Legal Audits pt. 2

We are back! In the last blog, we discussed legal audits of nonprofits and tax-exempt organizations, and the key areas regarding a standard legal audit. If you’re joining for the first time, feel free to catch up with the previous blog: Legal Audits pt. 1. For everyone else, let’s continue.

State Taxation Issues
You should regularly review any property tax or sales tax exemptions to determine whether your organization still qualifies. Another good idea is to consider which qualifying exemptions your organization hasn’t applied for yet.

State Charitable Solicitation Requirements
Your organization’s legal audit won’t be complete without a review of your compliance with various regulations that govern fundraising. This calls for a look into the jurisdictions where your organization is actively fundraising. When the areas in which you’re soliciting are known, the next task is to examine the status of your organization’s registration in each area.

Gift Administration Issues
Many organizations don’t efficiently monitor their restrictions with gifts; however, a legal audit normally reviews gift acceptance policies and substantiation along with acknowledgement forms. It would best for you to look over your gift instruments to make sure that funds are rightfully classified in regard to time, restrictions, and terms.

Insurance Policies
Of course, you should regularly go over your organization’s insurance policies. These include

• General Liability 
• Officers and Director’s Liability
• Errors and Omissions, etc.

Make sure that your organization’s activities are properly covered.

Volunteer and Participant Waivers
You should have waivers and participation agreements that release your organization from liabilities or risks with volunteers and participants. The audit will see if your agreements exists, if they’re adequate, and if procedures are in place to guarantee that your waivers are used.

Contractual Obligations
If you have significant contracts, they need to be reviewed to ensure that notice and termination dates are honored, and that there is compliance with restrictive covenants.

Depending on the activities and size of your organization, a legal audit may also look into your personnel policies, intellectual property issues, real estate issues, etc. Similar to a financial audit, a legal audit can be customized to cover an area of particular concern. You should be aware that audits can either be done all at once or over time in phases. Keep in mind that a periodic overview of the legal matters is critical to the integrity of your nonprofit or tax-exempt organization.

One of the ways to make sure that your organization is in compliance is to always file the required tax returns, and you can do so with Express990 - easy, quickly, and accurately. We offer support for any of the 990 forms for tax-exempt organizations and you can e-file your Form 990-N (e-Postcard) FREE for the current tax year.

For any questions or assistance with our service to e-file, feel free to contact our live, expert help at our headquarters in Rock Hill, South Carolina.

Phone: (704) 839-2321 (Monday - Friday, 9am - 6pm, Eastern Standard Time)
Email: support@expresstaxexempt.com
Live Chat: www.expresstaxexempt.com

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Legal Audits pt.1

Legal audits usually serve as an overview of your organization’s non-financial compliance, governance, and risk management issues. Tax-exempt organizations generally consider having a legal audit when new management is in place and they want to start with a clean state, avoiding any costly mistakes. Typically, a standard legal audit will review the following key areas…

Corporate Status
By incorporating a nonprofit or tax-exempt organization, you protect your directors, officers, and members from personal liability. But, to enjoy the benefits of incorporating, your corporation must be in good standing. To review corporate status, you most likely need to provide

• Bylaws
• Corporate filings
• Articles of incorporation

These items are to support that your tax-exempt organization operates in a manner consistent with the law and governance.

Chapters and Affiliates
If your tax-exempt organization has chapters or affiliates, then your bylaws should be explicit about the authority to create chapters. There should also be some form of agreement like a charter or license in place that outlines the term of the relationship.

Governance Policies
Because of the IRS’ encouragement of certain policies, tax-exempt organizations and nonprofits are making their policies and procedures more formal. The Form 990 even references a variety of governance policies and requires your organization to reveal if they’re implemented.

It would be in your best interest to review these governance policies regularly. The audit will consider about four things:

• Which policies exist
• Whether policies are reasonable 
• If additional policies make sense for the organization 
• Whether policies are consistent with existing practice

Tax-Exempt Status
An audit for your tax-exempt organization will undoubtedly review your tax-exempt status. The prime consideration is to see if your organization is properly identified in regard to its tax-exemption and public charity status. The review will also consider if your organization’s activities remain within the scope of its ruling.

You’ll need to provide your

• Previous Form 990’s
• IRS Determination Letter
• Application for Recognition of Exemption

Any changes made to your governing documents or sources of support, programs, or purposes must be reported to the IRS when you file your next Form 990.

Other Federal Tax Matters
The review of your federal information and unrelated business income tax returns is important because forms of that nature, such as the Form 990, are publicly available. Legal analysis of your tax forms focuses on the accuracy of your information shown on your return. That information is considered along with other information from the legal audit and the overall presentation of your return.

We’ll take a short break here as to not to overload you with all this tax goodness. Honestly though, it’s a good bit of dense information to grasp an understanding of; however, this blog helps to clarify a few things. In the next blog, we’ll conclude with the rest of the key areas involved in a legal audit.

Remain in compliance with the IRS and your own tax-exempt organization governance by e-filing your tax-exempt returns with Express990. Our service provides a mini-audit with the built-in error check that reviews your return for errors before you transmit to the IRS.

Expert help is available through step-by-step instructions and with live professionals at our office in Rock Hill, South Carolina. Contact us at (704) 839-2321, Monday through Friday from 9am to 6pm Eastern Standard Time; or, email us anytime, 24/7 at support@expresstaxexempt.com.

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