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At a minimum, leaders should be aware of, and promote the use of, the following best practices for any nonprofit organization.

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Don’t Be Responsible!: Friends Don’t Let Volunteers Talk to the IRS

RENOSI, Inc.

Mar 01, 2021

We’ve all been asked to be extra responsible lately. We wear face masks to protect ourselves and others from COVID. We conserve energy. We watch our use of plastics. We turn our headlights on in the rain. But there are some things for which ordinary people should not be responsible, for example, talking to the Internal Revenue Service (IRS).

Volunteers shape our world.

According to Nonprofit Source, approximately 63 million Americans, or 25% of the adult population, volunteer. Few volunteered, I’m guessing, to fill out IRS tax forms or state charity registration documents. People join Kiwanis International to help children. Optimist International to bring out the best in our communities. Rotary to build a network of neighbors to take action on some of society’s issues. My guess is that few of these volunteers are begging to talk to the IRS.

“It is difficult,” said Jim Boyd, Director of Strategic Growth for Optimist International, “They [members] don’t join to do paperwork. We send constant reminders, email-wise, social media-wise.” Optimist International has 2200 chapters worldwide in 28 countries. All Optimist chapters use an optimistic mindset and positive vision to bring out the best in youth, their communities, and themselves. We all can use more of that optimistic vision these days.

Because each local Optimist chapter is formed as an independent nonprofit organization under section 501(c)(4) of the Internal Revenue Code, each chapter has the extra requirement of filing IRS Form 8976 within 60 days of formation. The IRS invokes a $20/day penalty for each day Form 8976 is late.

Jim’s advice to chapter leaders is to “take a Sunday when it's raining and spend the afternoon reading about the requirements for small nonprofits to stay within the confines of the law.”

What if it doesn't rain on Sunday?

The problem is, regulation of nonprofit organizations by the IRS and state governments is increasing. As regulation increases, it will take more than one rainy Sunday afternoon to get the job done. The IRS now requires all nonprofit organizations to file a Form 990 tax return each year. Failure to file form 990 and the organization faces the loss of the group’s tax-exempt status. Unincorporated organizations without tax-exempt status are expected to file a federal corporate tax return, Form 1120. Currently, 37 states and the District of Columbia require charity registration if your organization raises money in the state. Planning a raffle? Make sure you file a gaming registration first. Then there’s sales tax and sales tax exemption, property tax, franchise tax, and more.

According to the federal “Paperwork Reduction Act Notice” it takes approximately 32.8 hours per year to complete and file the required IRS paperwork for a nonprofit tax-exempt organization. Consider the additional burden to complete and file state-required forms and the time the paperwork takes really adds up. If you miss a form or deadline the burden increases exponentially.

What if we mess up?

National organizations with volunteer-led chapters around the country have the daunting task of trying to help local volunteers keep up with IRS and state paperwork. Typically, 25% or more of volunteer-led chapters lose their federal tax-exempt status each year.

Some people manage to maintain their own cars, changing the oil and spark plugs when needed. Most of us, however, let the closet quick-lube shop handle the maintenance. Our only struggle? Deciding whether we should use regular or full synthetic oil. Many volunteers would love to have a quick-lube shop to maintain the federal and state tax-exempt status of their nonprofit organizations rather than crawling under the hood of the IRS rules and doing it themselves.

So where is the quick-paperwork shop?

RENOSI (Registration for Nonprofits Simplified) believes providing help to maintain nonprofit tax exemptions is long overdue. “The cost of the churn in the nonprofit sector when groups get tax-exempt status, lose tax-exempt status, and have to start all over, is just too great,” states Sandra Englund, CEO of RENOSI and attorney to nonprofit organizations. “I don’t want to start a new nonprofit organization and then watch it fall apart in three years.” Sandy’s vision led RENOSI to create a nonprofit maintenance plan to handle the filing of federal and state-required documents each year. “Our online dashboard shows nonprofits at-a-glance the filing requirements in their state, when their organization’s documents were last filed and are next due, and keeps filed documents in online storage for easy access.”

“Just think of RENOSI as the quick-lube shop for nonprofits,” Ms. Englund chuckled.

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