NONPROFIT LEGAL COMPLIANCE
Corporate Health Checkup
Alena Herranen, Attorney at Law
www.herranenlaw.com
August 26, 2014
When you volunteered to become an officer of your California nonprofit corporation, you may have thought you would be spending your volunteer hours bringing musical education to public schools, raising money for scholarships, or working toward some other laudable charitable goal. This is true. However, what you may not have realized is that you have also accepted a small host of legal responsibilities.
As an officer or director of a California nonprofit corporation, you have a duty to act on behalf of the corporation to ensure that the corporation complies with state and federal laws. You need to conduct a corporate health check-up.
Gather Information from the outgoing officers
The first step in your corporation’s health check-up is to determine its current condition by gathering corporate information. What documents have been filed in the past? What documents should have been filed? Are any government agencies claiming that the corporation is delinquent? Talk to the outgoing officers and request to review the following documents:
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1.articles of incorporation
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2.merger documents (if applicable)
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3.amended articles of incorporation (if applicable)
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4.bylaws
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5.amended bylaws
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6.employer identification number (EIN) letter
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7.minutes and resolutions
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8.IRS exempt status letter
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9.Franchise Tax Board exempt status letter
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10.California Attorney General registration (CT-1)
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11.Secretary of State Statement of Information
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12.California Attorney General annual renewals (RRF-1)
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13.California Attorney General raffle registrations and reports (NRP-1, NRP-2)
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14.Franchise Tax Board Return Form 199 (if applicable)
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15.IRS Form 990
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16.California Board of Equalization Sales Tax Returns
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17.California Board of Equalization Property Tax Exemption status
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18.EDD reports
If your organization has a dedicated office, all of these documents should be stored there for easy access. Unfortunately, in many smaller nonprofit organizations, these documents are stored in file boxes and transferred, or not, as the case may be, from outgoing officers to incoming officers. It would be helpful to keep these documents in digital format at an Internet site where officers can access them easily.
Consult outside resources
Should you find that your corporate documents are unavailable for any reason, you can obtain most of them from the Secretary of State, Attorney General, Guidestar, Recorder/County Clerk, Franchise Tax Board, and IRS.
Secretary of State
The California Secretary of State processes many corporate filings including the articles of incorporation, statements of information, mergers and dissolutions. You should go to the Secretary of State website to check your corporation’s online records, verify the correct corporate name and state number, and print out a “Business Entities Records Order Form” to order missing documents. The California Secretary of State website is www.ss.ca.gov.
Attorney General
The California Attorney General regulates charities and administers a statutory registration program. All charities are required to register and file annual financial disclosure reports with the Registry. In addition, nonprofit organizations that conduct raffles for charitable purposes are required to register and file a financial report for each raffle held. To determine the status of your corporation you will need to visit the California Attorney General website at http://oag.ca.gov/charities.
Guidestar
Guidestar is an organization that gathers and publicizes information about nonprofit organizations on its website at www.guidestar.org. Much of the information is available for free, including the last three years of federal tax returns.
Recorder/County Clerk
The Recorder/County Clerk registers fictitious business names. To determine if your corporation has a fictitious business name, you should go to the County Clerk website in your county. Follow the instructions on your county’s website. In San Diego, you can visit the county recorder at http://arcc.co.san-diego.ca.us/.
Franchise Tax Board
The Franchise Tax Board requires nonprofit corporations to file Form 199N or Form 199 annually. Organizations with gross receipts that are normally equal to or less than $50,000 are required to electronically file FTB 199N, California e-Postcard. For more information, go to www.ftb.ca.gov and search for 199N. Organizations with normal gross receipts in excess of $50,000, must file Form 199. If the organization has been in existence for three or more years, then “normally less than $50,000” means the organization has earned an average of $50,000 or less per year over the last three years.
To obtain tax records from the Franchise Tax Board, you must be an officer of the corporation or have power of attorney. You will need to complete a Request (Form FTB 3516-side 2) and send it to the Franchise Tax Board with payment of $20 per tax year. Visit the Franchise Tax Board website at www.ftb.ca.gov to print out the request form.
Internal Revenue Service
The Internal Revenue Service requires that nonprofit corporations file a tax e-Postcard or a tax return annually regardless of gross receipts. If the organization has less than $50,000 in gross receipts, then it can file the Form 990-N. This form is quick and easy and is filed online. Organizations with gross receipts in excess of $50,000 but less than $200,000 may file the Form 990-EZ. Organizations with gross receipts in excess of $200,000 or with assets in excess of $500,000 must file the Form 990. An organization that fails to file the required e-Postcard (or information return) for three consecutive tax years will automatically lose its tax-exempt status.
To obtain tax records from the Internal Revenue Service, you must be an officer of the corporation or have power of attorney. You will need to complete a Request (Form 4506) and send it to the IRS with payment of $50 per tax year. Visit the IRS at www.irs.gov to download the form.
California Board of Equalization
Nonprofit organizations are required in most cases to have a seller’s permit if they sell products to raise funds. Check with the BOE at http://www.boe.ca.gov/ to see if you have a permit and to determine your filing schedule. You may also wish to explore your property tax exemption status.
EDD
If your corporation has employees, then it has probably filed Form DE1 NP “Registration Form for Nonprofit Employer” with the Employment Development Department (EDD). You can contact the EDD at http://www.edd.ca.gov to check if your corporation’s account is current.
Take Action
After searching all the official records and reviewing records provided to you by your outgoing officers, you will have a good sense of what needs to be done. If your organization is not in compliance, take action to bring your organization into compliance as soon as possible. If your organization is current, create a list of deadlines and be sure that you or someone in your organization will maintain the organization’s good standing.
The information above is not exhaustive, and your organization’s unique situations may warrant further research. Contact your attorney for assistance with the preparation and filing of required forms and documents.
Disclaimer:
THE INFORMATION PROVIDED IN THIS ARTICLE IS NOT A SUBSTITUTE FOR LEGAL ADVICE. READERS SHOULD BE ADVISED THAT IF THEY HAVE QUESTIONS ABOUT THIS OR ANY OTHER AREA OF LAW, THEY SHOULD SEEK THE ADVICE OF COMPETENT COUNSEL SPECIALIZING IN THIS AREA.
For more information:
Thank the IRS for Small Mercies: Filing Small Nonprofit Tax Notices are Quick and Easy (Form 990-N)
Corporate Records Inspection Part 1: California Secretary of State
Corporate Records Inspection Part 2: California Attorney General Registration and Renewal
California Secretary of State
California Attorney General
Guidestar
Franchise Tax Board
Internal Revenue Service
Alena Herranen
Alena Herranen, J.D., LL.M. Taxation, M.B.A.
Copyright 2002-2016 by Alena M. Herranen. All rights reserved. No part may be reproduced, transmitted or transcribed without permission of the author unless otherwise specifically stated.