Throughout the lifecycle of a nonprofit organization, a unique and challenging set of milestones and requirements are encountered that are unlike those experienced by traditional for-profit companies. Many nonprofit organizations are surprised by the amount and complexity of the fiscal and regulatory obligations that they face, and too often these items are met without adequate time and preparation to effectively address them.
Knowing of the requirements is only the first step, understanding how to successfully navigate them is the second. Three examples of these challenges are:
IRS Tax Exemption Application
Starting a nonprofit organization shouldn’t be difficult, right? You may have an innovative idea on how to serve your community and satisfy a need, but until you apply for and receive an exemption letter, your organization is not considered tax-exempt. Applying for a 501(c)(3) tax exemption is done by completing IRS Form 1023, a nearly 30 page application that is submitted to the IRS for review and approval. In addition to the challenges within the application itself, the Form 1023 cannot be completed until articles of incorporation are filed, bylaws are drafted, an EIN is obtained, and a Board of Directors is established. All nonprofit organizations are also required to make their Form 1023 available for public inspection.
State Registration Requirements
Did you know that most states require you to register with them when soliciting contributions from their residents? Managing these complex requirements can sometimes feel like a full-time job for growing nonprofit organizations with limited resources. Did you also know that the state of Pennsylvania requires specific financial reports to be submitted on an annual basis with its registration statement? In Pennsylvania, if your organization has more than $100,000 of annual contributions, a compiled financial statement prepared by a licensed CPA is required. More than $250,000, a reviewed financial statement is required; and more than $750,000, a full audit is required.
Government Auditing Requirements
Receiving a grant from a local, state, or the federal government can be a huge boom to a nonprofit’s operations. These additional resources will allow for the mission and reach of the organization to grow, but it also often means there are new and complicated strings attached to those funds. New reporting requirements are only the beginning. If those federal dollars (and related expenditures) exceed $750,000 in any fiscal year, a federal compliance audit in accordance with Government Auditing Standards and the Uniform Guidance is now required. This is much more involved than a “traditional audit.”
Nonprofit leaders are often laser focused on executing the mission of the organization, but nonprofit leaders also need to be just as keen on ensuring that the organization does not stumble through any of its compliance requirements so that the mission of the organization can continue to be carried on. After all, that is what is most important to the communities that it serves.
McKonly & Asbury is proud to partner with its nonprofit clients and walk side-by-side with them as they face these and other challenges in their lifecycle. We can assist with all of the above and much more so be sure to visit our nonprofit page to learn more! We would also welcome the opportunity to learn more about your nonprofit organization and the challenges it faces, and encourage you to reach out to our nonprofit leaders, Jim Shellenberger at email@example.com and Gary Dubas at firstname.lastname@example.org to share your story.