Nonprofit Tax and Governance Duties Checklist
A Checklist of Duties with Tax and Governance Implications – Part 1
Documentation and accountability are important aspects of nonprofit operations because of the unique challenges and responsibilities these organizations face: a mission-driven nature, reliance on donors, and a commitment to serving the community.
The following two charts can help you stay organized and more easily track processes. For information, contact your Brady Ware nonprofit advisor.
Care for Donors with Documentation
Contributions of cash or property of $250 or more require the donor to obtain a contemporaneous written acknowledgment of the donation from the donee Section 501(c)(3) organization. At a minimum, the contemporaneous written acknowledgment must indicate the donee organization’s name, the amount of cash contributed, and a description (but not value) of any non-cash contributions. The contemporaneous written acknowledgment must also include a statement that no goods or services were provided by the organization, if that is the case. If goods and services were provided, the acknowledgement should include a description and good faith estimate of the value of the goods or services provided in exchange for the donation. If applicable, there should also be a statement that the goods or services entirely consisted of intangible religious benefits. A written acknowledgment is contemporaneous only if it’s obtained by the donor on or before the earlier of:
- The date the donor’s tax return (for the year the contribution
- The due date (including extensions) of this return.
Provide a Goods or Services Statement
It’s not uncommon for charitable organizations, especially new ones, to issue inadequate donor acknowledgments. If acknowledgments omit a declaration concerning the provision of any goods or services, this can lead to disqualification of deductions, as the “no goods or services” declaration is rigorously upheld by both the IRS and the courts. Strict donor acknowledgment rules also apply to private foundations, but foundation managers are also often unaware of the rule and fail to provide an acknowledgment.
Actions to Consider:
- Ensure your donor acknowledgements contain the necessary content.
- Confirm that your records identify the names, addresses, amounts and types of contributions of donors who should receive acknowledgments.
To avoid the possibility that a donor files their return before receiving the acknowledgment, provide the acknowledgment as soon as possible. A late acknowledgment is legally the same as none at all.
Engage in Conflict of Interest Oversight
Business transactions of exempt organizations pose potential conflicts of interest when those responsible for protecting the organization’s financial interest stand to benefit personally from dealing with it. Some conflicts of interest aren’t automatically illegal or unethical. However, independent members of the organization’s governing body should be made aware of a potential conflict of interest and evaluate the benefits and risks of conducting business with the related party.
Observations
Form 990, Part VI, requests information about an organization’s conflict of interest policy. Information requested includes whether the organization has a conflict of interest policy and, if so, how it’s monitored and enforced if a conflict arises. An organization must adopt a policy before the end of the filing year to be able to affirmatively state that it has a conflict of interest policy. If a policy is adopted after the close of the year but before Form 990 is filed, you should answer “No” to the question regarding the existence of a conflict of interest policy. However, you should disclose the post-year-end policy adoption in Schedule O of Form 990.
Actions to Consider:
- If you don’t have a conflict of interest policy, you’re strongly encouraged to adopt one. The larger the organization, the greater the potential benefit from having a written policy.
- Monitor conflict of interest policy compliance by everyone who is covered by it. Monitoring procedures can vary, but typically include asking each person to affirm in writing that he or she is unaware of having engaged in an impermissible transaction other than those, if any, disclosed previously for prospective transactions. The IRS may view having an unmonitored or unenforced conflict of interest policy as worse than having no policy.
Questions? Brady Ware Nonprofit Advisors want to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.
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Missy is a member of Brady Ware’s nonprofit services team. With nearly two decades of CPA experience and a background in consumer finance, she provides tax, audit, review, and compilation services, as well as business consulting. Missy’s commitment to delivering top-notch accounting services and strategic consulting has positioned her as a trusted professional in the nonprofit sector.