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 an international fundraising consultant, facilitator, and executive coach based in the US and Israel, and the founder of Synergies in Philanthropy Consulting.

Synergies in Philanthropy Consulting provides strategic and customized solutions to help nonprofits grow their fundraising capacity, deepen donor engagement, and drive sustainable revenue. With a global perspective and deep understanding of the local landscape, Synergies empowers organizations in Israel, the US, and Europe to excel with clarity, creativity, and confidence.