Ensuring Your Nonprofit Corporation Remains Tax-Exempt

A nonprofit corporation must comply with a few special rules implemented by the IRS that will help maintain its tax-exempt status related to: Organizational Structure, Limited Activities, and Corporate Recordkeeping.

Your Nonprofit’s Organizational Structure

A nonprofit corporation is not governed by shareholders or owners and nothing can be sold if the nonprofit dissolves. Rather, the members of your nonprofit’s board of directors make important decisions based on the information provided by the executive director of the organization.

Your organization’s structure will include a president, vice president, secretary and treasurer as executive officers. It is important to determine “best fits” for these integral positions. This is why your board should be diversified with members coming from many different fields. Trust us, you don’t want an entire board of accountants.

What Nonprofits Should Avoid

There are certain governmental rules for nonprofit tax-exemption that must be followed. Disregarding these rules can lead to penalties or an organization even being shut down.

1. Nonprofits cannot give money to political campaigns.
2. Nonprofits can in a very limited capacity lobby the government for legislative action but the activity is limited in monetary scope by the IRS and the activity must be reported to it.
3. Any income over $1,000 earned by the nonprofit that isn’t directly related to the mission must be reported and taxes paid.
4. No profits can be given to a nonprofit member, officer, or director.
5. A nonprofit’s assets need to be distributed to another tax-exempt organization if the nonprofit is dissolved. A nonprofit cannot be sold for profit, with those profits distributed to its board of directors.

Nonprofit Records Requirements

As with for-profit corporations, nonprofit corporations must keep reliable organizational records to prevent liability issues as well as show transparency to potential donors. These records will include minutes of all meetings with the executive committee and board of directors as well as documentation of other important corporate decisions that did not require board approval. Keeping a simple record book that also contains your articles of incorporation, bylaws, and other important governmental paperwork is very helpful.

Accurate financial records and double-entry accounting maintains financial checks and balances for day-to-day peace of mind. Keeping these records accurately and regularly also ensures your organization will be prepared for an audit.

Numbers 4 Nonprofits is focused on our clients’ missions, working almost entirely with tax-exempt organizations. We adhere to best accounting practices. We also stay on top of changes to code and possible law changes that could affect your nonprofit. Contact us today and tell us your story!