At the Tax Section Exempt Organizations Committee Meeting of the American Bar Association, held on January 24, 2014, a Small Nonprofit Consultation Checklist was presented. Note: This checklist is designed for small public charities organized as nonprofit corporations. Charitable trusts, private foundations and supporting organizations should not rely on this checklist.
Governing Documents
Articles of Incorporation
• Were the articles of incorporation and all amendments filed with the proper state agency? Is the purpose clause consistent with the organization’s current (and planned) activities, mission, and tax status?
• Is the dissolution clause appropriate?
• If the articles state the organization has members, is it clear whether they have voting rights?
• Are there any outdated provisions? (e.g., is the life of the corporation limited?)
Bylaws
• Do the bylaws accurately describe the organization’s current structure and operations?
• If the bylaws have a separate purpose clause, is it consistent with the purpose clause in the articles of incorporation?
• Does the organization operate with the minimum required number of directors?
• Does the organization have all of the officers required by its bylaws?
• Does the organization maintain a list of the names, addresses and terms of office of all officers and directors?
• Does the organization provide appropriate notice of board and committee meetings or obtain waivers?
• Do the bylaws provide for a voting membership? If so, is the organization properly tracking who is entitled to vote? Is the organization noticing and holding member meetings?
• Are the bylaws consistent with current state law?
• Are there any unusual or outdated provisions? (e.g., are Roberts Rules incorporated by reference?)
Policies and Procedures
• Does the organization have a conflict of interest policy? Does the policy cover officers, directors, key employees, highly compensated employees, and those with substantial influence? Does it require disclosure of conflicts, recusal by interested persons, and decision by disinterested decision makers? Is it followed?
• Does the organization have any contracts, agreements or other transactions with organization founders, officers, directors, key employees, substantial donors, their businesses or family members and/or anyone else in a position to influence the organization? If so, are the transactions with the organization: approved by the disinterested members of the board or an independent committee; based on appropriate comparability data; and concurrently documented in writing by the board or committee?
• Does the board of directors annually review the performance of the organization’s chief executive?
• Does the organization have a whistleblower policy? Is it followed?
• Does the organization have a document retention and destruction policy? Is it followed?
• Does the organization have a gift acceptance policy? Is it followed?
• Does the organization have a travel and expense reimbursement policy? Is it followed?
• What other types of policies and procedures does the organization have in place?
• Are the individuals to whom the organization’s policies and procedures are applicable informed about such policies and procedures and have easy access to them?
• Is there a board orientation process?
• Are board members trained regarding their fiduciary duties, oversight responsibilities, and the key laws that govern charities?
Board Meetings and Minutes
• Does the organization maintain a minute book?
• If so, do the minutes properly record attendance, key actions, votes and abstentions? If not, how are board actions memorialized?
• Is a schedule of board (or member) meetings mandated and if so, are meetings noticed and held in accordance with the bylaws?
• Is selection of directors and election of officers reflected in the minutes (and conducted as set-forth in the bylaws)?
• Do the minutes reflect any conflict of interest transactions, and if so, are they properly managed?
State Compliance
Annual Reports and Filings with the State
• Is the organization in good standing with its state of domicile?
• Is the organization “doing business” in other states? If so, should it register to do business as a foreign corporation? Should it obtain recognition of state tax-exemption in these other states?
• If the state requires articles of incorporation to be published, have the articles and all amendments been published?
• Are annual reports up to date?
• Is the organization required to file periodically with the Secretary of State and/or Attorney General (e.g., annual registration in state of domicile, registration as foreign organization in other states, annual reports as charitably-soliciting organization)? If so, are all such filings up to date?
Statutory Agent
• Is the statutory agent listed with the state still at the address on file?
• If the statutory agent is a private individual, can the organization still rely on that person to accept service of process and mail for the organization?
Tax Issues
Tax-Exemption Issues
• Does the organization understand its determination letter and its public charity status? Are the same confirmed by IRS website’s “select check function” (polling what had been Publication 78)?
• If the determination letter is an advance ruling and the advance ruling date expired before June 9, 2008, has the organization filed Form 8734 with the IRS?
• Is there a state exemption letter (if required)?
• Does the organization understand and comply with the prohibition against participating in political campaigns for or against candidates for public office?
• Does the organization understand and comply with the requirement that all lobbying activities must be an insubstantial part of the organization’s overall activities? Has the organization considered filing Form 5768 to make the 501(h) election, which provides for relatively generous lobbying expenditure limits without violating the prohibition against substantial lobbying?
• If the organization receives revenues from regularly conducted business activities that are not related to its exempt purpose, does it correctly account, report and pay taxes on those funds; if not, has it qualified those activities as excepted from the unrelated business income tax?
• Has the organization made any significant changes to its mission, programs, or primary sources of support that have not been reported to the IRS via Form 990/990-EZ?
• Have changes to the governing documents been reported to the IRS via Form 990/990- EZ?
Tax Returns
• If the organization is required to file some form of Form 990, is the organization timely filing annual notice, Form 990-N (or filing the Form 990-EZ or Form 990 annually)? If not, check IRS website’s “select check function” access of Publication 78 to determine whether the organization is still recognized as a tax-exempt entity.
• Is the organization properly reporting its public charity status (i.e., the basis by which it self-asserts current qualification, which need not be that “ruled upon” via exemption determination letter or later requalification)?
• Is the organization passing the public support test (if applicable)?
• Does the organization make its completed Application for Recognition of Tax-Exemption Form 1023 available for public inspection (if filed after July 1987)?
• Does the organization make each filed Form 990, 990 EZ, 990-N and 990-T available for public inspection for the required three year period of time?
• Is the organization properly reporting its lobbying, if any?
• If the organization pays directors or officers, is compensation properly reported, and did the independent members of the board properly approve it?
• Does the organization timely file any state tax and/or information return required under applicable state law?
Fundraising
• Does the organization fulfill its state registration requirements?
• If the organization solicits donations in other states, is it complying with registration requirements in those states?
• Does the organization appropriately acknowledge gifts of $250 or more in writing?
• If the organization provides goods or services of more than a nominal value to a donor who makes a contribution in excess of $75, does it provide a good faith estimate of the fair market value such goods or services?
• If the organization receives non-cash gifts, does it appropriately follow the IRS requirements for substantiation of such gifts?
• If the organization participates in charitable sales promotions, is it and its partners complying with commercial co-venture laws in the states where the sales promotion is offered?
• If the organization participates in raffles are the raffles compliant with state law?
Employees, Independent Contractors, and Volunteers
• If the organization has workers, does it appropriately distinguish among employees, independent contractors, interns and volunteers?
• Does the organization distinguish between exempt and non-exempt employees? (e.g., those employees that are exempt from federal and state wage and hour laws)
• Does the organization verify all employees are eligible to work in the United States by requiring all employees to complete a Form I-9?
• If the organization has employees, has it considered adopting an employee handbook describing employee hours, dress code, benefits, paid holidays, vacation policies, grievance procedures, review procedures, and other employment practices? If so, does the organization follow it?
• Does the organization timely withhold and remit payroll taxes for its employees?
• Does the organization provide a From W-2 for employees and a Form 1099 for any independent contractors paid more than $600 in a calendar year?
• Does the organization comply with state workers compensation and unemployment laws?
• If the organization has volunteers, does the organization have a volunteer handbook with policies and procedures?
• If the organization works with vulnerable populations, does it perform background checks on employees, independent contractors, and/or volunteers?
Intellectual Property
• Has the organization taken reasonable steps to ensure that none of its intellectual property (including names, logos, web content, other written materials, and videos) infringes on the rights of another party?
• Has the organization registered or otherwise obtained protection for any of its unique logos, or written materials or been appropriately advised that such protection is not necessary?
• Does the organization allow third parties to use its logos, trademarks, and copyrighted materials? If so, has it considered entering into license agreements with third parties to use such materials?
• Does the organization record video or take photos at its events? Does it obtain photo releases from subjects appearing in film or digital media?
• Does the organization use the logos, trademarks and/or copyrighted materials of others? If so, does it obtain licenses or permission to use such materials?
Insurance and Risk Management
• Does the organization have directors and officers insurance?
• Does the organization have general liability insurance?
• Does the organization have other necessary insurance?
• Does the organization require program participants to sign appropriate waivers and releases?
• Has the organization developed and implemented, or considered developing and implementing, appropriate risk management policies to protect the organization, its directors and officers, employees, volunteers, agents, program participants, beneficiaries and visitors?