NONPROFIT & 501(c)(3) COMPLIANCE

Nonprofit organizations operate under unique tax and regulatory requirements. These topics address
compliance, governance, and financial management for tax-exempt entities.

TOPIC 170
Forming a 501(c)(3): The Application Process
Obtaining 501(c)(3) status opens the door to tax-deductible donations, grants, and public trust, but the application
process requires careful preparation and legal precision. This topic guides founders through every step of forming
a compliant tax-exempt organization.

Qualifying purposes for 501(c)(3) status
Incorporating as a nonprofit at the state level
Drafting articles of incorporation and bylaws
IRS Form 1023 vs. Form 1023-EZ
Organizing documents and narrative description of activities
Financial projections required in the application
Timeline and IRS determination letter
State charitable registration requirements

TOPIC 171
IRS Form 990: Filing Requirements and Best Practices
The IRS Form 990 is the primary public accountability document for tax-exempt organizations, and its contents can
shape donor perceptions and regulatory scrutiny. This topic covers filing requirements, key disclosures, and how to
use the 990 strategically to build trust.

Who must file: Form 990, 990-EZ, 990-N, and 990-PF
Gross receipts thresholds for each form type
Key schedules and disclosure requirements
Executive compensation reporting (Schedule J)
Public disclosure and transparency obligations
Deadline, extensions, and automatic revocation of exemption
Common 990 errors and how to avoid them
Using the 990 as a fundraising and governance tool

TOPIC 172
Unrelated Business Income Tax (UBIT) for Nonprofits
Even tax-exempt organizations can owe federal income tax on income from activities unrelated to their exempt
purpose. This topic explains the UBIT rules, common pitfalls, and strategies for managing and minimizing unrelated
business income tax.

What constitutes unrelated business income
The three-part test: trade or business, regularly carried on, not substantially related
Common UBIT examples (advertising, parking, certain rentals)
UBIT exceptions and exclusions (dividends, royalties, passive income)
IRS Form 990-T filing requirements
UBIT planning strategies to minimize tax exposure
UBIT risks specific to churches and religious organizations
Impact of UBIT on 501(c)(3) status

TOPIC 173
Donor Compliance and Charitable Contribution Rules
Nonprofits have legal obligations to donors around acknowledgment, substantiation, and accurate valuation of
contributions. This topic ensures nonprofit leaders and their CPAs understand the rules governing charitable giving
from both the donor’s and the organization’s perspective.

Written acknowledgment requirements for donations
Quid pro quo contribution rules and good faith estimates
Noncash donation substantiation (Form 8283)
Vehicle donation compliance requirements
Donor-advised funds and how they interact with nonprofits
Pledges vs. completed gifts
Restricted vs. unrestricted gift management
IRS penalties for nonprofits that fail to provide proper receipts

TOPIC 174
Nonprofit Governance: Structures and Best Practices
Strong governance is the foundation of a trustworthy and sustainable nonprofit organization, protecting it from
fraud, legal liability, and loss of public confidence. This topic covers governance structures, essential policies, and
board best practices for organizations of all sizes.

Role and responsibilities of the board of directors
Governance policies: conflict of interest, whistleblower, document retention
Executive director vs. board authority boundaries
Executive compensation and the rebuttable presumption procedure
Board committee structures (finance, audit, nominating)
Annual governance calendar and meeting requirements
Transparency and accountability to stakeholders
Governance red flags that attract IRS scrutiny

TOPIC 175
Board Fiduciary Duty in Nonprofits
Nonprofit board members bear significant legal and ethical responsibilities to act in the best interest of the
organization and the public it serves. This topic explores the three dimensions of fiduciary duty and how board
members can fulfill them while managing personal risk.

Three pillars of fiduciary duty: care, loyalty, and obedience
Duty of care: informed decision-making and oversight
Duty of loyalty: managing conflicts of interest
Duty of obedience: adherence to mission and legal requirements
Personal liability exposure for board members
Directors and officers (D&O) insurance
Indemnification provisions in bylaws
Training board members on their fiduciary responsibilities

TOPIC 176
Nonprofit Financial Statements and Reporting
Nonprofit financial statements follow distinct formats and standards that differ meaningfully from for-profit
accounting, reflecting the organization’s accountability to its mission and donors. This topic equips nonprofit
leaders and CPAs to prepare, read, and analyze these critical financial documents.

Statement of financial position (balance sheet equivalent)
Statement of activities (income statement equivalent)
Statement of functional expenses
Statement of cash flows
Net asset classifications: without donor restriction vs. with donor restriction
FASB ASC 958 accounting standards for nonprofits
Financial ratio analysis for nonprofits
Presenting financials to the board and public

TOPIC 177
Grant Management: Compliance and Reporting
Grants can transform a nonprofit’s capacity, but they come with strict compliance and reporting requirements that
must be rigorously managed. This topic covers grant accounting, federal uniform guidance, and the systems
needed to receive and manage grant funds responsibly.

Types of grants: government, foundation, corporate
Grant agreement review and compliance requirements
Restricted fund accounting and tracking
Federal grant compliance (2 CFR 200 Uniform Guidance)
Program reporting and financial reporting to grantors
Grant closeout procedures
Indirect cost rates and allocation
Building a grant management system

TOPIC 178
Fundraising Regulations and Compliance
Fundraising is heavily regulated at both the state and federal level, and nonprofits that solicit donations across state
lines face a complex web of registration and disclosure requirements. This topic provides a practical compliance
framework for nonprofit fundraising operations.

State charitable solicitation registration requirements
Unified Registration Statement (URS) overview
Online fundraising across state lines
Professional fundraiser and solicitor registration
Raffle, gaming, and event fundraising regulations
Cause marketing and commercial co-venture rules
Crowdfunding compliance for nonprofits
Deceptive fundraising practices and enforcement

TOPIC 179
Nonprofit Audits: Financial and Compliance
Many nonprofits are required by law, grantors, or best practice to undergo independent financial audits that verify
their financial integrity and compliance. This topic prepares nonprofit leaders and finance staff to navigate the audit
process effectively and use its findings constructively.

When is an audit required (single audit threshold, state law, grantors)
Independent audit vs. review vs. compilation
The single audit: A-133/Uniform Guidance requirements
Auditor selection and engagement process
Preparing for an audit: documentation and internal controls
Audit findings, management letters, and corrective action plans
Board audit committee responsibilities
Using audit results to strengthen the organization

TOPIC 180
Nonprofit Dissolution: Winding Down a Tax-Exempt Organization
Dissolving a nonprofit organization is a complex legal and financial process that requires careful attention to IRS
rules, state law, and donor restrictions on assets. This topic guides nonprofit leaders through the proper steps to
wind down an organization with integrity and legal compliance.

Reasons and triggers for nonprofit dissolution
Board vote and legal requirements for dissolution
Asset distribution upon dissolution (cy pres doctrine)
IRS Form 990 final return filing
State dissolution filings and charitable registration cancellation
Notifying creditors, grantors, and donors
Employee and payroll wind-down obligations
Documenting and archiving organizational records

TOPIC 181
Fiscal Sponsorship: Structure and Compliance
Fiscal sponsorship allows emerging projects and initiatives to receive tax-deductible donations and grants under
the umbrella of an established nonprofit. This topic explains the legal structures, accounting requirements, and
practical considerations for both sponsors and sponsored projects.