Financial reporting for nonprofits involves adhering to a variety of legal requirements. These requirements vary depending on factors such as the organization’s size, revenue, and specific state regulations. Not fulfilling them puts an organization’s legal status, transparency, and stakeholders’ trust at risk. This article outlines the federal, state, and other reporting obligations that nonprofit organizations in the US must navigate to ensure compliance and effective financial management. However, in most countries, nonprofit organization has to follow similar types of compliance. So it would be helpful for all nonprofit organizations.
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Legal Requirements of Financial Reporting for Nonprofits
Find the compliance of financial reporting for nonprofits to stay out of trouble and manage their money well.
Federal Requirements
- Tax-exempt nonprofits must file an annual information return (Form 990, 990-EZ, or 990-N) with the IRS to maintain their tax-exempt status
- The Form 990 is a public document that must be made available upon request
- Nonprofits with over $50,000 in annual receipts must file the full Form 990, while smaller organizations can file the 990-N “postcard”
State Requirements
- Most states require nonprofits to file annual or biennial reports with their business regulatory agency (e.g. Secretary of State)
- These reports verify or update details such as the organization’s address, registered agent, and directors. Some states impose a fee for these filings. Reporting requirements differ depending on the state, total revenue, and fundraising activities.
- If a nonprofit obtained a fundraising permit, it may need to file additional reports with the licensing agency
Other Reporting Obligations
- Grantor Requirements: Grantors may have specific reporting requirements, including financial reports and performance metrics.
- Donor Transparency: While not always legally mandated, many nonprofits voluntarily disclose financial information to donors to build trust and accountability.
Public Disclosure
- Nonprofits must make their three most recently filed Form 990s and their tax-exemption application available to the public upon request
- Many nonprofits proactively post these documents on their website to demonstrate transparency
Bottom Line
Failing to meet these reporting requirements can result in penalties, fines, loss of tax-exempt status, or even dissolution of the nonprofit. These reports show how the nonprofit uses its money. It’s important to be clear about finances to keep donors and the public trusting the organization. But it is a complex process and regulations change from time to time. So it is wise to hire an accounting professional to ensure accurate and timely reporting of the key financial reporting components.