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Who Regulates US Nonprofits?

A cheat sheet to navigate the regulation maze

#Nonprofit organizations in the United States are regulated by federal as well as state agencies. The dual roles can create a maze for volunteers and professionals.

Here is an overview of what happens for #nonprofit organizations - organizations starting out and #nonprofits already in business - on the state and federal level.

US States

  • Nonprofit formation: Creation of a “nonprofit corporation”; a legal entity

  • Who: Charities Bureau or other State Department

  • Go-to for: Business Registration; Nonprofit Laws, Fundraising Regulations, Annual Filings

  • Regulatory role: Charged with the governance of the nonprofit corporation’s internal affairs. The state also maintains a list of registered nonprofits and investigates complaints of fraud and abuse. Often the state attorney general serves as the primary investigator in cases of nonprofit fraud or abuse.

  • Annual filing: Nonprofit corporations file annual reports with the State.

  • Recommended resources: State Department and State Charity Bureau’s websites

Federal Government and the Internal Revenue Service (IRS)

  • Nonprofit formation: Creating a “tax-exempt” entity

  • Who: Internal Revenue Service (IRS), the exempt organization division

  • Go-to for: Tax-Exemption and ability to accept charitable, tax-deductible non-cash and cash gifts; Regulations; Annual Filings

  • Regulatory role: Charged with ensuring that nonprofits are complying with the requirements for eligibility for tax-exempt status. IRS auditors investigate the financial affairs of thousands of 501(c)(3) organizations. Every year, the IRS revokes the tax-exempt status from a number of organizations that are non-compliant and requires other nonprofits to pay fines and taxes. Furthermore, the IRS can penalize individuals who abuse positions of influence within public charities and social welfare organizations.

  • Annual filing: Internal Revenue Service (IRS) Form 990.

  • Recommended resource: “Stay Exempt. Tax Basics for Exempt Organizations” website by the IRS.

Tanja Sarett, MA, CFRE, CVF, is a global fundraising consultant, facilitator, and executive coach based in New York / New Jersey. She activates team-centered innovation and creative and synergistic solutions for visionary organizations and philanthropies. Tanja is an onsite and virtual facilitator, trainer and executive coach, an AFP Master Trainer and a 21/64 Multigenerational Giving Advisor. She brings to her work a wide range of collaborative and creative techniques from IDEO Design Thinking, Liberating Structures, the Technology of Participation, and the Agile community.

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