What Our Presidential Candidates Can Teach Us About Tax-Exempt Legal Compliance

What do Donald Trump and Hillary Clinton share in common?  Among so many things political and otherwise (go ahead, use your imagination), they both head up charitable foundations, which have recently received media scrutiny for apparently operating outside legal boundaries.  What are the problems?  More importantly for us regular folks, what can prudent and responsible nonprofit leaders learn from these examples?  We will focus here on several areas related to:

  1. State charitable regulation requirements,
  2. Tax exemption principles against private benefit for nonprofit insiders, and
  3. IRS requirements for staying on course with an organization’s tax-exempt purpose.

Donor Privacy and First Amendment Rights Assailed: Citizens United’s Uphill New York Battle and Pending H.R.5053

Donor privacy and related First Amendment rights are at stake as state charities’ regulators press for disclosure of IRS Form 990 Schedule B donor information from organizations that fundraise in their states.  A recent New York case shows that the fight over whether states may require donor disclosure is very much alive.  In addition, Congress is considering elimination of Schedule B itself. 

Background -  Schedule B, the IRS, and State Charity Regulators 

Charitable organizations must comply with both federal and state reporting requirements.  The key federal filing is IRS Form 990.  Schedule B of Form 990 requires a list of names, addresses, and amounts given for major donors.  This mandatory reporting has long been a mainstay within the IRS context, as a measure for nonprofit accountability and particularly to guard against improper donor control.  While Form 990s are subject to public disclosure, the IRS is legally obligated to keep Schedule B donor information confidential, under the penalty of civil and criminal sanctions for improper disclosure.  Nonprofits thus may legally redact Schedule B donor information on their publicly available Form 990s. 

Nonprofit Financial Reporting: Changes Ahead with FASB ASU 2016-14

Numbers tell a story.  Effective nonprofit leaders understand this concept and produce accurate and up-to-date financial statements for internal board purposes, disclosures to current and prospective donors, and government reporting.  The Financial Accounting Standards Board’s (“FASB”) newly issued standards will affect many nonprofits’ financial statements, particularly regarding asset classification and required financial disclosures.

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