Community Platform

The Nonprofit FAQ: Federal Laws in the US

Select an FAQ   (50):

'Excess benefit transactions' and 990s
Nonprofits are required to report 'excess benefit transactions' on Form 990. Is that enough, or are there other things an organization might do?
Are 'stipends' wages?
Yes. Reports must be filed on the money people are paid for work and taxes may be due, however small the payments and no matter how they are calculated.
Are churches required to register as 501(c)(3)s?
Generally, no. But some organizations connected to churches do apply for recognition as tax-exempt by the IRS.
Are there any laws about advertising?
There are some laws you should consider when you advertise; check the Free Management Library for pointers: http://www.mapnp.org/library/legal/advrtze/advrtze.htm
Are US Nonprofits Required to Report to the Government?
The short answer is yes. Nearly every nonprofit will need to report annually to the federal government and, usually, to state and maybe local governments as well.
Board Basics
Some first principles about the board of directors and pointers to other information on the subject.
Can 501(c)(3)s get involved in helping (or hindering) candidates for public office?
Basically no. 501(c)(3)s are not permitted to do anything to help or hinder the election of any candidate to public office. This item reproduces the texts of IRS statements on this question and provides links to other IRS materials.
Can a member claim a 'refund' for contributions?
When members leave a program, may they claim a 'refund' for part or all of donations they have previously made?
Can a non-US organization receive tax deductible donations?
Deductions may be taken from US personal income tax only for gifts to US organizations; some gifts to Canada, Mexico and Israel may also qualify.
Can an organization that helps people with a specific disease qualify as a public charity?
The answer is, 'it depends'. Gifts earmarked for specific individuals can't be tax-deductible.
Can employees of a nonprofit also volunteer their time?
This is a very tricky problem, subject to complex rules under the Fair Labor Standards Act and many state laws. Great caution is advised.
Can I sell things for a profit and be tax-exempt?
Selling items does not risk an organization's tax-exempt status if the revenue generated is used to promote the organization's exempt function and the applicable taxes are paid on any unrelated business income.
Can nonprofits use direct fax to fundraise?
For some applications, broadcast fax can be a successful fundraising tool. But federal rules suggest unsolicited faxes may not be the best strategy.
Can the organization operate while completing the 501(c)(3) process?
Extra caution is needed, but many organizations have started work before the formal process was completed
Do board meetings or documents have to be public?
If there are any external rules about this, they will be found in state law or funding requirements.
Does Fundraising on the Internet Require Registration in Every State?
There is no final answer...yet. Several writers' have discussed the question online.
Don't Board lists have to be made public?
Board lists are often included in reports to state and federal agencies. It is unlikely the organization must provide the list separately to an individual.
General resources about nonprofit taxation
See the Free Management Library at http://www.mapnp.org/library/tax/np_tax.htm
How are nonprofit organizations classified?
Many systems of classification (taxonomies) are in use for various purposes. These notes mention several of them.
How does the US Patriot Act affect nonprofits?
A guide by several national organizations answers many questions
How has the federal law governing nonprofit organizations developed?
Bruce Hopkins, an attorney and author who specializes in nonprofit law, provided a summary to the U.S. House Committee on Ways and Means for an April 20, 2005, hearing.
How is Unrelated Business Income Tax (UBIT) Calculated?
UBIT is based on the corporate income tax rates. The IRS and NPOs have struggled with figuring out what is 'related' and what is not.
How must NPOs respond to public requests for 990s?
New laws and regulations greatly expand public access. They took effect June 8, 1999.
How to Choose a Service to Process Donations Online
IdealWare has a thorough discussion on the web.
How to comply with the 'Intermediate Sanctions' regulations
Federal law and IRS regulations impose severe penalties on individuals who profit unduly from nonprofit organizations. This item explains what to do to avoid questions.
Is IRS recognition necessary before we receive donations?
Strictly speaking, no. But many larger donors require evidence of 501(c)(3) status and it offers reassurance to all.
Is the cost of a raffle ticket deductible?
Purchasing a 'chance' to win something does not count as a charitable deduction.
Is the federal tax code available online?
Yes. The US House of Representatives provides a copy and there are more convenient versions available online as well.
Is there some legal requirement to spend a certain percentage of funds
Foundations: yes. Public charities: no.
Must all nonprofits be purely about helping others?
No. That requirement applies to foundations and public charities (501(c)(3)s), but there are many types with other requirements
Setting Up a Fund to Help People Meet the Costs of Fighting a Disease
Gifts to individuals generate no tax deduction. There are other complications. Working with a community foundation can help.
Should we incorporate a 'private' or a 'public' nonprofit?
In general, it is probably better to be a 'public charity' than a 'private foundation.' This note explores the question briefly.
Starting Up an Advocacy Organization
Advice about the requirements when setting up an organization that is focused on advocacy.
What about getting a nonprofit bulk mail permit?
The important thing to remember is that the Postal Service rules and the IRS rules are not the same.
What are employee laws? Any related major issues and topics?
There are a variety of federal laws, executive orders, etc., regarding the selection and treatment of individuals in the workplace.
What is the legal definition of 'volunteer'?
There is no single and universal definition. Much depends on the context and the organizational setting.
What Is the Sarbanes-Oxley Act and Why Should Nonprofits Care?
Enacted in the wake of corporate scandals, 'SOX' sets new standards of accountability and board behavior. Strictly speaking, most apply only to publicly-traded corporations, but there's more to it than that.
What kinds of retirement plans can NPOs have?
In 1995, there were two kinds.
What laws apply to telemarketing?
The Telephone Consumer Protection Act and Telemarketing Sales Rule may both apply here.
What Must Be in an Annual Report?
There is no standard format for the Annual Report but many states and some watchdog organizations have requirements for annual reporting.
What should not be on a volunteer application?
The Americans with Disabilities Act sets standards for recruiting and screening volunteers as well as employees.
What sorts of organizations are exempt from federal income taxes?
The Internal Revenue Code specifies many sorts of exempt organizations besides the familiar 501(c)(3). Donations to most other types, though, cannot be deducted from the donor's income taxes. The IRS website offers a complete list.
What to do if you suspect damaging activities at a nonprofit
How to proceed if there are rumors or other signs of mismanagement, improper payments, insider self-dealing, conflict of interest, etc., involving a nonprofit organization.
Where Can I Find Background on Policy Issues?
The Public Agenda (http://www.publicagenda.org/) and Handsnet (http://www.handsnet.com/) track issues of interest to many nonprofits.
Where can I find detailed information on IRS treatment of nonprofits?
The IRS itself has a detailed website.
Where can I find federal and state laws?
Search engines and libraries for finding federal and state laws
Where can I learn the basics of contract law?
Basic resources about U.S. contract law and the legal system
Who can benefit from a nonprofit's activities?
Nonprofits are restricted to public purposes and may not be used as a source of private gain.
Why screen volunteers at all?
The approach to recruiting volunteers should be as careful as the process used for adding any new staff.
Will a trademark protect my organization's name on the net?
Having a registered trademark is a help, but registering your name for internet use is also a good idea