Introduction Nonprofit corporations formed outside of California may be required to file several forms to allow them to legally operate within the state of California. This blog summarizes filing requirements, due dates, and potential ramifications for failure to comply with filing requirements for California “foreign” or “out-of-state” nonprofit corporations. What is a “Foreign Corporation”? “Foreign corporation” is a term that describes a corporation that operates in a state outside of its state of incorporation. More ..read more

The IRS and some states require nonprofits to disclose certain documents to the public upon request. Additionally, the IRS and some states even make these documents available to the public. Donors want to be able to ensure that the nonprofits they donate to are spending their contributions wisely. Maintaining transparency – which nonprofits accomplish in part by required public disclosures – gives the public confidence that a nonprofit’s practices are ethical, efficient, and effective. What Disclosure Laws Apply to Nonprofits? The United States Tax Code requires nonprofits to make the followin ..read more

It is a best practice for nonprofits to have a conflict of interest policy to guide them on how to approach conflict of interest transactions. Such a policy will help ensure that, when actual or potential conflicts of interest arise in connection with a proposed transaction, the nonprofit has a process in place under which the relevant individual(s) will advise the governing body about all the pertinent facts concerning the situation. This policy usually also covers other types of conflicts of interest aside from transa ..read more

Most states and even some localities require nonprofits to register or obtain permits for the privilege of asking their residents for donations. This type of fundraising activity is called “charitable solicitations” and is heavily regulated to prevent fraud and harassment of the public.  While it varies by state, county, and city, any activity that invites someone to make a gift to support a nonprofit, such as a letter, email, or phone call, is considered a charitable solicitation. Fundraising events are always included within the definition of charitable solicita ..read more

Any organization that has received an IRS determination letter recognizing it as a 501(c)(3) organization may offer donors a tax deduction for their donations. However, for your donors to receive a tax deduction, your nonprofit must properly acknowledge charitable contributions it receives by following the requirements described below. What is a Donation Acknowledgment? As summarized in IRS Publication 1771 on Charitable Contributions – Substantiation and Disclosure Requirements, donors must have a bank record (e.g., a canceled check) or written communication from the chari ..read more

Introduction A California Nonprofit Public Benefit Corporation is required to file several forms each year to remain in good standing as a nonprofit corporation and maintain 501(c)(3) status. This blog summarizes the main annual filing forms, which forms to file, due dates, and potential ramifications for failure to comply. Why These Forms Are Crucial The IRS and the applicable California state agencies require regular reporting to assist in their duties to monitor nonprofits and enforce applicable legal requirements. These annual filing requirements must be met to avoid penalties, suspension ..read more

Review of Unrelated Business Taxable Income While 501(c)(3) organizations are generally recognized as tax-exempt, they may have to pay tax on income derived from certain revenue-generating activities (as opposed to income from donations) known as unrelated business taxable income (UBTI). Income may be considered UBTI if it (1) is from a trade or business, (2) that is regularly carried on, and (3) it is not substantially related to the charitable, educational, or other exempt purpose that is the basis of the organization’s tax-exempt status. See our previous blog for more details on these three ..read more

What is unrelated business taxable income (UBTI)? Although tax-exempt organizations (referred to herein as a “nonprofit”) are generally exempt from federal income tax, they may have to pay income tax on net income derived from business activity that is unrelated to their tax-exempt purpose, called “unrelated business taxable income” (UBTI). This type of tax is designed to level the playing field when nonprofits engage in activities that may compete with commercial business endeavors. If an organization engages in too much unrelated business activity, it risks losing its tax-exempt status. No s ..read more

What is Political Campaign Intervention? Participating in, or intervening in, any political campaign on behalf of, or in opposition to, a candidate for elective public office is called “political campaign intervention.” 501(c)(3) tax-exempt organizations are strictly prohibited from engaging in any political campaign intervention, direct or indirect, including supporting or endorsing a candidate for public office. If a 501(c)(3) organization engages in political campaign intervention, the IRS may impose excise taxes and, in egregious cases, revoke the organization’s tax-exempt status. Officers ..read more

What is Lobbying? “Lobbying” is defined as carrying on propaganda, or otherwise attempting to influence pending or proposed legislation. Attempting to influence legislation includes contacting, or urging members of the public to contact, members or employees of a legislative body to propose, support, or oppose legislation, and advocating for the adoption or rejection of legislation. Most 501(c)(3) organizations (which we will call “nonprofits”) may engage in this activity, including supporting legislation, within limits. However, nonprofits may not devote a substantial amount of their activiti ..read more