Tuesday, May 18, 2010

Nonprofits & Taxes & Compliance. Oh My.

So once again tax season has come and gone and for many non-profit organizations this may mean changes to their exemption status is on the horizon. Experts predict that thousands of non-profits will lose tax exempt status because they failed to file annual tax returns, Form 990. The IRS is required to revoke federal tax exemption status of any organization required to file a Form 990 that has failed to do so for three consecutive years. Many non-profits that will lose tax exemption status are smaller organizations who are now required to file Form 990-N. This is a new requirement that many organizations may not be aware of. Smaller organizations often operate with little staffing and with volunteers who likely are not aware of important tax compliance issues. This use of resources can increase the chances of making mistakes in filing the correct tax forms. The IRS provides information about charities and non-profits at http://www.irs.gov/charities/index.html.

Accountability and transparency have become vital characteristics needed by non-profit organizations. Grantmakers, donors, and the community at large are more savvy than ever in determining which programs they choose to support. Organizations like GuideStar provide an array of services to increase the transparency of nonprofits to grantmakers such as allowing easy verification of charitable status. On the other hand, non-profits are offered an easy option of providing transparency to the public by creating an account and posting program, financial, and funding data. Organizations can be identified through a quick search on GuideStar .

People who choose to work in the non-profit sector tend to focus on the mission and programs of their organization whether it is to end hunger or community improvement. It is important to remember that as vital as the mission is, it is also necessary to manage the organization well too. "Ultimately, the revocation process will benefit the non-profit sector by weeding out defunct organizations and non-profits that are not meeting their reporting responsibilities" said Bob Ottenhoff, president and CEO of GuideStar. Losing tax exemption means losing revenue and community support and confidence and these are things nonprofits can't live without.

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