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<\/h3>\nFive ideas for making the nonprofit tax preparation process easier<\/h3>\n
Not-for-profit organizations with federal tax-exempt status must file Form 990 <\/a>with the IRS each year. This form requests information about an organization\u2019s operations, management, revenue, and expenses. This information is necessary for an organization\u2019s tax-exempt status to continue. Some states may require their own similar annual returns, but the requirements for Form 990 are consistent throughout the country.<\/p>\n <\/p>\n If the board of a not-for-profit (NFP) organization reviews the Form 990 before filing it, it should consider adopting best practices to ensure that it minimizes the risks of noncompliance with laws and regulations and maximizes the ability of Form 990 to demonstrate the organization\u2019s strengths.<\/p>\n Not-for-profit boards are not legally obligated to review Form 990 before it is filed with the IRS. In other words, the responsible person(s) within the organization may complete and file the form without submitting it to the board for approval. This might violate a not-for-profit organization\u2019s internal policies, but it does not violate federal tax law.<\/p>\n All that being said, Form 990 does request information about board review<\/a>. Part VI, Line 11 asks whether each member of an organization\u2019s \u201cgoverning body\u201d has received a copy of the form. If the answer to that question is \u201cyes,\u201d the organization must use Schedule O <\/a>to describe \u201cthe process, if any, used by the organization to review this Form 990.\u201d<\/p>\n A carefully-prepared Form 990 can be a valuable asset for an NFP organization. It can ensure that their not-for-profit status is secure while presenting their mission and activities in ways that appeal to donors and others.<\/p>\n 1. Understanding Form 990\u2019s Purpose<\/strong><\/p>\n Form 990 serves several important purposes. In addition to maintaining an organization\u2019s tax-exempt status, it can be a valuable promotional tool. An NFP board can use Form 990 to further the organization\u2019s mission, promote revenue from donors, and satisfy public and private watchdogs. On Schedule O<\/a>, there is a place to include a brief narrative highlighting the various program accomplishments throughout the year.<\/p>\n Unlike individual tax returns, the returns filed by tax-exempt NFPs are not completely private. Federal regulations require that not-for-profits make many parts of Form 990 available for public inspection<\/a> upon request for at least three years. Members of the public that often seek to inspect these records include large donors and not-for-profit watchdogs. Most grant applications require copies of recently-filed forms.<\/span><\/p>\n 2. Accuracy of Data on Form 990<\/strong><\/p>\n Form 990\u2019s value as a means of promoting an organization\u2019s mission depends on complete and accurate data. The form requests detailed information about membership, revenue from all sources, administrative costs and expenditures connected to the organization\u2019s activities. For example, Part IX of the form requires an organization to allocate its expenses among categories like payroll, professional service fees, advertising, rent and travel.<\/p>\n A board may create a subcommittee in charge of reviewing Form 990 for accuracy, or it may take the task on together. It may also designate a board member who will review the data and report back.<\/p>\n 3. Nonprofit Internal Policy Compliance<\/strong><\/p>\n Before reviewing Form 990 for compliance with government requirements, an NFP board should take steps to ensure that the organization follows its own policies and procedures when preparing the form. Internal policies may range from highly detailed to nonexistent. In the former case, the review process may take some time, but it could take even longer for organizations in the latter situation. The boards of those organizations might consider establishing policies such as conflict of interest, whistleblower, and document retention policies. While these are not mandatory in the IRS regulations, they are an industry best practice to ensure your NFP has established policies and procedures to safeguard itself from the reputational risk that can occur if these are not in place.<\/p>\n 4. Legal and Regulatory Compliance for Nonprofits<\/strong><\/span><\/p>\n Compliance with federal tax laws and regulations is, of course, extremely important. Boards should be familiar with the specific areas of both federal and state law that affect them in order to be sure that Form 990 includes all necessary information, and that it presents it in the proper format.<\/span><\/p>\n<\/div>\n 5. Ethical Compliance for Nonprofits<\/strong><\/span><\/p>\n NFPs have ethical duties toward their members and others. Form 990 requires disclosure of certain matters that may affect those duties. Organizations must use Schedule L<\/a>, for example, to disclose financial transactions with people who have a direct interest in the organization’s activities<\/a>.\u00a0<\/p>\n Not-for-profit boards have a difficult job. They must oversee their organization\u2019s operations and make sure they are in compliance with laws, regulations, ethical standards, and their own internal policies. Form 990 is one of many tools that NFP boards can use as they exercise their responsibilities.<\/p>\n As experts with knowledge of and experience in federal and local laws, the dedicated not-for-profit accounting professionals<\/a> at Freed Maxick can help board members understand their roles and fulfill their duties. With MAXIS\u00ae by Freed Maxick<\/a>, a leading cloud-based<\/a>, high-tech outsourced accounting solution, we are able to customize processes for better, more reliable data and information.<\/p>\nFederal tax law for nonprofits <\/span><\/h3>\n
Form 990 best practices <\/span><\/h3>\n