Tips to keep Not for Profits Out of Trouble
Published on 9/30/2015
Written by: Paul Bogdanoff, CPA and Tim Dages, CPA
Board Members of a Nonprofit or an Exempt Organization (EO) are viewed as the owners of the Nonprofit. As the owners of the Nonprofit, if the Nonprofit incurs any financial or tax issues, the board members may be held responsible or may have to pay any outstanding tax liability. Therefore, as a board member of a Nonprofit a yearly review of the state of the Nonprofit’s financial and tax affairs is recommended as a best practice. Below is a checklist of actions that are based on current rules and regulations that you, as a board member should take into consideration during this yearly review.
1. Determine that the EO filed all federal, state local reporting forms: a. Payroll Tax Returns (W-2s, 941s, 940, 1096, 1099and various state payroll tax returns) b. Many states require that EO file sales tax forms c. Tangible Personal Property returns d. Secretary of State renewal of entity report e. Exempt Organization’s Income Tax returns, 990, 990-T and state tax returns for Exempt Organizations.
2. Be aware of regulations for raffles, bingo and casino nights.
3. A conflict of interest policy is essential for protecting the charity from unethical or illegal practices. In addition, the Form 990 asks if the organization has a conflict of interest policy. a. Sample language is available on the IRS web site at www.irs.gov in the form 1023 package. b. It is recommended to have all board members and senior staff members sign the policy.
4. The board is responsible for reviewing and approving the budget, key financial transactions, executive compensation and benefits, and Form 990 before filing the return.
a. Code section 4958 may impose penalties against board members for approving excess benefits.
b. The revised Form 990 includes questions, in Part VI of the return, directed towards these areas of EO’s governing policies.
5. Insure minutes from board and committee meetings of the governing board have been documented.
6. Review the EO’s Whistle Blowers and Document retention and destruction policies.
7. Insure the EO has complied with code section 6104 requiring the EO make its form 1023 (or 1024 if applicable) and form 990 and 990-T available for public inspection.
8. To qualify as a public charity, and avoid the limits imposed on private foundations, and EO public support must exceed 33 1/3%. As defined by the Internal Revenue Service