Many nonprofits outsource payroll processing as a cost effective way to handle their payroll compliance and human resource functions. We have seen several cases where unscrupulous payroll service organizations have taken advantage of nonprofits so the advice below is timely for our clients.
From time to time we see nonprofit clients adding employees in states in which they haven’t operated before. Often it is just one employee, perhaps a development person working from their home or a shared workspace. Although hiring an employee in another state may not seem like a significant event, many businesses don’t realize that it triggers several compliance obligations.
The major driving force behind becoming a tax-exempt nonprofit is the ability to solicit tax-deductible donations; yet, too many nonprofits planning to conduct any form of organized fundraising are unaware of their state’s registration laws.
An often overlooked aspect of corporate law is the concept of doing business in a particular jurisdiction. This determination comes into play when the corporation’s activities go beyond the borders of its home state or domicile.
Minimizing legal exposure is important because volunteers’ acts are generally imputed to the nonprofit organization. Specific, written volunteer policies and procedures are critical. Important components of a good volunteer program include clear and forward-thinking volunteer policies, thorough volunteer applications, screening, and management.
In the nonprofit realm, when conflict erupts it is usually in the form of disagreement with external stakeholders such as beneficiaries, funders, media and/or regulatory agencies.
Choosing the right carrier and policy may not be as straightforward as it seems. Unlike general liability insurance where there is standard policy language, each insurance company writes its own specialized D&O Insurance policy.
A fiscal sponsorship is often a great idea for small charities that do not have the resources to apply for their own tax-exempt status. It allows them to receive tax deductible donations from donors to accomplish their mission without having to expend their resources on administrative duties. However, as the recent International Humanities Center scandal has shown, it can be dangerous to get into bed with a fiscal sponsor without first performing some basic due diligence.
Section 501(c)(3) of the Internal Revenue Code allows for tax exemption for organizations organized and operated to foster national or international amateur sports competition so long as no part of the net earnings inure to the benefit of any private shareholder or individual. A parent run booster club must be organized so that it benefits the entire class of athletes or participants and does not benefit certain individuals over others.
Charities should be aware that it is now illegal for anyone to receive compensation for preparing a return for someone else if they have not obtained a PTIN from the IRS first; a paid preparer who is not registered with the IRS is perpetrating fraud. If a charity chooses to work with an unregistered paid preparer, it opens itself up to IRS scrutiny and, possibly, denial of tax exemption plus additional attorneys’ fees to resolve any issues arising from the initial filing. Charities also need to keep in mind that the organization, regardless of whether or not a paid preparer was used, is ultimately responsible for the information in it’s exemption application.
Most states require you to register your organization if you solicit donations from their residents. Many states also require registration if your organization collects substantial or ongoing donations from their residents, even if you aren’t specifically targeting donors in that state. Download our comprehensive list of each state’s requirements.
Download our free guide to learn about the many elements needed to run a successful nonprofit organization, as well as how to avoid common pitfalls and mistakes.