Staying compliant

Getting your 501(c)(3) letter feels like the finish line. It's really the starting line. From now on, your charity has duties every year to the IRS, to your state and to your donors. None of them is hard on its own. The trouble comes when a busy volunteer board forgets one.

This stage lists those duties in plain words so you can put them on a calendar once and stop worrying.

What to do

Register before you ask for money

Many states require a charity to register with a state office, often the attorney general, before it asks the public for donations. This is called charitable solicitation registration. "Soliciting" means asking for money in any form: a letter, a website "Donate" button, an event, a crowdfunding page. Some states also require registration if you ask residents of their state for money, even if you're based elsewhere.

The rules, fees and exemptions vary by state, and some states exempt certain small charities. The National Association of State Charity Officials (NASCO), the association of state offices that oversee charities, links to state regulators on its website. Start with your own state's office.

File your annual IRS return

Every year, most charities must file a return in the Form 990 family. Which one depends on your size:

Gross receipts means all the money that comes in during the year, before you subtract any costs. A charity that can file the smaller form may choose to file a bigger one.

The Form 990-N is a short online notice. You file it through the IRS's Form 990-N electronic system and there is no paper version. You can't file until your year has ended.

When it's due: the 15th day of the 5th month after your fiscal year ends. If your year ends December 31, that's May 15. If the date falls on a weekend or holiday, file on the next business day.

Extensions: file Form 8868 by the due date to get an automatic six-month extension for Form 990 or 990-EZ. You can't extend the Form 990-N.

Never miss three years in a row

This is the rule that catches the most small charities. If you don't file a required return or notice for three consecutive years, the IRS automatically revokes your tax-exempt status. It takes effect on the original due date of the third missed return. Getting it back means applying to the IRS for reinstatement, which takes time and paperwork.

Keep your state up to date

Many states require nonprofit corporations to file a periodic report to keep the corporation active. States that require charity registration usually require you to renew it, and some ask for financial information or a copy of your Form 990. Look up both with your secretary of state and your state charity office.

Keep good records

Keep records that show where every dollar came from and went: bank statements, receipts, donation records, grant agreements and board minutes. You'll need them for your Form 990, your state filings and any review. A written document retention policy says what you keep and for how long. Form 990 asks whether you have one.

Share your filings when asked

Charities are public. You must let anyone see, and give copies of, your exemption application (your Form 1023 or 1023-EZ, with supporting documents and IRS letters) and your three most recent annual returns (Form 990 or 990-EZ). If someone asks in person, provide the copy the same business day unless there are unusual circumstances. For a written request, mail the copy within 30 days. You may charge a reasonable copying and postage fee. You don't have to disclose donor names and addresses. If the documents are posted on a public website, you can usually point people there instead of making copies, though you must still let people inspect them at your office.

Stay out of elections

A 501(c)(3) is absolutely prohibited from supporting or opposing any candidate for public office, directly or indirectly. That includes endorsements, donations to campaigns and public statements on behalf of the charity. Breaking this rule can cost you your exemption. Nonpartisan voter registration and education are generally allowed, as long as they don't favor a candidate.

Keep lobbying small

Lobbying means trying to influence legislation, such as asking lawmakers to vote for or against a bill. A charity may lobby a little, but no "substantial part" of its activities may be lobbying. Some charities choose a clearer, dollar-based limit by filing Form 5768 (the "501(h) election"). If lobbying will be a real part of your work, get advice first.

No private benefit

Two related rules keep charity money working for the public:

• Private inurement means a charity's income or assets flowing to an insider, such as a founder, director or their family, beyond fair pay for real work. It is forbidden.
• Private benefit means running the charity to serve private interests rather than the public. A charity must serve the public, not a particular person or business.

In practice: pay only fair prices, document any deal with a board member and have them step out of the vote, and never let the charity pay personal bills.

Thank donors properly

• $250 or more: a donor can't deduct a single gift of $250 or more without a written acknowledgment from you. It should state your charity's name, the amount of cash (or a description, not a value, of a non-cash gift), and whether you gave anything in return. If you did, describe it and give a good-faith estimate of its value.
• Over $75 with something in return: this is a quid pro quo gift, such as a $100 gala ticket that includes a $40 dinner. You must give the donor a written statement saying that only the amount above the value of what they received is deductible, and estimating that value. The IRS penalty for not doing so is $10 per contribution, up to $5,000 per event or mailing.

Your checklist

• Find your state charity office through NASCO and check whether you must register before asking for donations.
• Register in your state, and in any other state where you'll actively ask for gifts, if required.
• Decide which Form 990 your charity files, based on gross receipts and assets.
• Put your 990 due date (15th day of the 5th month after year end) on a shared calendar.
• Put your state annual report and registration renewal dates on the calendar.
• Name one board member responsible for each filing.
• Adopt a document retention policy and a whistleblower policy.
• Keep a copy of your 1023 or 1023-EZ and recent 990s ready to share.
• Agree, in writing, that the charity will not support or oppose any candidate.
• Set up thank-you letters that meet the $250 acknowledgment rule.
• Add a quid pro quo statement to any ticket or benefit over $75.