Recent court decisions and the Internal Revenue Service (IRS) Chief Counsel Memorandum (CCM) reinforce the need to keep accurate records and adequately disclose all charitable contributions as well as gifts made to others.
Consider the fact that potential donors often have only the organization’s audited financials and Form 990 to evaluate the organization’s financial strength and how efficiently it would use a potential donation. Evaluating a nonprofit organization’s financial statements is different than evaluating statements of for-profit entities because having large amounts of revenue over expenses is not the main goal of the nonprofit organization and many organizations are budgeted to have zero excess revenues over expenses.
The change of administration in Washington, as well as state and local initiatives, makes this a hard time for nonprofit boards and management to predict and determine the best strategies for sustainability -meeting the needs of its stakeholders and financial viability becomes ever more challenging.
There are several reasons for which a public charity can loss its tax-exempt status – and the most common is also the most easily avoidable. Each year thousands of nonprofits loss their tax-exempt status for failure to fulfill annual filing requirements. More specifically, they fail to file the Form 990, Return of Organization Exempt From Income Tax.
When auditors of not-for-profit organizations can provide the optimal level of assurance on an organization's financial statements, the report will say “the financial statements present fairly, in all material respects, the financial position of the organization and the changes in its net assets and cash flows.” The question naturally arises, then: what is meant by “material”? Auditing standards define materiality as something that could influence “the judgment of a reasonable person relying on the information.” Thus, materiality is not only quantitative but qualitative as well.