According to data from the National Council of Nonprofits, nearly one-quarter of nonprofits miss annual filing deadlines each year. Common oversights include late 990 information returns, lapsed charitable registrations, and expired business licenses.

Meeting important compliance milestones on time takes considerable coordination. In this post, we will examine the key annual nonprofit compliance requirements and discuss the necessary preparations.

Why is Annual Compliance Critical?

Nonprofits must complete recurring compliance tasks on an annual basis to legally operate in jurisdictions where they fundraise and run programs. Reasons to prioritize annual filings include:

• Maintain tax exemptions – File 990 to preserve federal 501(c)(3) status.
• Retain active registrations – Submit annual reports to state charity regulators.
• Renew permits and licenses – File and pay fees to stay compliant locally.
• Comply with statutes – Meet ongoing legal obligations for nonprofits.
• Promote transparency – Demonstrate accountability to regulators and donors.
• Avoid penalties – Prevent fines and sanctions for lapsed compliance.

With so much at stake, tracking annual due dates across multiple agencies is an essential, if burdensome, responsibility. Automating compliance helps streamline this process.

Legal Obligations for Nonprofit Organizations

Nonprofit organizations, despite their charitable nature, are bound by various legal obligations. These include adherence to state and federal laws, filing the necessary paperwork, and ensuring that activities align with the organization’s mission. Key legal obligations include:

• Filing Annual Returns: Nonprofits are required to file an annual return with the IRS, typically Form 990. This form provides information on the organization’s finances, activities, and governance.
• State-Level Compliance: Depending on the state, nonprofits may need to file additional reports, register for fundraising activities, or adhere to specific corporate governance standards.
• Compliance with Public Charity Status: Organizations must maintain their eligibility as a public charity by ensuring that their operations align with their stated exempt purpose.

Major Annual Requirements

While obligations vary based on location and activities, most nonprofits can expect these annual filings:

• IRS Form 990 – Information return disclosing finances, programs, governance, and operations.
• State Charitable Solicitation Registration – Disclose fundraising activities in states where donations are solicited.
• Attorney General Reports – File annual financial reports mandated in certain states.
• Business Licenses – Renew permits and pay fees to comply with city/county regulations.
• Sales Tax and Employment Tax Filings – Report and remit applicable taxes.
• Grant Performance Reports – Provide funders with required updates on grant activities.

Nonprofit Governance Best Practices

Good governance is the backbone of any successful nonprofit organization. It involves setting clear goals, ensuring effective administration, and maintaining financial responsibility. Nonprofit boards must prioritize transparency, accountability, and ethical practices. Regular board meetings, accurate record-keeping, and clear communication channels form the foundation of robust governance. Adopting these practices ensures that your organization not only complies with legal standards but also operates efficiently and effectively.

Nonprofit Risk Management

Risk management in a nonprofit context involves identifying, assessing, and mitigating risks that could hinder the organization’s ability to achieve its mission. This includes financial risks, operational risks, and compliance risks. Implementing a comprehensive risk management plan helps in anticipating potential issues and taking proactive steps to address them.

Board Responsibilities in Nonprofit Compliance

The board of a nonprofit organization plays a critical role in ensuring compliance. Board members are responsible for overseeing the organization’s adherence to legal and regulatory standards. This includes financial oversight, policy development, and ensuring the organization’s activities align with its mission. Effective board governance is essential for maintaining compliance and avoiding legal pitfalls.

Efficient Nonprofit Compliance Strategies

To manage compliance efficiently, nonprofits should adopt a strategic approach. This can include:

• Developing a Compliance Calendar: Keeping track of filing deadlines, board meetings, and other compliance-related dates.
• Regular Compliance Audits: Conducting internal audits to ensure all areas of the organization meet legal and regulatory standards.
• Leveraging Technology: Utilizing software solutions, like VComply, can streamline compliance management, making it easier to track requirements and deadlines.

Nonprofit Audit Preparation

Preparing for an audit involves ensuring that all financial records are accurate and up-to-date. Nonprofits should maintain detailed records of their income, expenses, and financial transactions. Regular internal reviews and having a clear understanding of the audit process can greatly ease the audit preparation.

Maintaining Nonprofit Tax-Exempt Status

To maintain tax-exempt status, nonprofits must adhere to IRS regulations, which include limitations on political activities, lobbying, and ensuring that income is not benefiting private individuals. Regularly reviewing these requirements and ensuring compliance is critical to maintaining this status.

Ensuring Transparency in Nonprofit Operations

Transparency is key to building trust with stakeholders and the public. This includes clear reporting of financial information, open communication about organizational activities, and making key documents, like the Form 990, available to the public.

Internal Controls for Nonprofit Organizations

Establishing strong internal controls is essential for preventing fraud and ensuring the integrity of financial and operational processes. This includes separation of duties, proper authorization of transactions, and regular financial reviews.

Automate Compliance Today

Skipping seemingly small requirements can have outsized consequences. Late or omitted filings create legal and reputational risks.

Given the significant role that nonprofits play in the economy, it is crucial for them to responsibly manage their economic privileges. To proactively safeguard the organization, nonprofits should implement internal controls. VComply offers valuable assistance to nonprofits through its fully integrated Governance, Risk, and Compliance (GRC) Management Software. This platform allows organizations to establish controls and set reminders, ensuring that compliance obligations remain a top priority. VComply supports nonprofits with real-time data tracking, risk management, and streamlined compliance management.

It automates compliance processes and streamlines the tracking of annual deadlines. Features like automatic reminders prevent filings from falling through cracks. VComply’s Cloud-based software also enables secure multi-user collaboration to streamline follow-up.

With VComply, nonprofits can instantly create a comprehensive compliance calendar with proactive deadline alerts. Multi framework and controls support eliminate redundancy and duplication of efforts.

Frequently Asked Questions