Academic journal article Journal of Accountancy

CPAs Volunteering at Nonprofits

Academic journal article Journal of Accountancy

CPAs Volunteering at Nonprofits

Article excerpt

Because of their business and financial acumen, CPAs are often asked to serve as board members or officers of nonprofit organizations. While this can be a satisfying experience, they should be aware of the numerous requirements applicable to nonprofits. Failure to adhere to these rules can subject officers and board members to penalties, and may even jeopardize an organization's tax exemption.

TAX-EXEMPT STATUS

Numerous nonprofits qualify for an exemption from federal income taxes; many are also eligible to receive deductible contributions. This status is crucial. If lost, the nonprofit's income would be subject to federal income tax, donors would be unable to deduct contributions (making fundraising difficult, if not impossible) and state and local tax exemptions (especially for property tax) would be unavailable.

A CPA looking to work with a nonprofit should take special care to assess the organization's records (articles of incorporation, bylaws, etc.) and operations, to ensure that the entity has properly established its exempt status and continues to maintain it.

ESTABLISHING EXEMPT STATUS

A nonprofit's articles of organization must limit its activities to tax-exempt purposes. It cannot be empowered to carry out any substantial nonexempt activities.

The CPA should check the entity's exempt status paperwork. Application for exemption is generally made by filing IRS form 1023; some small nonprofits (and churches) need not file this form.

The practitioner should also review the IRS determination letter the organization received. Often, the service will grant public charity status under an advance ruling, in which the organization will be deemed a public charity for five years; at the end of this period, it will need to show that it has truly been publicly supported. …

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