Most organizations seeking official recognition of tax-exempt status must apply to the IRS within 27 months of formation. Generally, if the organization applies within the 27-month window, recognition will be retroactive to the date of the organization’s formation. This means an exempt organization can begin operating as a § 501(c) organization prior to receiving its determination letter from the IRS. It also means that prior to receiving its determination letter, the organization is subject to the regulatory and compliance rules applicable for its exempt status. Clients often ask about what i ..read more

Volunteer work is critical to the nonprofit sector. Without volunteers, many organizations would not be able to run their programs effectively. This being the case, it is crucial for nonprofits to understand how federal and state laws define the term “volunteer,” so volunteers are not inadvertently classified as employees under the law. The Fair Labor Standards Act On the federal level, workers are generally classified under the Fair Labor and Standards Act (FLSA).  The U.S. Department of Labor (DOL) has published a fact sheet to delineate how the FLSA applies to nonprofit organizations ..read more

Last month, the Treasury Department and IRS released final regulations on the elective pay rules under the Inflation Reduction Act of 2022 (IRA). The IRA introduced new rules allowing tax-exempt organizations to take advantage of federal tax credits for certain clean energy projects. Historically, tax-exempt organizations have not been able to tax advantage of tax credits because they are exempt from paying federal income taxes and thus have no tax liability to credit. Now, eligible organizations can make the elective pay election and receive a tax refund for the value of the credit(s) in the ..read more

Understanding Nonprofits In our world, there’s no shortage of ways to contribute positively. This can take many forms, from a group of neighbors coming together for community disaster planning to existing organizations working on voter registration or even a community coffee shop training youth for employment. Among these avenues for social good, forming a nonprofit is a popular choice for those looking to have a structured impact on a cause they care deeply about. So, what exactly is a nonprofit? Simply put, a nonprofit is an organization established to serve the public or a specific communit ..read more

Navigating Form 990 and avoiding red flags is crucial for nonprofit organizations to ensure compliance, transparency, and the integrity of their operations. Form 990 serves as an important regulatory compliance and public disclosure tool. Form 990 outlines an organization’s financial activities and key governance practices and is instrumental in maintaining public trust and tax-exempt status. This post highlights critical Form 990 red flags that stakeholders should be aware of to safeguard their nonprofit’s reputation and operational effectiveness. 1. Incomplete or Unclear Transactions wi ..read more

Navigating Form 990 and avoiding red flags is crucial for nonprofit organizations to ensure compliance, transparency, and the integrity of their operations. Form 990 serves as an important regulatory compliance and public disclosure tool. Form 990 outlines an organization’s financial activities and key governance practices and is instrumental in maintaining public trust and tax-exempt status. This post highlights critical Form 990 red flags that stakeholders should be aware of to safeguard their nonprofit’s reputation and operational effectiveness. 1. Incomplete or Unclear Transactions wi ..read more

501(c)(3)s are limited in their ability to lobby. Federal tax law restricts a 501(c)(3)’s lobbying activities under either the substantial part test or expenditure test. Plainly, the substantial part test states that no substantial part of the 501(c)(3)’s activities may be lobbying activities. The expenditure test states that the 501(c)(3)’s lobbying expenditures cannot exceed a certain amount. By default, each 501(c)(3) is subject to the substantial part test. However, most 501(c)(3)s can choose to operate under the expenditure test, often referred to as making the 501(h) election. Why Make t ..read more

10 years ago, the IRS released the Form 1023-EZ, a streamlined application for recognition of tax exemption. Similar to the Form 1023, the 1023-EZ allows organizations to apply for tax-exempt status under Internal Revenue Code § 501(c)(3). Unlike the 1023, the 1023-EZ does not require detailed information about the organization’s framework, activities, and finances. Instead, the 1023-EZ relies heavily on checkboxes whereby the applicant organization attests that it meets the requirements for exemption. Due to its simplicity and lower filing fee compared to the 1023, the 1023-EZ has become the ..read more

Beginning on March 11, 2024 a new rule goes into effect changing how businesses will classify their workers. Last month, the U.S. Department of Labor (DOL) announced the final rule for classifying workers as employees or independent contractors under the Fair Labor Standards Act (FLSA). The new rule largely reverses the “core factors” test put into place during the Trump Administration. The new rule is a return to the status quo, effectively reinstating the “economic reality” test long relied upon by the courts. The new rule requires courts to consider six factors in determining whether a work ..read more

Nonprofit organizations, despite their tax-exempt status, are not exempt from the responsibility of adhering to certain tax reporting requirements. One key aspect of these requirements is the issuance of Form 1099-NEC (Nonemployee Compensation). This form is crucial for nonprofits to understand and properly handle to maintain compliance with IRS rules and avoid penalties. In this blog post, we’ll explore who nonprofits need to send 1099s to, who is exempt, and the consequences of failing to meet these obligations. Understanding 1099s. Who Needs Them? The IRS requires that Form 1099-NEC be sent ..read more