At the Forrest Firm, we often work with faith-based organizations, certified B Corporations, and mission-driven businesses. The largest segment of these types of businesses are those in the nonprofit and tax-exempt sector, which require multiple layers of state and federal compliance. As a result, nonprofit and tax-exempt organizations often receive much higher levels of scrutiny, both from regulatory agencies and their stakeholders, to ensure they are operating with an eye to both compliance and transparency, in addition to mission
In our recent blog post, “A Quick Guide to Starting Your Nonprofit in North Carolina,” we outlined a number of actions you need to take in order to establish and begin operating a tax-exempt 501(c)(3) organization in North Carolina. These steps included incorporating, obtaining a tax identification number, preparing governance documents, applying for and obtaining tax-exempt status, and registering for a solicitation license.
In this quick guide, we are going to move to the next step: focusing on the annual requirements necessary for maintaining a tax-exempt organization in compliance with relevant federal and state regulations.
Note: As with our previous article, we are focusing exclusively on organizations exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code, which include public charities and private foundations.
Maintaining a Compliant 501(c)(3) Organization in North Carolina
File IRS Form 990: The IRS Form 990 is the required annual information returns most tax-exempt organizations need to file; if the organization is small enough it might file a Form 990-N or a Form 990-EX, and private foundations need to file a Form 990-PF. Whichever one of the Form 990 series returns the organization needs to file, the organization must file it within four months and 15 days after the end of the organization’s fiscal year (for example, on or before May 15 if the organization’s tax year ends on December 31). Keep in mind that failure to file for three consecutive years will result in the automatic revocation of the organization’s tax exemption.
The IRS also requires that the organization make its three most recent Forms 990 available to the public – and a variety of third-party service providers (such as GuideStar and Charity Navigator will automatically obtain those Forms 990 from the IRS and post them on their websites. As a result, it is imperative that the organization file a complete and correct Form 990 – not only will the IRS review it, but board members and potential board members, donors and potential donors, and other key stakeholders can and will vet your organization based on the timely filing, integrity, and substance of your Form 990.
Renew the NC Charitable Solicitation License: Every year tax-exempt organizations must renew their North Carolina charitable solicitation license in order to fundraise in North Carolina. Tax-exempt organizations must renew their charitable solicitation license by the same deadline as the deadline for filing the IRS Form 990. However, while the IRS will grant tax-exempt organizations a six-month extension to file a Form 990, NC will only grant an automatic 60-day extension for renewing the charitable solicitation license. Renewing the charitable solicitation license requires a fee (ranging from $0-202, based on the amount of donations the tax-exempt organization received) and submission of either a Form 990 or a financial audit.
File North Carolina Sales Tax Returns: In North Carolina, tax-exempt organizations cannot file for an exemption from sales and use taxes. Instead, certain qualified purchases qualify for a sales and use tax refund, which North Carolina issues on a semi-annual basis. If these types of purchases are applicable to your tax-exempt organization, then the organization will need to file Form E-585 by April 15 and/or October 15.
Update Registered Agent Documentation: Traditional for-profit companies must file annual reports with the North Carolina Secretary of State[ 4] . Nonprofit organizations have no annual reporting requirement. They must, however, have a registered agent located in North Carolina, and if they renew or change this service with their attorney, accountant, or other person or firm, they must update the North Carolina Secretary of State with a filing identifying the new entity or person and their contact information.
At the Forrest Firm, we enjoy working with both nonprofit management teams and boards of directors to help them accomplish their organizations’ impactful missions. In our respective practices, we work with nonprofit leaders to take proactive compliance action at the state and federal levels, so that the organizations and their staff, boards, and volunteers can focus their energy on doing good for their communities. We also help those organizations that must react to notices of noncompliance, whether from the IRS, the North Carolina Department of Revenue, or otherwise, making sure that their interests are protected while they maintain or resume their good standing with the appropriate agencies.
Please contact us today to start a conversation about the needs of your North Carolina nonprofit or tax-exempt organization.