Compliance Checklist: Thou Shall and Shall Not as a Nonprofit
- Have any shareholders. A Non-Profit Corporation is different from a For-Profit Corporation because it has NO shareholders to whom dividends accrue. So, even if a Non Profit becomes well enough known that wealthy businesspersons want to invest as shareholders, they may not do so.
- Expend income on anything intended to advance any purpose other than your tax-exempt purpose. For example, you may rent a part of your building, throw a fundraiser, or host a movie night. However, these profits must ultimately be used for advancing your non-profit purpose(s).
- Contribute to a political campaign(s). In addition to removing 501(c)(3) status, the IRS can require payment of special taxes when a 501(c)(3) Non-Profit contributes to any political campaign(s).
- Keep good records. Record-keeping is essential, in order to properly file annual returns with the IRS (namely the 990, addressed below). Moreover, proper records are essential to defense if a member, officer, director, or client accuses a Non Profit of impropriety. These records are also essential if a Non Profit suspects an officer, director, or member of impropriety.
- File a 990 informational return on time. Failure to timely file a 990 informational return to the IRS can lead to the automatic revocation of a Non-Profit’s tax-exempt status. Access the 990 forms here. (Note that this will not apply if you are a private foundation, in which case you would be required to file a 990-PF).
- Act in accordance with Company Bylaws. The Bylaws are the laws that govern a company. To stray from those laws means the potential lawsuit, especially for any members, officers, or directors harmed by such violation(s).
- Conduct proper board meetings. A Non Profit should have a board meeting at least annually to conduct affairs and monitor compliance. More regular meetings are highly encouraged. Important to note, board meetings are typically addressed in the Company Bylaws.
- Pay members, officers, and directors. Profits may accrue to members, officers, and directors who earn them through salaries or expense reimbursement.
- Pay independent contractors. Profits may accrue to independent contractors at the rate of reasonable payment for services rendered.
The Commandments of Compliance for Nonprofits Part1