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How to Make Your Nonprofit Audit Committee More Impactful [SUBSCRIBERS-ONLY]
Audit committees for nonprofit organizations are charged with filling a very important and broad fiscal and financial accountability and governance oversight role. Most nonprofit audit committees center their attention on the back-end of the annual financial statement audit process when they receive draft auditor reports. While this is an important function, audit committees can be more impactful if they shift more of their focus to the front-end of the annual audit process and expand their internal control and business practices oversight roles.
Q&A #150 – Can a nonprofit change its mission without IRS approval?
A 501(c)(3) public charity is generally permitted to change its mission and purpose and undertake new program areas that were not described in its Form 1023 application so long as these changes are consistent with 501(c)(3) status and properly disclosed in the organization’s Form 990. Advance IRS approval is not required, although significant changes in mission, purpose, and programs can affect an organization’s ability to rely on the IRS determination letter approving 501(c)(3) status.
Q&A #149 – Can a nonprofit use a DBA or trade name?
Like any other business or entity, nonprofit organizations are permitted to conduct their activities under a “trade name” (often referred to as a fictitious name, “doing business as,” or “DBA”) so long as the name is properly registered in the relevant states and reported on the Form 990, charitable solicitation registrations, and other required filings, and the name is available to use without infringing on the trademark rights of others.
Any Board Member Can Be a Board Champion
The concept of a “Board champion” for a nonprofit organization is frequently misunderstood. Board champions do not necessarily have to be officers. They can be any responsible Board member who is willing and able to actively engage in helping the organization. Board members have the potential to help in many ways, both small and large, by sharing their experiences, skills, and aspirations for the organization. Even seemingly small ideas and offers to assist can sometimes have just as big of an impact as officer service.
Q&A #148 – How far in advance must Board meeting materials be sent to Board members?
In most cases there are few explicit requirements regarding when meeting materials must be provided to Board members (such as the agenda, minutes of the last meeting, executive director and committee reports, financial reports, and proposed resolutions). Any specific requirements are typically found in an organization’s Bylaws, policies, or meeting guidelines, if at all. State nonprofit corporation statutes do not usually have strict requirements on this issue but check applicable state laws to be sure.
Q&A #147 – Must a Form 1099 be issued for expense reimbursements paid to Board members and volunteers?
IRS guidance suggests that reimbursements paid to Board members and volunteers for expenses properly incurred in connection with organization functions are generally not required to be reported on Form 1099 if the expense reimbursements are made pursuant to a reimbursement arrangement that qualifies as an “accountable plan.” This is similar (but not identical) to the rules that apply to employee expense reimbursements and Form W-2 reporting.
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Regular Communication Between Development and Finance Departments is Essential for Donor Management [SUBSCRIBERS-ONLY]
Donors are one of the most precious sources of funding for publicly supported nonprofit organizations. Managing this resource is critical to sustainability, continuity, and financial health. There are many important elements to donor management, but these elements will be rendered almost useless without consistent pathways of communication and sharing of information between development and finance departments.
Q&A #146 – Is IRS approval required to become a supporting organization?
According to the IRS instructions for Schedule A of the Form 990, an organization that previously used the public support tests under sections 170(b)(1)(A)(vi) or 509(a)(2) of the Internal Revenue Code is not required to receive an IRS determination that it qualifies as a “supporting organization” under section 509(a)(3) before treating itself as supporting organization in Schedule A. However, some organizations may wish to request such an IRS determination using Form 8940.
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The Case for Capitalizing Portable Electronic Devices (PEDs) [SUBSCRIBERS-ONLY]
Nonprofit organizations are now accustomed to living with changing conditions. Change can come in many different forms, from dramatic and fast (remote working, inflation) to subtle and out of sight (technology, rules, and regulations). A noteworthy example involves portable electronic devices (PEDs), which have seen subtle steady changes leading to lower cost with expanded performance and capacity. These changes have led to new risks that deserve special attention.
Q&A #145 – Does an annual fundraising event trigger unrelated business income tax (UBIT)?
Unrelated business income tax (UBIT) is not typically owed from the type of annual fundraising events that many nonprofit organizations traditionally hold because most once-per-year events are not considered to be “regularly carried on.” However, the analysis may be more complex for annual events that involve significant efforts and related activities throughout the year.
VIDEO: Describing Your Mission in the Form 990 | 5-Minute Lessons 4 Nonprofits
SE4N's A. Michael Gellman provides a short lesson on how to approach drafting a nonprofit organization's mission statement and description for the three different parts of the Form 990.
Q&A #144 – What is the year-end charitable deduction deadline for donations made via credit card?
According to Internal Revenue Service guidance, donations made via credit card are eligible for the charitable deduction in the year in which the charge is made on the donor’s credit card, regardless of when the donor pays the credit bill or when the nonprofit ultimately receives the funds. See IRS Revenue Ruling 78-38 and Publication 526.
Q&A #143 – Should a nonprofit include the audited financial statement in its annual report?
You can choose to include the audited financial statement in an organization’s annual report provided to members, donors, funders, and the public, but it would not be a wise choice. Audited financial statements, although important, are very long and designed to meet generally accepted accounting principles (GAAP) and other compliance purposes. They do not work as well to “brag” about the organization’s accomplishments.
Drafting Dissolution Language for the Articles of Incorporation
The “dissolution” clause in a nonprofit organization’s Articles of Incorporation is one of the key provisions required to qualify for 501(c)(3) status. This language must require that the organization’s assets remain dedicated to 501(c)(3) exempt purposes in the event it dissolves. While this basic principle is easy to understand, many overlook the significance of subtle differences in how to approach drafting this language.
Q&A #142 – Can a home address be used when incorporating a new nonprofit?
Virtually all states requires that nonprofit corporations designate a street address (and not a P.O. box) as their principal office in the state and/or the office of their “registered agent.” It is generally permissible to use a residential address for this purpose, although some jurisdictions may have special permitting or zoning requirements. However, there are several disadvantages to consider.