unrelated activities”.

Although the IRS has not provided a bright line percentage rule that dictates how much unrelated business activity a 501(c)(3) organization may engage in, it is important to keep in mind that the core activity of the organization must be exempt in nature. Remember, a tax exempt organization must be operated primarily for tax-exempt purposes. Read more

5. Maintain clear financial and operations records.

Developing a document retention policy may seem overwhelming at first, but think of it as simply a record of what types of documents the nonprofit must retain and for how long. The policy should specify that the nonprofit will also adhere to a regular business practice of document destruction according to the schedule referred to in the policy or adopted by the nonprofit from time to time. Read more

6. Conduct regular board meetings.

At a minimum, nonprofits should have a board meeting annually to review the organization’s finances, bylaws, and activities. Although more regular meetings are strongly encouraged to ensure board members are adequately informed about the entity’s activities and to monitor compliance. What Issues Should a Nonprofit Board Consider Annually?

7. Operate in accordance with most current bylaws.

Bylaws are intended to be a guide for how to govern a nonprofit within the law. Nonprofit bylaws by themselves are more of an internal document than required in United States, but a well planned and clear structure will take out the guess work and corruption out of your organization especially in time of disagreement between board members. Read more

8. Do not allow paid staff to be voting board members.

To prevent possible conflicts of interest, a nonprofit should not allow any paid staff member to be a voting member of the organization’s Board of Directors. Board of Directors are responsible for decisions like employee compensation, therefore voting members must not directly benefit from these decisions. If your organization does have a paid staff member on the Board, that member must recuse themselves from voting. Can the Executive Director Also Serve on Our Organization’s Board of Directors?