What Are The Biggest Charity Compliance Issues?
Running a charity in the U.S. means dealing with a wide range of nonprofit compliance regulations. It wouldn't be easy to produce an exhaustive list of everything an attorney would tell you to watch out for. However, here are three of the biggest charity compliance issues.
Contributions of Goods, Services, Money, or Assets
The government is very interested in the documentation of the contributions that flow into charities. If someone donates a set of golf clubs to be auctioned at a fundraiser, for example, the government wants the charity to document the fair market value of those clubs. That means you'll need to determine what the donation would be worth on the open market. If the clubs are new, then the fair market value is whatever you could buy them for.
Ideally, a donor would provide a receipt from a third party, such as a store, in this scenario. The charity would then send a letter of acknowledgment along with a disclosure statement. However, it's common for donors to contribute items that are used or have variable values. In that scenario, you'd seek an estimate or valuation.
Also, donors frequently contribute services or goods in kind. If a pizza place donated food, the baseline cost would be what it cost the restaurant to make the food and not what they could sell it for.
Solicitation Laws
Many states, cities, and counties have laws limiting the solicitation of donations. Usually, you have to fully register the charity with the state. This includes creating a charter, establishing bylaws, and obtaining a determination letter from the IRS recognizing the charity's legal status. Until you have all of that lined up, there's a good chance you can't solicit donations in most states. Failure to register to solicit usually leads to fines in the tens of thousands of dollars.
Financial Reporting
As with any incorporated or chartered entity, the law requires annual reports of the organization's financial circumstances. Much of this is straightforward business-style bookkeeping. You need to keep accurate records of inflows and outflows. Likewise, you'll want to track deductions.
The big difference in terms of nonprofit compliance is taxes. Generally, charities have favored status for taxes, and they're often exempt from paying particular ones. You should speak with an attorney about the taxes that apply to your charity. Also, once more, the IRS must recognize your charity's status before you can use it to claim preference on taxes.
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