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Your Organiza'ons $$ and

Understanding Non Prot Status

NLTC Birmingham, AL September 26, 2015

Steve Lovi, NAD Region I Board Member
Philippe MontaleGe, NAD Treasurer

Ever wonder if your organiza'on is scally safe
and nancially healthy?
Do you fully understand your organiza'ons
policies regarding nancial management?
Are you aware of Non-Prot start up/on-going
regula'ons and repor'ng requirements?
Is your organiza'on a bona de 501(c)3?

Todays Presentation Goals

Help you understand critical areas of
financial management systems.
Build understanding of basic systems
and best practices needed in a healthy
non-profit organization.
Share information to help establish and
maintain organizational non profit
Explain key steps how to apply for taxexempt status and what you need to
know about filing federal tax forms.
(990 series)

Financial Management
Major responsibility of the Board and
Have basic skills in critical areas of
developing & maintaining budgets,
bookkeeping, financial controls, cash
management and creating finance statement
Utilize a Finance committee to assist in
reviewing income, expenditures and budget. 4

Important Information to Know

The board has final responsibility for the financial
health of the nonprofit organization
Critical that new nonprofits quickly build up the roles
of the treasurer and finance committee
Treasurer and finance committee can be wonderful
assets to the board president when managing the
finances of the organization
Board members and board president should never
completely ignore the finances by leaving them for
the treasurer and other board members to manage
The board's governance of the nonprofits finances
should include ongoing review of financial reports
during board meetings

Recording various financial transactions
including keeping track of income and
Can be prepared by someone who's doing
basic clerical work in the organization. The
board treasurer can help by developing and
carrying out the bookkeeping system.

Accounting Procedures Manual

The board develops and authorizes a set of

procedures for how the organization
manages its finances.
The board treasurer usually coordinates the
board's responsibility for the manual,
including its regular review and update.
Board and treasurer should make every
effort to ensure compliance with the
procedures in the manual.

Accounting Systems for Financial Transactions

Accounting starts with basic record keeping (or
bookkeeping). When your organization is just getting
started, your bookkeeping system will probably be based
on what's called a cash-basis accounting system, rather
than accrual-basis system.
Many organizations, when starting out, use the cashbasis system and a checkbook to track transactions. In
the "memo" portion of the checkbook, they note if the
amount depicted on the check is an expense or revenue,
and where the amount came from or is going to.
As your organization grows, you'll begin using
accounting software like Quick Books to track
In an accrual-basis system, you post entries when you
earn the money and when you owe it. Small
organizations usually do not have the resources to use an
accrual-based system.

Manual or Automated Accounting System

Your record keeping system will be based on a
manual system (where you make entries and
total them by hand) or a computer system.
May evolve to using a computer-based system,
which greatly automates entry of transactions,
updating of ledgers, generation of financial
reports needed for board meetings
and filing taxes, etc.
Quick Books is the most widely used software
for small organizations and easy to utilize.

Chart of Accounts

Can post each entry according to the category, or

account, of the transaction.
Each account will be associated with an account
Chart of accounts which will tell you what account
number or category to use when you post an entry.
Able to design your own chart of accounts, including
coming up with your own account numbers.
Chart usually has five areas, including assets,
liabilities, fund balances, revenues, and expenses.

An operating budget (or annual budget) shows
planned revenue and expenses, usually for the
coming year.
Board is responsible to authorize the yearly
Every organizations budget will have different
needs and wants. Plan conservatively.


Petty Cash Fund

Small, recurring expenses needed to pay right
away. For example, to buy a computer power
cord, stamps, etc.
Can establish this fund by writing a check to
your organization and indicate on the check
that it goes to the "petty cash" fund.
Able to withdraw from the fund by filling out a
voucher that describes who took the money,
how much $, what items were purchased and

Financial Statements

Statement of Financial Position

(Balance Sheet)
A Statement of Financial
Position must be prepared for the
organization as a whole presenting
the total amounts of assets,
liabilities, and net assets.

Statement of Activities
(Income Statement)
A nonprofits statement of
activities is issued instead of the
income statement which is issued
by a for-profit business.
The statement of activities
focuses on the total organization
(as opposed to focusing on funds
within the organization) and
reports the following:
1. Revenues such as
contributions, program fees,
membership dues, grants,
investment income, and amounts
released from restrictions.
2. Expenses reported in
categories such as major
programs, fundraising, and
management and general.

What is a Nonprofit Corporation?

A Separate Legal Entity

Organized and
Operated for a
Recognized Nonprofit
A nonprot is a tax-exempt
organiza'on that serves the public
interest. In general, the purpose
of this type of organiza'on must
be charitable, educa'onal,
scien'c, religious or literary.


Legal Structure of a Nonprofit

Statutory Members (Optional)

Board of Directors Includes

Chairperson of Board (may also
include 3 statutory officers)

Statutory Officers (must include Chairperson

President, Secretary and Chief Financial Officer)
Nonprofit Corporation Operations (includes
Executive Director and/or CEO who supervises
other employees and volunteers to operate
corporations day to day activities)

Forming a Nonprofit Corporation

Eligible for Income Tax Exemption and Tax
Deductible Donations
Corporate Agents Generally Not Liable

Administrative Burden
Limitations on Permitted Activities
Can be Costly to Form

Potential Start Up Fees

(Approximate Costs)
Formation & Tax Exemption Fees
Name Reservation (Optional)
Articles of Incorporation

$ 10
(vary states)

$ 30

Federal Tax Exemption Application

$ 850

State Tax Exemption Application (vary states)

$ 25

Biennial Statement of Information (vary states)

$ 20

Registration with Attorney General (vary states)

$ 25


$ 960

How Do I Form a Nonprofit

!Reserve Corporate Name with Secretary of State (Optional)
!Determine Who Will Be Directors and Officers
!Execute and File Articles of Incorporation with Secretary
of State- This Forms the New Legal Entity
!Obtain EIN on IRS website
!Draft Corporate Bylaws
!Set up a Corporate Minute Book
!Hold First Meeting of Board of Directors
"Adopt Bylaws
"Elect Officers
!File Statement of Information (Domestic Nonprofit Corporation)
Within 90 Days


Articles of
! What are the Articles of Incorporation?
"The corporations basic organizational document
the Articles create the corporation.
Filling starts the clock running on tax deadlines.
! What must the articles include?
1) the corporate name;
2) a statement that the corporation is established for public or
charitable purposes (or both);
3) The name and address of the initial agent for service of service;
4) A provision dedicating the corporate assets to charitable purposes and
restricting the corporation from political campaigning or lobbying.

!What about filing?

"The corporation must file Articles with the Secretary of State with a $30
filing fee. (Approximate fee, costs may vary)

Helpful Reminders
! When you file articles to form the corporation, you will start the

clock running on important tax deadlines.

! If your organization has not yet begun its activities, you should

strongly consider waiting to incorporate (filling the articles) until

you are also ready to complete tax exemption application.
!All filing records should be kept on a permanent basis. Scan any
hard copies and store electronically.
!Finance and general business records should be kept on hand
for at least seven years for each year of business under ethical
business practice guidelines.

Employer ID Number (EIN)

!Every corporation that will apply for federal tax-exemption
must obtain an EIN.
!EIN is the corporations tax ID number for all federal tax
"There is no separate tax-exempt number
"Just having an EIN does not mean that the
corporation is tax-exempt



By-Laws establish the procedures for

governing and operating the corporations
!Typical By-Law Provisions:

of Directors
"Time, Place, and Manner of Director
"Voting Procedures
"Director and Officer Duties
"Committee Structure
"Amendment Procedures

First Board Meeting

!Initial Board Named Articles or by Incorporator
!Board Composition Must Comply with By-law
"Number of Board Members
"Qualification for Board Membership (if any)
!First Meeting Actions
"Adopt By-laws
"Elect Officers
"Establish Bank Accounts and Signing Authority
"Authorize Officers to File Tax Exemption Application
"Adopt Board Conflict of Interest Policy

Board Meeting Minutes

!Keep minutes of all board resolutions as
evidence of valid corporate action
!Example of resolution:
"RESOLVED, that the bylaws presented at this meeting and
attached to these minutes are adopted as the bylaws of the Corporation.

!Maintain minute book in permanent corporate files.

!It is strongly recommended that board meeting minutes be
stored electronically with a back up of hard copy minutes as well.

Federal Tax Exemption

!What Does It Mean to be Tax-Exempt?
"Subject to a few exemptions, nonprofit corporations with
federal tax exemption are NOT taxed by the IRS on income

!How Does a Nonprofit Corporation Obtain

Federal Tax-Exemption?
"The IRS will recognize tax-exemption if a corporation
qualifies under a specific exempt category defined by the
Internal Revenue Code. The most commonly used tax
-exempt classification is 501 (c) (3). To be treated as tax-
exempt under 501 (c) (3), a corporation must generally
file an application with the IRS.


Know Key Steps to Apply for Tax-Exempt
What do you need to know about filing federal
tax forms (990-N, 990-EZ or 990)


Filing Specific Tax Forms Based on Criteria

"Form 990
Nonprofit organizations
withatleast$200,000 in annual gross
receipts or at least $500,000 in total
assets are required to file Form 990
with the IRS.


Filing Specific Tax Forms Based on


"Form 990-EZ
Organizations that have gross
receipts between $50,000 and $199,999
and total assets of less than $500,000 at
the end of the
yearmusteitherfileForm 990-EZ orfile
the full Form 990.


Filing Specific Tax Forms Based on Criteria

"Form 990-N (also known as the e-Postcard)

Small tax-exempt organizations whose annual
gross receipts are normally $50,000 or less may choose
to submit Form 990-N instead of completing Form 990
or Form 990-EZ. If your nonprofit is required to file
Form 990-N but fails to do so for three consecutive tax
years, it will automatically lose its tax-exempt status on
the filing due date of the third year. If your nonprofit
loses its tax-exempt status, you'll have to apply for a
federal tax exemption all over again. That means filing
IRS Form 1023 again and paying the hefty filing fee that
comes with it.


Is Your Organization a Bona Fide 501(C) 3 Organization?

Check with to see if your
organization is registered as a Non-Profit
States also keep a registry of tax-exempt charitable
organizations usually through the Attorney Generals
Office or Division of Charities.
The IRS also keeps records on active and inactive
Some organizations have never applied for federal
501(C) 3 status and mistakenly believe they are a
legitimate tax exempt organization.
Organizations cannot guarantee donors a tax deduction
without not having a 501(C)3 in place for their donation. 30

Directors and Officers Insurance

(AKA Board and Officers Insurance)
When dealing with finances, important
to consider obtaining insurance to
protect the board from potential
liabilities such as accidents, theft,
mismanagement or fraud.
Can be expensive but gives your board
peace of mind knowing that
individuals who are serving cannot be
personally sued by affected persons
while on the board.
Useful in attracting and retaining


General Resources
Provides nancial data and basic informa'on on every IRS registered
non-prot organiza'on (NPO). Not a charity watchdog or evaluator.
Easy to use and anyone can join for free. Addi'onal data can be
purchased if necessary. If an NPO is not listed here, most likely the
organiza'on is not considered a bona de 501(c)3 organiza'on or is no
longer recognized by the IRS.
Go To website for seing up a non-prot organiza'on, links for
applica'on forms, trainings, etc.


This website will help your NPO u'lize its tax exemp'on status appropriately.
Many NPOs fail to follow IRS guidelines set for maintaining their tax exempt status
and as a result lose their right to claim tax exemp'on. This page has helpful 'ps to
be aware of with regard to important compliance informa'on.
Helpful informa'on for new NPOs needing assistance with following IRS guidelines
to qualify and maintain their new tax exemp'on requirements
Chock full of informa'on, including a glossary of terms in learning more about NPO
tax exempt rules.

Financial Management Self-Assessment Tool may be helpful for NPOs
looking to strengthen internal controls. Smaller grassroots
organiza'ons or state associa'ons will not need to cover every area
listed in this document.
If your organiza'on les a yearly IRS 990 form, this document will help
explain some of the important details that board members and
related par'es should be aware of. Too omen board members are
unaware of what kind of informa'on is contained within the 990
form. Small organiza'ons with less funds are not required to complete
the full 990. There are several versions for these organiza'ons to


Thank you for the opportunity to share this

presenta'on with you! We hope this
informa'on will be helpful for your NPOs!
Please ll out presenta'on evalua'on forms
before you leave this room. Your feedback is
important to us and NLTC.
Feel free to contact either Steve Lovi at or Philippe MontaleGe at if you have any
Enjoy the rest of NLTC!