Nonprofit Checkup: 5 Compliance Steps to Keep Your Nonprofit Healthy

Starting and operating a nonprofit is a great way to give back to your community and do work that you are passionate about. However, keeping a nonprofit running smoothly is not always an easy feat. In many ways, running a nonprofit is a lot like running a business, except that your nonprofit work will likely be squeezed in before and after work and on weekends. The best way to keep a nonprofit healthy (and to stop it from taking over your life) is to perform regular “checkups” to make such that it is always in compliance with federal, state, and local laws. Follow these five steps to keep your nonprofit in compliance and running smoothly:

STEP 1: Federal Tax Filings

Just like your personal income tax filings that are due each April, a nonprofit has to report its income to the IRS as well. Because nonprofits are so variable, ranging from small community groups to international, multimillion-dollar organizations, there are different IRS tax filings for nonprofits of different sizes. These forms are known as the 990 Series and range in complexity from the 990-N (e-postcard) to a full Form 990, which requires substantial detail and documentation. Depending on the scope of your nonprofit’s financial activities, you will choose the Form 990 that is appropriate for your nonprofit.

Regardless of your nonprofit’s size or scope of activities, it is essential that you file your annual federal tax return on time. There are financial penalties for late filing or failure to file, and continued failure to file can result in a loss of tax-exempt status. Not all nonprofits are structured in such a way that they receive preferential tax treatment, but many are 501(c)(3) organizations. If you fail to file and lose your tax-exempt status, you may no longer be able to receive grants or large donations, and many other organizations will no longer be willing to partner and collaborate with your organization.

STEP 2: Illinois State Filings

Beyond federal filings, every state also requires nonprofits to provide annual filings. In Illinois, all nonprofits are required to provide

●      Charitable Organization Annual Report, submitted to the Illinois Attorney General

The complexity of this filing will depend on the scope of your organization’s fundraising.

●      Corporate Annual Report, filed with the Illinois Secretary of State’s office

This is a very simple form that can be submitted electronically. Failure to submit this form every year can result in loss of corporate entity status with the state.

STEP 3: Employee Filings

If your organization has employees in the state of Illinois, you must also

●      File Employer’s Quarterly Tax Return (federal and state)

●      Register with the Illinois Department of Employment Security and then comply with all ongoing reporting requirements (this includes reporting each time a new employee is hired)

STEP 4: Local Tax Exemptions

Nonprofits that own real estate may qualify for a non-homestead property tax exemption. If your organization has a property tax exemption, it will need to annually attest that there has been no change to the Chief County Assessment Officer. Failure to file can result in a loss of property tax exemption.

As a nonprofit organization, you may also qualify for sales tax exemptions. To renew this exemption, a renewal must be filed with the Illinois Department of Revenue.

STEP 5: Make Sure that Your Nonprofit Operations Comply with all State and Federal Regulation

In the US, nonprofits enjoy the benefit of tax exemption to encourage community involvement and charitable activities. However, these tax benefits come with strict regulations about what nonprofits can and cannot do. Depending on how they are registered with the IRS, nonprofits are bound by different regulations. For example, 501(c)(3) organizations are bound by different regulations than 501(c)(4)s.

A full compliance check-up with an attorney is the best way to make sure that all of your nonprofit’s activities, systems, and operations are in compliance with the law.

Work with an Experienced Nonprofits Attorney

An attorney can not only perform this checkup for you and help you assess the health of your nonprofit, but an experienced nonprofits attorney can also perform these compliance steps for you, helping you respond to filings and meet deadlines.

At Enterprise Esquire, our founding attorney, Alexis Hart McDowell, is an experienced nonprofits attorney and a nonprofit board member herself. She is passionate about service, charitable work, and giving back to the Chicago community. That’s why Enterprise Esquire offers a number of ways to work with an attorney to help improve the health of your nonprofit. To work with us, you can:

• Contact us for a consultation about your nonprofit and to sign up for a nonprofit compliance check-up;

• Hire Enterprise Esquire to perform registered agent services, so you can actually have Alexis Hart McDowell take on the responsibility of receiving your mailings and reminding you about compliance filing deadlines;

• Take advantage of Enterprise Esquire’s nonprofit startup legal service package, if you are just getting started.

As always, feel free to reach out to us at Enterprise Esquire to learn more. Click here to book a FREE consultation call to discuss your options.