Now is the right time to review and evaluate the organization and operation of your nonprofit organization. Enforcement activity of tax-exempt organizations has increased exponentially by both the Internal Revenue Service and states attorneys general. Failure to maintain proper records or render proper statements may result in substantial penalties and/or the revocation of an entity’s tax exempt status. Set forth below are some of the areas and topics that nonprofit organizations should review at least annually.
Checklist of Organizational Issues
- Review Articles of Incorporation and corporate status.
- Confirm the Articles of Incorporation limit the personal liability of a director of the corporation to the extent allowed by statute.
- Review Bylaws. Confirm the Bylaws appropriately address the standard of care each officer and director must adhere to when discharging his/her duties.
- Confirm the organizational requirements of the applicable state statute have been complied with.
- Review Form 1023/1024. Evaluate whether the Organization is operating in a manner consistent with its exempt status and representations set forth on Form 1023/1024.
- Confirm IRS advance determination letter ruling of IRC Section 501 (c) status received.
- Confirm the Organization has properly registered with the Minnesota Attorney General’s Office and other states attorneys general where appropriate.
- Review and confirm appropriate policies are in place, such as Conflict of Interest Policy, Record Retention
- Policy, Whistle Blower Policy, Compensation Policy, Gift Acceptance Policy, etc.
- Review record book to confirm annual minutes are in place and assist in drafting same if they are not.
Checklist of Filing/Operational Requirements
- Confirm Form 990 has been filed and assist accountant with the preparation of same if it has not been filed.
- Confirm Form 990 for last three years is available (as required by federal law) for public inspection.
- Organizations having $1,000 or more in income from activities unrelated to their exempt purpose (UBIT) must file Form 990T. IRS forms and instructions are found at www.irs.gov.
- Confirm informational tax reports have been filed with the Minnesota Attorney Generals’ Office and other offices where appropriate.
- Review substantiation practices for charitable contributions:
- A 501 (c)(3) charity receiving charitable cash donations of $250 or more must give written receipt. Receipt given by charitable organization for cash donation of $250 or more must describe any goods or services provided in exchange for the donation and must estimate value. If no goods or services, receipt must so state.
- A charity that receives in excess of $75 as payment partly as a contribution and partly in consideration for goods or services must give written statement to donor.
- See IRS Publication 1771, Charitable Contribution Substantiation and Disclosure Requirements, at http://www.irs.gov/pub/irs-pdf/p1771.pdf.
- Is Form 8283 due to donor for non-cash tangible gifts, e.g., over $5,000, received?
- If donated non-cash item over $5,000 is disposed of within two years, Organization may also have to report disposition of donated asset on Form 8282.
- Do fund solicitations reveal fair market value or no deductibility of benefits to donors? Organization receiving a contribution which is part donation and part quid pro quo must give a written statement either when soliciting a donation or when receiving it which values the goods or services given to the donor (exception for intangible religious benefits).
- If the Organization is a private foundation, confirm that the annual distribution and foundation operational requirements are met. Failure to meet these requirements can result in significant tax penalties.
- Confirm that proper procedures are in place and followed to deal with conflict of interest issues and avoid Excess Benefit Transactions .
Checklist of Insurance Issues
- Review and discuss casualty insurance policies.
- Review and discuss Directors’ and Officers’ liability insurance policies.
- Review and discuss liability insurance policies.
Checklist of Bookkeeping/Accounting Issues
- Who does the bookkeeping/auditing?
- Have appropriate financial management, auditing and internal control systems been established/complied with?
- Who prepares the financial statements, profit and loss and balance sheets? Are appropriate checks and balances in place?
- Is payroll tax withholding required?
- Are procedures in place for payment of payroll taxes?
- Are payroll taxes being properly deposited and paid?
- Are procedures in place for payment of other taxes?
- Where are bank accounts? Money market accounts? Other cash accounts? Investment accounts?
- Have bank/investment account signature cards been updated?
- Have check signing procedures been established/complied with?
- Should changes be made in check signing procedures?
Checklist of Employment Issues
- Have compensation guidelines been adopted?
- Are compensation guidelines and procedures being followed?
- Does the organization have a personnel/employment manual?
- Have job descriptions been prepared?
- Evaluate whatever employees have been improperly categorized as independent contractors.
- Are proper personnel files maintained – including W-4s and I-9s?
Miscellaneous
- Review major contracts such as leases, equipment rental agreements and service agreements.
- Review employee retirement plan.
Lommen Abdo has significant experience with the formation and operation of all types of nonprofit organizations and entities. We are ready to assist with obtaining state and federal tax exempt recognition for your nonprofit organization or foundation. We are also available to review your nonprofit organization for a fixed fee.