Legal counsel for nonprofit organizations
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Nonprofit Reporting Requirements Present Traps for the Unwary

Posted on by bentakis

Running a nonprofit organization requires managing a dizzying array of details under stressful circumstances, including overseeing staff and service providers on a limited budget, seeking donations and grants, and navigating the various personalities and preferences on the Board of Directors. It is no surprise that so many nonprofits have trouble keeping track of the many reporting, filing, and registration requirements that may apply at the federal or state level. However, failing to keep up with required filings can have serious consequences.

For example, the Internal Revenue Service has reported that since 2010, about 550,000 organizations have had their tax-exempt status revoked for failure to file the Form 990 (or 990-EZ, or 990-n, where appropriate) for 3 consecutive years. Many other organizations have lost their status as a “corporation” for failure to keep up with required state filings. The first step in avoiding the hassle and expense of correcting missed filings is becoming aware of the various reporting requirements that may apply to your organization.

Below are some of the main reporting and filing requirements that generally apply to nonprofits (though this list is not comprehensive and there may be other requirements depending on the organization’s specific activities):

1.         Federal Tax Filings

Virtually all tax-exempt nonprofits (with the exception of churches, certain religious organizations, and governmental entities) must file some version of the Form 990, depending on the organization’s revenue, assets, and tax-exempt status. This will be either the Form 990-N, Form 990-EZ, Form 990, or Form 990-PF. As mentioned above, failure to file the applicable version of the Form 990 for 3 years in a row results in automatic revocation of tax-exempt status. In addition, organizations with $1,000 or more of gross income from an unrelated business in a given year must file Form 990-T.

2.         State Tax Filings

Some states have their own tax filing requirements for nonprofits (although many states simply defer to the federal Form 990 and impose no extra requirements). Sometimes, states impose state-specific tax filings only on organizations with unrelated business revenue, and sometimes these tax filings apply only to sales and/or property taxes. These filing requirements could potentially apply in any state in which an organization operates or generates revenue.

3.         State Corporate Filings

An organization must generally submit an annual (or sometimes biennial) filing in the state in which the organization incorporated, reporting basic information such as the organization’s address, directors, and officers and paying a fee.

4.         State Licensing Requirements

Operating or raising money in a particular state may give rise to a requirement to register and/or obtain a license in the state, even if the organization has no office and was not incorporated there. State charitable solicitation registration requirements, which apply in approximately 40 states, are the most common example applicable to nonprofits. Subject to various exceptions, nonprofits are generally required to register and file annual reports in the states in which the organizations solicit donations for charitable purposes. In some cases, these reports require filing a copy of the Form 990 and audited financial statements.

5.         Employment Reports

Nonprofits with employees are required to file Form 941 (reporting withholding and payroll taxes) quarterly with the Internal Revenue Service, and certain nonprofits must also file Form 940 (reporting federal unemployment taxes) quarterly. Separate quarterly payroll and tax reports are generally required at the state level as well. Additionally, annual Form W-2 and Form 1099 reporting is required with respect to employees and independent contractors, respectively. Nonprofits with employee benefit plans may also be required to file Form 5500 with the Department of Labor, and, starting with the 2015 year, certain employers (or their health plan providers) may need to file Form 1094-B, 1094-C, 1095-B, and/or 1095-C pursuant to the Affordable Care Act.

6.         Lobbying and Political Activity

Nonprofits, including 501(c)(3) organizations, are allowed to engage in varying amounts of lobbying activities. Besides disclosing these activities on the Form 990, lobbying activities may need to be disclosed pursuant to the Lobbying Disclosure Act on reports called the LD-1, LD-2, and LD-203. In addition, nonprofits permitted to engage in political campaign activities may be required to file Form 1120-POL with the Internal Revenue Service, and/or various reports with the Federal Election Commission.

7.         Foreign Assets

Nonprofits with financial accounts overseas must generally file an annual Foreign Bank Account Report (“FBAR”) called the FinCEN Report 114. Additional requirements to report foreign assets to the Internal Revenue Service through Form 8938 currently applies only to individual taxpayers, but may be extended to organizations and business entities in the future.

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