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operating reserves

Just like it’s a smart idea to have a personal “rainy day” fund just in case of an emergency home repair, surgery, or other unexpected large costs, the same goes for a nonprofit organization. Even nonprofits with solid income streams can be hit with unanticipated events, income, and unbudgeted expenses. In these situations, it’s vital to have that financial cushion in the form of operating reserves so the organization doesn’t suffer long-term, negative consequences from temporary dilemmas. Concurrently, it’s essential to have the board adopt and adhere to a policy outlining the details of the reserve.

A common scenario where operating reserves may be prompted can be when a source of a reliable income is withdrawn or reduced without expectation.

Important Elements of an Operating Reserve Policy

Every organization’s policy is going to look different, but there are a few general areas that should be addressed.

  • Purpose– Why is it important for the organization to build and maintain reserves?
  • Definitions- How are the types of reserves, calculation of targeted amounts, and intended use defined?
  • How the reserve is funded– An operating reserve is only as valuable as its reliability. The policy should set out a practical plan for replenishment to the targeted amounts. Often, a worthy reserve goal is about three to six months of expenses. At the very least, on the low end, reserves should cover one full round of payroll.
  • When the reserve can be used– The plan should layout when the reserves can be tapped when unexpected shortfalls hit. The reserves should not be used to address foundational finance issues. In a “last straw” scenario, operating reserves can be used to close down the organization.
  • Classify the operating reserve as unrestricted– Unlike restricted funds that are marked for specific programs and projects, the operating reserve should be set as unrestricted so that the board and management can employ as they choose when the crisis calls for it.

That’s Not All

Because each nonprofit is unique, each nonprofit is going to need policies and procedures tailored to their specific operations. That said, generally, there are at least 10 policies most nonprofits need to be prepared to address on the annual information filing, Form 990. Check out my free guide to nonprofit policies and procedures.

Additionally, keep in mind that an operating reserves policy should be written to correspond with any other financial-specific policies, like an investment policy.

Want to discuss your nonprofit’s policy needs? Don’t hesitate to contact me at 515-371-6077 or gordon@gordonfischerlawfirm.com. I’m based in Cedar Rapids, Iowa but will travel to meet with nonprofit pros all across the state.

spiral notebook

Submitting Form 1023 for “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code” to the IRS is cause for celebration for any organization seeking that coveted tax-exempt status. While waiting for the determination letter from the IRS regarding the application, there can be many uncertainties regarding what to tell donors about donations, and what to do about other submissions, like Form 990.

For oversight and evaluation purposes, most nonprofits need to annually file Form 990 (Return of Organization Exempt From Income Tax) instead. Beyond aspects of the organization’s finances, Form 990 collects information related to practical and operational aspects like conflicts of interestSarbanes-Oxley compliance, and charitable gift acceptance. Submitting an annual filing is also essential to retaining the tax-exempt status.

When is Form 990 Due?

So, when is Form 990 due exactly? It depends on the end of your organization’s taxable year; the form is due the 15th day of the fifth month after the organization’s taxable year.  For most tax-exempt organizations that follow the typical calendar year (January 1 through December 31), this means Form 990 is due on May 15th every year.

notebooks on table

What Do New Nonprofits Need to Do?

What does this mean for new nonprofits and organizations waiting on the tax-exemption determination letter? Expect to submit a variation of Form 990 in the year following the close of the first tax year. This is the case even if the organization is still waiting on the determination letter from the IRS in regard to tax-exempt status.

So, for example, let’s say a nonprofit filed articles of incorporation with the Secretary of State and adopted bylaws in March 2019. The organization subsequently submitted Form 1023 to apply for tax-exempt 501(c)(3) status. In the governing documents, the organization’s tax year is established as the typical January to December. For this organization, they should expect to file Form 990 by May 15, 2020, with information related to the receipts for the 2019 operating year.

Plan Ahead to be Prepared to Submit

The full Form 990 is over 10 pages (not including additional schedules and written attachments), so no doubt your organization should have a jump start on the process. The best way to be prepared, year after year to avoid a failure to file, is to have updated and applicable policies asked about on the form readily available to be referenced. I’m offering a great deal that features 10 policies related to Form 990 for $990. The rate includes a comprehensive consultation to discuss your organization’s need and a round of reviews so we can make certain the documents fit your organization’s needs.

No matter what stage of the nonprofit process you’re at—from just getting started to hiring employees to board management—don’t hesitate to contact me with questions or challenges. I’m available via email (gordon@gordonfischerlawfirm.com) and by phone (515-371-6077).

reading gift acceptance policy article

I love the opportunity to write for the Iowa State Bar Association‘s monthly publication, The Iowa Lawyer. I enjoy even more that you don’t have to be an attorney, judge, or even work in the legal field to read it! I recommend all nonprofit professionals, as well as professional advisors that advise nonprofits, to give my latest piece a read. Entitled “Minding the GAP: Why Every Nonprofit Needs a Gift Acceptance Policy,” the article (on page 24) overviews:

  • what this important policy entails
  • why it’s essential
  • what provisions should be included
  • different types of charitable gifts to consider when drafting the policy

minding the GAP - why every nonprofit needs a gift acceptance policy

That all said, a gift acceptance policy is just one of many policies that each nonprofit should have drafted to fit their unique mission and operations. Other documents to review, adopt, and employ include:

I’m happy to discuss any elements regarding how a gift acceptance policy can help your organization; don’t hesitate to contact me by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com).

alarm clock on table

Most people have Tax Day earmarked in their minds like a birthday or federal holiday (typically it’s April 15, although it can vary year-to-year). Nonprofit leaders should have another day highlighted on their calendars for the next few years: when the annual reporting return, Form 990, is due.

Tax-exempt nonprofit organizations don’t pay federal taxes (obviously from the “tax-exempt” category), but the IRS still requires certain information in order to evaluate organizations on details like programs, finances, governance, and mission. It’s a way of confirming that tax-exempt entities are still qualified to operate without paying federal taxes. Form 990s are also made available to the public so there’s also accountability and transparency involved.

Due date?

man typing on computer with phone in forefront

So, when is Form 990 due exactly? It depends on the end of your organization’s taxable year; the form is due the 15th of the fifth month after the organization’s taxable year.  For most tax-exempt organizations that follow the typical calendar year (January 1 through December 31), this means Form 990 is due on May 15th every year.

What happens if there’s a failure to file?

Just like if you fail to file your income taxes there are repercussions, if an organization is required to file Form 990 and fails to for three consecutive years, the IRS will automatically revoke tax-exempt status. That’s right, no questions, no appeal process, just revocation in accordance with the law. Timely submission of Form 990 also can help your nonprofit organization avoid filing additional documents and certain user fees.

What happens if tax-exempt status is revoked?

If your nonprofit’s tax-exempt status is revoked, then the organization will have to pay corporate income tax on annual revenue. Additionally, the organization may be subject to penalties and back taxes if the revocation date was in the previous tax year. The nonprofit will then lose any state tax exemptions that were dependent on federal tax-exempt status. (Common examples of such state tax exemptions are property, income, and sales/use taxes.) Of course, the organization will no longer be able to receive tax-deductible charitable contributions and, accordingly, donors will no longer be able to receive the federal income charitable deductions for any gifts post-revocation date. Losing tax-exempt status will also disqualify the nonprofit from receiving many private foundations’ grants.

Be prepared for the filing date!

Form 990 is over 10 pages (not including additional schedules and written attachments), so no doubt your organization should have a jump start on the process. The best way to be prepared, year after year, is to have updated and applicable policies asked about on the form readily available to be referenced. I’m offering a great deal that features 10 policies related to Form 990 for $990. The rate includes a comprehensive consultation and full review round.

Any questions about when your nonprofit specifically needs to file, or want to discuss how the “10 for 990” special could work for you? Contact me at any time via email or by phone (515-371-6077).

men on computer at table

Not paying federal taxes is a big deal for a charity and is one of the major benefits of going through all that work of Form 1023, state filing requirements, drafting foundational policies, and the like. For oversight and evaluation purposes, many organizations that fall under the Internal Revenue Code Section 501(a) provision need to annually file Form 990 (Return of Organization Exempt From Income Tax) instead. Beyond aspects of the organization’s finances, Form 990 also collects information related to practical and operational aspects like conflicts of interest, Sarbanes-Oxley compliance, and charitable gift acceptance. Submitting an annual filing (if required to do so under the provisions of Internal Revenue Code Section 6033) is also essential to retaining the coveted tax-exempt status. If an organization fails to file the required return for three consecutive tax years the IRS automatically revokes the entity’s tax-exempt status. (It’s one of many reasons why having updated, quality policies and procedures in place is so essential!)

One Form Doesn’t Fit All

Charities fall on a wide spectrum in terms of size, income, and number of programs. Consequently, not all organizations are required to file the same type of annual return. Indeed, some nonprofits are exempt from filing an annual return entirely. In addition to the “regular” Form 990, there are the options for 990-PF, 990-EZ, and 990-N.

Form 990 and the shorter 990-EZ are the most common forms filed by tax-exempt charities. Nonexempt charitable trusts (which are not considered private foundations) and section 527 political organizations are also required to file such a return.

Read on to find out which organizations need to file which annual form. (Note that this is general information and any specific questions on which form your organization needs to file should be directed to an attorney experienced in nonprofit law.)

woman looking at computer

Form 990

There are financial thresholds that determine which form your organization must file. However, any tax-exempt organization can choose to file a full return if they so choose. Organizations that meet or exceed the highest financial threshold are required to file Form 990. This includes organizations with gross receipts greater than or equal to $200,000 OR a total of assets greater than or equal to $500,000.

Form 990-EZ

Don’t let the title of this form fool you! There is less required information to report on than the full Form 990, but it’s not exactly easy. 990-EZ generally applies to small to medium-sized organizations with gross receipts less than $200,000 AND assets totaling less than $500,000. Organizations that meet these revenue qualifications can opt to file the full 990 or the EZ version.

Form 990-N

This is the shortest version of the 990 and isn’t so much of a full form as a basic electronic “postcard” submission. (The official name is “Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ.” Needless to say, I’m glad it’s been shortened to a simple “N.”) Smaller nonprofits with gross receipts less than or equal to $50,000 qualify to opt for this form. These nonprofits could also elect to file the more comprehensive Form 990 is they so choose.

For example, let’s say a group of high school students formed a small nonprofit with the non-partisan mission of registering high school students to vote across the state. Their reach is growing, but it’s still a small nonprofit with just $24,000 in gross receipts. This organization could certainly elect to file 990-N, but if they wanted to (if even for the experience) they could still choose to file a complete and full 990 return.

man at standing desk

990-PF

Private foundations, regardless of gross receipts or asset value, must file Form 990-PF. Nonexempt charitable trusts treated as a private foundation also need to file this form.

Extension

Just how sometimes you need to file an extension for your personal federal income taxes, the same goes for tax-exempt charities. If needed, the organization should file IRS Form 8868 by the annual filing due date in exchange for an automatic six-month extension.

When in Doubt, File Above and Beyond

Many organizations may find they need to file one form one year and then as they grow or change, need to file a different form the next. Other nonprofits may report gross income very close to either side of the threshold, which can make it confusing as to which form to file. When in doubt, it’s always better to “file up” and provide more information and data, rather than less. Hypothetically let’s say your organization filed 990-EZ last year, and is very close to the financial threshold, but could technically file 990-N this year. Just in case, it doesn’t hurt to file the more comprehensive 990-EZ again. For specific advice on your nonprofit’s individual situation, again, seek counsel from a qualified nonprofit law attorney.

Organizations Exempt from Filing

I mentioned earlier that some nonprofit organizations are not required to file an annual return of any type. These organizations include the following condensed list from this full IRS guide:

State institutions, federal corporations, & governmental units

Examples of state institutions exempt from filing an annual return include state-run hospitals and state universities. Tax-exempt federal corporations (organized under an Act of Congress) are also exempt from filing. Qualified governmental units and affiliates are also exempt if they meet the requirements listed in this Revenue Procedure document.

Political organizations

small american flag

Local and state qualified political organizations are only required to file Form 990 if they have annual gross receipts equal to or greater than $100,000. Additionally, the following are all exempt from filing:

  • Local or state committee of a political party
  • Association or caucus of local or state officials
  • Political committee of a local or state candidate
  • Any organization excluded from requirement to file Form 8871

Subsidiaries of parent organization

Let’s say there’s a statewide nonprofit organization that has small chapters in multiple counties across Iowa. If the “parent” organization files a group return that includes or “covers” the subsidiary, then that subsidiary would not need to file their own annual return. A parent organization may only file for the subsidiary organization if said subsidiary is covered under the IRS’ letter of exemption. Plus, the subsidiary covered by the exempt parent must give written consent for legal inclusion in the group return.

Additionally, parent organizations are under no obligation to file such a group return, in which case each subsidiary would be responsible for filing their own return.

Faith-based organizations

Faith-oriented organizations comprise a number of organizations that don’t need to file a version of Form 990, including churches, associations of churches, church-operated or religious-based schools, and some missionary organizations. Note that some religious groups that aren’t a church or associated with a church will need to register as a 501(c)(3) and file the corresponding annual return.

I recommend that all Iowa nonprofits have policies and procedures in place for top of the line compliance, but this advice especially applies to those organizations which need to file Form 990. (For most nonprofits that do need to file Form 990, it’s due in May, but it can vary. Technically the form is due the 15th of the fifth month after the organization’s taxable year.) Currently I’m offering a 10 for 900 nonprofit policy special, so that your organization may be prepared to file Form 990 and meet the gold standard for exemption!

Any questions about which forms your organization needs to file, or want to discuss how the 10 for 990 policy special could be helpful to your nonprofit? Contact me at any time via email or by phone (515-371-6077).

two women talking about forming a nonprofit

Any good attorney worth their weight will advise you on multiple aspects of any given important action or decision. Let’s say you’re considering forming a new 501(c)(3). You may have thoroughly considered all the prospective benefits of a tax-exempt entity, but what about the responsibilities? Indeed, there are serious obligations that come along with creating and running a nonprofit. These can’t be overstated and should certainly be taken into account. Let’s dive into a few of them.

Monetary cost

Establishing a nonprofit organization does require a monetary cost including the filing fees to governmental agencies, such as the Iowa Secretary of State’s Office and the IRS. (The Iowa Secretary of State has a $20 filing fee, and the IRS 1023 Form has a current user filing fee of $600.) If you elect to hire a qualified nonprofit attorney to guide you through the formation process and draft the required forms, then that will be an additional cost.  (Although I would always argue a worthwhile one!)

Once the nonprofit is formed you’ll also want to invest in keeping your nonprofit organization on track, compliant, and successful. A major part of this is drafting and implementing quality internal and external policies and procedures. Again, a nonprofit lawyer can be a valuable asset and provide expertise here.

Cost of time & effort

On top of the monetary costs, there are additional costs of time and effort. It typically takes a few months to pull all the paperwork together for the formational documents—especially the lengthy Form 1023. After all the paperwork is submitted for IRS review, actual 501(c)(3) approval can vary in the time it takes. A submitted Form 1023 can take anywhere from a month or two to a year to make its way through the review process; the 1023EZ‘s turnaround time depends on the backlog of review at the time.

Even after all of the required documentation is submitted for recognition of exemption, the IRS may request additional information through follow-up questions and supporting materials. And, of course, actually operating the nonprofit will take significant, continuous time and effort which can range in extent, but can include new employee hires, nonprofit board orientations and training, and compliance with state and federal laws (like Sarbanes-Oxley, for instance).

The flip side of this is that nonprofit work is often incredibly rewarding and important, making the effort and time even more worthwhile. But, again, it’s something good to just keep in mind as you weigh all inputs to your nonprofit formation decision.

Paperwork

A nonprofit is required to keep detailed records and also submit annual filings to the state and IRS by particular deadlines to keep its active and exempt status. (Reminder: having well-written policies and procedures will make the annual filings, like Form 990, an easier process!)

Shared control

As an incorporator of a nonprofit, you will certainly have a say in the development of the organization. Although one who creates nonprofits may want to shape his/her creation, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own foundational documents such as articles of incorporation and bylaws. An Iowa nonprofit is required to have a board of directors, who have certain legal and financial fiduciary duties to uphold. The board itself also has collective responsibilities, so no one person is held solely accountable. Board orientation, trainings, and materials—like a board handbook—organized in a specific way can go a long way toward ensuring the board is set-up for success in working toward the mission you as the founder envisioned.

Man writing on white board

Scrutiny by the public

In the eyes of the government and society alike, the nonprofit must be dedicated to the public interest in one area or another. This is where it derives its tax-exempt status. It’s also why its finances are open to public inspection. For these reasons, nonprofits must be steadfastly transparent in nearly all their actions and dealings.

Interested parties may obtain copies of a nonprofit organization’s state and federal annual information filings to learn about salaries, program expenditures, and other financial information. You should be able to view copies of exempt organizations’ forms for free on the IRS’ website, or you can request a copy from the organization and they must provide it. Additionally, to make it easy for the public, many nonprofits link to these documents on their website. The information can be useful to current and prospective donors, new board members and employees, and grant-making organizations.

I hate to sound like a broken record, but again, this is where superior policies like “public disclosure” and “Form 990 review” are paramount to the operation.

These responsibilities shouldn’t scare you off from forming your change-making organization, but rather important elements to be aware of from the beginning. Plus, if you know the big picture of what you’re getting into, you can plan by enlisting the appropriate professionals to help you with your endeavor!

Want to discuss how to move forward with your nonprofit? Don’t hesitate to take me up on my offer for a free consult and the 10 For 990 policy special! Contact me via email or by phone (515-371-6077).

man typing on macbook

I’ve written a lot about IRS Form 990 on this blog, but all nonprofits organized in Iowa or authorized to business in the state also need to file a Biennial Report with the office of the Iowa Secretary of State. The report is required under Iowa Code §504.1613.

The report is pretty basic and is essentially entity information updates of which the Iowa Secretary of State’s office records. Report requirements vary by state, so I’ve laid out all the basics below!

When is my nonprofit’s Biennial Report due?

Biennial Reports should be submitted between January 1 and April 1 in odd-numbered years (like this one, 2019!). An organization’s first Biennial Report is due on the first odd-numbered year following the calendar year of formation. So, if your nonprofit was formed (meaning you submitted articles of incorporation) in October 2017, the first Biennial Report would be due by April 1, 2019.

Does someone have to sign it? Does it need to be notarized?

Yes; someone with authority in the organization should sign it (such as the president of the board of directors), however, original signatures are not required. Notarization is also not required.

person at conference table

What information is included in the biennial report?

The statute requires the following information be reported. (Note that a nonprofit is still a “corporate” entity, even though we don’t typically refer to nonprofit organizations as corporations.):

  • Name of the corporation
  • State or country under whose law the nonprofit incorporated
  • Address of the corporation’s registered office
  • Name of the corporation’s registered agent at that office in Iowa
  • Consent of any new registered agent, if applicable
  • Address of the corporation’s principal office
  • Names and addresses of the president, secretary, treasurer, and one member of the board of directors
  • Whether or not the corporation has members

The information on the Biennial Report should be related to the two-year period immediately preceding the calendar year in which the report is filed.

Is there a form?

Yes, there is a form you can file online or by mail. You will need both the corporation number and a temporary code to begin the filing process. Each corporation’s registered agent will receive a Biennial Report notice in early January.

Does it cost money?

Unlike the costs for LLCs or for-profit corporations, for nonprofit corporations, the filing fee is $0.

Other Considerations

While you’re thinking about reporting, once you have the Biennial Report submitted turn your attention to Form 990. Do you know which version you can submit? Do you need to adopt any beneficial policies and procedures to boost your filing (and amplify good governance and successful operations in your organization)?

Don’t hesitate to contact me with questions about any forms and reporting. It can seem like a pain at first, but the more prepared you are and the more knowledge you have, the faster you can get back to work, forwarding your mission.

man holding glasses talking about employment policies

Employment policies are vital to the well-being of your nonprofit. Such policies set workplace expectations, define work guidelines, reduce or eliminate confusion and misunderstanding, and provide steps for any necessary disciplinary action. Because every nonprofit organization is unique, your organization may well need a particular set of specific policies. However, the following are the general ones that benefit most all nonprofits.

Benefits of Employment Policies

An official set of employment policies provides many benefits for your nonprofit. For nonprofit employers, policies capture the values you wish to instill in your workforce, outline the standards of behavior you expect, and provide a clear guide for rights and responsibilities.

Instituting strong, fair, and unambiguous policies not only contributes to a happier workforce it can also improve employee retention. Further, employment law is vast, complicated, and can be tricky to navigate. Well-drafted employment policies can also help you avoid legal issues and costly mistakes.

Employee Handbook

Employee handbooks are not required by law, but having one is in the best interest of your nonprofit and those who work for you— even if you have just one employee! A good employee handbook effectively communicates the nonprofit’s policies and procedures and makes clear the rights and responsibilities of employees in your organization. Many disputes can be avoided by a clear, easy-to-read, and straightforward employee handbook.

Employment Agreement

Not to be confused with the handbook, an employment agreement sets the conditions, terms, and obligations between you as the employer and an employee. Employment agreements often include details regarding salary, benefits, paid time off, work schedule, mandatory mediation/arbitration, and defining the at-will employment relationship. Employment agreements need to be individualized to suit each employment relationship. It is considered a binding contract that should be administered in writing and signed by both employer and employee.

Formal Performance Review

Formal performance reviews are an assessment of an employee by a supervisor and the employee themselves. It’s a two-way, not a one-way discussion! The review should be based on jointly pre-determined goals and performance objectives. While often overlooked (and sometimes dreaded), performance reviews are of great value to nonprofit employers and their employees.

three people at table talking over computers

You should have in place a standardized form and consistent processes for conducting individual performance reviews of all employees. Evaluating the quality of an individual’s work, ability to meet goals, communication skills, adherence to your nonprofit’s mission, attendance, and dependability, among other criteria, is key to effective workforce management and to building trust with employees. You may also consider whether performance reviews for board members would be advantageous to the organization.

Employee Personnel File

A personnel file is a hard copy folder and/or digital file that contains information related to every new, existing, and former employee. Knowing what needs to be stored (and what should not) in a secure personnel file will help your nonprofit in promotion and termination decisions; provide a means of tracking vacations, training, and achievements; and is necessary to comply with regulations.

A personnel file should only contain items related to his or her job or employment status. These include, but are not limited to:

  • Application and resume
  • Signed acknowledgment page from the employee handbook
  • Pay information including time sheets, W-4s, and withholding forms

Just as important as having the right information in a personnel file, is to avoid placing the wrong documents in a personnel file. Some items that should not be in an employee’s personnel file include:

  • Medical information and accommodation requests
  • Whistleblower complaints
  • Court orders, such as garnishment or restraining orders

Independent Contractor Agreement

Self-employed, freelancer, consultant…people who provide goods or services to your nonprofit, but are not your employees, are considered independent contractors. Independent contractors differ from employees in that they control their financial and work-related relationships and pay their own self-employment, Social Security, and Medicare taxes.

When you hire an independent contractor, you should have a written and signed contract that clearly outlines the scope of work, rate/payment, severability, deliverables, and clearly identifies the person as an independent contractor. Also, you can minimize and avoid legal liability by placing the right provisions in an independent contractor agreement.

three employees talking at cafe table

Updating Employment Policies & Additional Policies You Need

If you already have some (or even all) of the above-listed employment policies in place, when were they last updated? Think about the many ways your organization has changed since they were written, including new employees you hired and existing employees whose roles have evolved.

Changes to state and federal laws may have rendered some elements of your employment policies incomplete or out of compliance. It may be high time to renew your commitment to a productive, happy workplace by revising employment policies.

Also, be aware this memo discusses only employment policies. To work toward optimal IRS compliance, you should adopt the nine key policies and procedures which appear on IRS Form 990. Also, you should consider having documents in place relating to the organization’s ethics, grantors and grantees, endowment management, and legal training for board directors.

To discuss further, please don’t hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077). I’d be happy to speak more to the particulars of employment policies, with you at your convenience.

hockey-rink-stanley-cup

Robert Frost famously quipped that writing poetry that doesn’t rhyme is like “playing tennis without a net.”

Right now, a different sport without a net is grabbing our attention. Currently the NHL sports fans are tuned into the Stanley Cup Playoffs, an epic battle between two seemingly evenly matched teams: the Washington Capitals and the Vegas Golden Knights. So, allow me to make a Frost-ian point about nonprofits in a hockey context.

For a nonprofit to operate without having proper policies and procedures in place, is like playing the Stanley Cup without a net – and without sticks, skates, helmets, or a puck. Without certain policies in place, a nonprofit simply cannot run properly. Without rules, there can be no expectations. Board members, officers, staff, donors, volunteers, and other stakeholders must work to ensure they’re not skating on thin ice. Give your stars the protection they need, and the tools they require, to be a winning team.

don't just stand there book on table

Where to Start?

From working with a wide range of nonprofit clients, I’ve learned that many want proper policies and procedures, but they are simply stymied or confused on where to start. That’s where an attorney well-versed in nonprofit law can come in.

Many nonprofits have to fill out an annual form, IRS Form 990. Form 990 is unique in that it not only asks about financial information, but also many of its questions directly ask about policies and procedures. There are at least 10 major polices asked about on Form 990.

Special Offer!

Right now, I’m offering 10 major policies and procedures nonprofits definitely need for a flat fee of $990. This includes consultations and a full review round to make sure the policies and procedures fit the needs and operations of your particular nonprofit. Adopting the policies explained in this guide will ultimately save your nonprofit organization time and resources, and you can feel great about having a set of high quality documents to guide internal operations, and present to the public.

All Nonprofits Need These 10 Policies

Whether a nonprofit is large or small, new or decades-old, a mission which is narrow or multi-faceted, all nonprofits should have these policies in place. Yes, these policies are asked about on Form 990, but even if a tax-exempt organization is not required to submit a variation of the 990, the benefits are still immense. In general, having policies in place provides a framework and the expectations for an organization’s executives, employees, volunteers, and board members. Such policies can also be referenced if/when issues arise.

Another major reason to have proper policies and procedures in place is because they provide a foundation for soliciting, accepting, and facilitating charitable donations.

Additionally investing in strongly written, organization-specific policies is a practice in preparation in case of an audit. (The IRS audits tax-exempt organizations, just as it audits companies and individuals.

Policy Highlight

Among the major policies and procedures included in my special 10 for 990 offer are the following. (You can download my free guide with more extensive information and explanations regarding these policies and procedures.)

Compensation

Under IRS rules, compensation for nonprofit staff must be “reasonable and not excessive.” The IRS recommends a three- step process for determining appropriate compensation: (1) conduct a review of what similarly-sized peer organizations, (2) in the same or similar geographic location, (3) of comparable positions.

Conflict of Interest

A conflict of interest policy should do two important things: (1) require board members with a conflict (or a potential conflict) to disclose it, and (2) exclude individual board members from voting on matters in which there is a conflict. If consistently adhered to, this policy can inspire internal and external stakeholder confidence in the organization, as well as prevent potential violations of federal and state laws.

Document Retention and Destruction

The document retention policy should specify what types of documents should be retained, how they should be filed, and for what duration. This policy should also outline proper deletion/destruction techniques.

Financial Policies & Procedures

This specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place.

Form 990 Review

Form 990 asks about . . . . Form 990! That’s about as meta as the IRS gets. Specifically this policy covers how Form 990 was prepared and how it was approved. A written policy is incredibly useful in clarifying a specific process for distribution and procedure review by the board of directors.

Fundraising

This one may seem obvious, but almost every nonprofit needs a fundraising policy, as almost all nonprofits engage in some sort of charitable fundraising. Your organization is no exception! This policy should include provisions for compliance with local, state, and federal laws, as well as the ethical norms the organization chooses to abide by in fundraising efforts.

Gift Acceptance

If well-written and applied across the organization, the policy can help the organization to kindly reject a non-cash gift that can carry extraneous liabilities and obligations the organization is not readily able to manage.

Investment

Before investments are made on behalf of the organization, there should be a sound investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintain access to cash if necessary.

Public Disclosure

Form 990 specifically asks the filing organization to report if certain documents are made available to the public, such as governing documents (like the bylaws), conflict of interest policy, and financial statements. Additionally, the form asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the organization.

Whistleblower

Nonprofits, along with all corporations, are prohibited by the federal government from retaliating against employees who call out, draw attention to, or “blow the whistle” against the employer’s practices.

Keeping Up-To-Date

If you already have some (or all) of the above listed policies in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.

Why 10 For 990

The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa, and to that point I want to help every Iowa nonprofit be legally compliant. It’s like how the coach wants to do everything they can to help their team win the coolest sports trophy—the Stanley Cup. The 10 policies a part of this promotion will save you time, resources, and you can feel good about having a set of high quality policies to guide internal operations and present to the public.

Again, for now, I’m offering these 10 policies—including needed consultations—for the low flat fee of only $990. Contact me anytime at gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077. I look forward to discussing your tax-exempt organization’s needs and how we can set you up for compliance success.

Have you read GFLF’s latest contribution to the Iowa Bar‘s monthly publication, The Iowa Lawyer? The piece, “IRS Form 990: 10 Policies and Procedures Most Iowa Nonprofits Need” covers:

  • how important the annual information filing (Form 990) is for tax-exempt organizations;
  • top policies and procedures highlighted on the form
  • why investing in sound policies and procedures means investing in success
  • deadlines and failure to file for Form 990

While targeted toward the attorneys who subscribe to the magazine, this article provides excellent information for all nonprofit board members, officers, staff, donors, volunteers, and other stake holders. Give the article a read and then get a jump start on top notch compliance well in advance of next year’s due date for the Form 990!

If your nonprofit hasn’t yet adopted all of policies outlined in the article (or they are in dire need of an update), what are you waiting for? Contact Gordon about the 10 for 990 deal (10 essential policies asked about of Form 990) for just $990. The rate includes a consultation, documents drafted to fit the unique needs of your organization, and one full review round. The benefits are numerous and the compliance risk is frankly too great to NOT have these important policies and procedures in place.