Keeping Track of Nonprofit Governmental Filings: 990s, Annual Reports, Taxes, and More

Is your nonprofit up to date on its government filings?  Many nonprofits have recently filed their IRS Form 990 annual information returns.  But several more government filing and reporting requirements may apply for nonprofits, in distinctly separate legal compliance areas.  The following is a list of federal and state requirements, along with some recommendations for staying on top of these important matters.   

A.             Key Government Filings

In many ways, nonprofits operate like any business – and businesses have plenty of government compliance obligations.  The specific types of compliance may vary, however, given a nonprofit’s nature and the state in which it operates.  The key regular filings are as follows:

1.              IRS Form 990:  Every Section 501(c) tax-exempt nonprofit must file a version of the IRS Form 990 information return.  Organizations with less than $50,000 in annual revenues are generally eligible for the very simplified Form 990-N, which must be filed online.  Other nonprofits must file the Form 990-EZ, which calls for minimal financial and program activity, or the Form 990, which is quite extensive and should be completed with professional assistance.  The Form 990 is due within four and a half months after the organization’s fiscal year-end (i.e., by May 15 for a calendar fiscal year).  An organization’s late-filed Form 990 may result in unpleasant financial penalties.  Further, an organization’s failure to file a Form 990 for three consecutive years will result in automatic revocation of its tax-exempt status, and therefore a new obligation to file Form 1120 corporate tax returns (unless the organization is able to get its tax-exempt status retroactively reinstated).

How Nonprofit Directors Should Handle Whistleblower Complaints – Carefully!

Imagine you have recently joined a nonprofit board.  The organization’s bookkeeper, a long-time employee, approaches you and shares her concern that lately she has entered several checks signed by the Treasurer and made out to “Cash.”  The Treasurer has provided no explanation except to tell her to assign the expenses to “Office Supplies” and not to worry.  What do you do next? 

Assess the Whistleblower Problem

First, identify the problem.  The bookkeeper has made a “whistleblower” complaint of official misconduct: she has reported apparently unethical and possibly illegal activity by one of the nonprofit’s leaders.  The bookkeeper is looking to you for help, as a director entrusted with fiduciary responsibilities to carefully guard the nonprofit’s charitable resources, legal obligations, and reputation.  The IRS, the state Attorney General, and donors likewise all hold you and the other directors accountable for the nonprofit’s well-being.

Next, check to make sure the organization has a whistleblower policy. Better yet – do so now, to be fully prepared!  It is now standard “best practice” for responsible nonprofits to have a board-approved whistleblower policy in place.  Indeed, the IRS Form 990 information return specifically asks whether such policy exists, as a measure of overall good governance.  The whistleblower policy should set forth a high standard for ethical conduct among the organization’s leaders and workers, along with a strong prohibition against any retaliation for whistleblowers.  The federal Sarbanes-Oxley Act also contains certain whistleblower protections, as do some state laws.

Top Ten Legal Resolutions for Nonprofit Leaders in 2016

With the new year upon us, our hope is that all of our nonprofit clients will thrive in 2016, fulfilling their organizational mission and impacting their communities.  As attorneys, we understand the importance of legal compliance for an organization’s mission, governance, and success.  The following is a list of ten critical legal areas that may impact nonprofit organizations in 2016.  Resolve to address them throughout the year, especially any deficiencies that warrant further action.

1.         Develop nonprofit website privacy and cybersecurity protections and policiesNonprofits regularly gather personal information from people who visit their organizational websites.  A major legal development in the last few years is the need for many nonprofit organizations to implement a privacy policy or user agreement for their websites.  The policies should establish protocols for collection, use, and storage of website users’ private information. They should also provide appropriate disclosures to users, such as analytics information, cookies, security measures such as encryption, and how organizations may share data.  Significantly, nonprofits that permit financial transactions on their sites, such as receiving donor contributions should ensure their payment systems are PCI DSS compliant.  These are emerging but important areas as internet traffic increases along with corresponding privacy concerns. 

2.         Use Social Media Well.  Social media is a powerful tool for many nonprofits.  Continual improvements can help promote an organization’s mission and nurture its good reputation.  Unfortunately, many nonprofits fail to take the time to understand how copyright and trademark laws govern their use of photos, videos, or other media in their posts.  In using social media, nonprofits need to teach their workers how to identify and comply with applicable copyright or trademark restrictions, for which a license or other protection may be needed.  Nonprofits should also consider individual privacy interests related to posts and obtain consents or provide other disclosures as warranted prior to posting information about beneficiaries, donors, or others.  Finally, nonprofits should take steps to protect their reputations by developing a procedure or policy that ensures employees and volunteers refrain from using the organization’s social media for disparaging comments or to express views contrary to the mission.