General Questions
The National Council of Nonprofits does not offer technical assistance in starting up nonprofit organizations. It’s important to understand the legal requirements in the state where the nonprofit will operate before you begin. Please read our guidance on starting a nonprofit organization. Before you begin the process, research your cause to see if there are nonprofits already established in your area with the same or a similar mission. If so, you might consider collaborating through a fiscal sponsorship arrangement instead of establishing a new organization. It’s also a good idea to contact the state association of nonprofits in your state for state-specific guidance. We also encourage you to subscribe to the Council of Nonprofits’ free newsletters.
The IRS publishes a searchable master list of all nonprofits recognized as tax-exempt by the IRS that can be searched by state. Additionally, Pro Publica offers a database that can be used to search over 1.8 million tax returns from tax-exempt organizations. These databases are of raw IRS data that show financial details such as executive compensation and revenue/expenses.
Nonprofit corporations may be “registered” in the state where they were originally incorporated, and with the IRS, if they are, or were at one time, tax-exempt. So, to learn whether a nonprofit is in “good-standing” as a nonprofit corporation in its state of incorporation, you’ll need to check with the applicable state agency. To learn whether the nonprofit is “registered” for fundraising solicitation purposes in the state where it operates or other states, you’ll have to check with the applicable state agency that regulates fundraising. To learn whether any particular nonprofit organization is registered as a tax-exempt nonprofit, use “EO Select Check.” You can also look up nonprofits by name using GuideStar.
Yes. The IRS and National Center for Charitable Statistics use “NTEE” codes to identify the primary missions of charitable nonprofits. You can search by NTEE code.
The term “non-governmental organization” was first coined in the Charter of the United Nations in 1945. “NGO” is most often used to refer to a charitable nonprofit that is operating outside the US. An NGO can be any kind of organization, provided that it is independent from government influence and is not organized for personal profit. In contrast, the term “nonprofit” is the term used in the US to refer to organizations that are structured as nonprofit corporations, whether or not they are also designated as tax-exempt by the IRS.
Questions about Donations
It’s good practice to thank your donors for any size gift, but surprisingly, a formal, written gift acknowledgement is only required by law for contributions over $250 and quid pro quo contributions. See IRS Publication 1771. Nevertheless, donors expect a “receipt” for donations of any size so they can claim a tax deduction on their charitable contributions.
Acknowledgements should include confirmation of the tax-exempt status of the charity, a description of the item(s) donated, the date of receipt, and whether or not the charity provided goods and services in exchange for the donation. Refer to our resource page on thanking donors for more information.
What causes interest you? Do you want to support an organization that is seeking the cure to a specific disease? Are you passionate about ensuring there is arts education in schools? Do you want to protect the environment for future generations? Are you hoping to focus your generous gift locally, or nationally, or internationally? Try to identify a few nonprofits with missions that best correspond with your priorities. Read what those organizations have written about their work on the GuideStar website.
Then, get to know the organization. Visit its website and read whatever you can on the nonprofit. Better yet, go see the organization in action. A review of financial information alone will not tell you the impact that the organization is having in the community. Volunteering for the organization is a wonderful way to determine if the nonprofit is one you want to support.
Understandably donors want to support a nonprofit’s mission, but many don’t understand that incurring administrative costs is not bad – instead, those costs are essential for mission advancement. Nonetheless, when you make a donation to a nonprofit, you can signal intent for that donation to be spent in a particular way. However, the most useful donation is often an unrestricted donation. This will allow the nonprofit to allocate your donation to the area of greatest need. Sometimes applying that donation to an overhead expense (such as a new roof or new computers) can make program delivery more efficient. Don’t hesitate to reach out to a nonprofit before making a donation to ask how you can direct your donation to make the most impact.
There is no magic language or process for restricting a gift. Donors may want to ask the nonprofit whether it has a “gift acceptance” or “gift agreement” policy or template donor letter it would like the donor to use – if not, any written letter expressing the donor’s intent will do. However, it is always prudent for donors to discuss their intent for restricting a gift with the nonprofit first, just to make sure the nonprofit is able to honor the donor’s intent. Sometimes what a donor desires is simply not possible, for any number of reasons – Rather than putting the nonprofit in the position of returning a gift, it’s preferable for the donor to make sure in advance that the nonprofit understands and is in agreement with the intent. Read background on respecting donor intent, gift agreements, and ethical fundraising practices.
Be sure that you are donating to a 501(c)(3) charitable nonprofit. Charitable nonprofits may not engage in partisan election activities. There are other, non-charitable, organizations that may participate in such activities, such as 501(c)(4) social welfare organizations. When you read an article about “political nonprofits,” they are generally referring to something other than a charitable nonprofit.
It’s good practice to thank your donors for any size gift, but surprisingly, a formal, written gift acknowledgement is only required by law for contributions over $250 and quid pro quo contributions. See IRS Publication 1771. Nevertheless, donors expect a “receipt” for donations of any size so they can claim a tax deduction on their charitable contributions.
Acknowledgements should include confirmation of the tax-exempt status of the charity, a description of the item(s) donated, the date of receipt, and whether or not the charity provided goods and services in exchange for the donation. Refer to our resource page on thanking donors for more information.
Financials
Tax-exempt organizations that file annual reports with the IRS (referred to as the “IRS Form 990”) are required to share the three most recently filed IRS Form 990s upon request. Many nonprofits post them on their website. (You can read about the “public disclosure requirement” on the IRS website.) Guidestar is an excellent source to view financial information and 990 forms. Other types of “annual reports” may be financial reports that are filed with the state for fundraising purposes, or corporate filings to maintain corporate status at the state level. Those may be available if posted on a state’s website. While some nonprofits create “annual reports” and post them on their websites, there is no federal or state requirement for charitable organizations to create or file an “annual report” other than the required annual IRS filing, and any state-specific financial statements or registrations for fundraising purposes or corporate status renewal. (These requirements vary by state.)
State specific compensation reports are available from many state associations of nonprofits. National salary and compensation reports are typically published annually by Columbia Books, ERI, Grant-Thorton, GuideStar, The Nonprofit Times, and others.
Whatever is necessary to advance the organization’s mission. There is no set percentage that would indicate that one nonprofit is run any more effectively than another. Overhead costs are investments in necessary infrastructure, including rent, paying staff, replacing old computers, repairing a leaky roof, etc. A better gauge of an efficient nonprofit is its impact in the community. Read about the overhead myth.
There is no set amount that is right, or wrong. A nonprofit is like any other employer and needs to pay competitive wages to attract and retain quality employees. As nonprofits work to improve communities, they require leaders and staff with the right skills and expertise to accomplish the nonprofit’s mission. It is the responsibility of the Board of Directors to evaluate and set appropriate compensation for the CEO/Executive Director of the organization.
Read about managing nonprofit employees.
Ethics and Oversight
You can check the IRS “Select Check” website which will help you confirm whether the organization is recognized as tax-exempt by the IRS under Section 501(c)(3) or another section.
If you have concerns that a nonprofit is acting unethically you can contact the charity regulator in the state where the nonprofit is operating. (The National Council of Nonprofits does not monitor or regulate nonprofits. That is the role of state charity officials.)
Filing a written complaint may cause your concerns to be investigated, which may then trigger corrective action, as applicable.
There is a state charity official in every state that has authority to regulate and investigate charities that, among other things, divert charitable assets to private interests and/or are engaged in fraudulent fundraising. We encourage you to share your concerns with the state charity official in your state (or the applicable state(s) where the conduct is happening). If social media is involved the conduct may be of interest to more than one state’s charity official since social media messages cross state lines.
Miscellaneous FAQs
Misclassification is one of the most common mistakes made by nonprofit employers and may result in harsh IRS penalties. The National Council of Nonprofits provides guidance on exempt versus non-exempt classification issues, as well as tips for managing nonprofit employees.
The IRS Form 990 is the tax form that all tax-exempt nonprofits must file with IRS annually. There are multiple types of 990 forms, so make sure your nonprofit files the correct form. Read about annual filing obligations.
State law will determine whether or not your nonprofit may take action via an email vote. Many state nonprofit corporation laws require that corporate actions make only take action through methods that allow each board member to “hear” one another or “communicate concurrently” (i.e., confernce call or video chat). Consequently, in those states, a vote using email will not be legitimate. Knowing what your state permits is key.
We encourage you to connect with the state association of nonprofits in your state that is likely to have relationships with brokers and agents who are experts in nonprofit insurance products.
Also, the Nonprofit Risk Management Center is a resource for all nonprofits on all things relating to risk management, insurance, and insurance audits/assessments. We encourage you to explore the website to access many free resources, such as several interactive tutorials and a free newsletter.
You can send a written request for a duplicate copy to the IRS, Exempt Organizations division. The IRS generally takes a few months to respond. You should include the EIN number and name of the organization exactly as originally filed. Explain that you are writing to request a copy of the organization’s Determination Letter. Assuming that the organization is indeed tax-exempt and has filed annual reports with the IRS (Form 990) you should be able to pull all the information needed for the letter from the profile of the applicable nonprofit on Guidestar. (In fact, with the “premium level” access on Guidestar you can also access a copy of the organization’s Determination Letter.) We recommend that if your nonprofit has a website, it post a copy of the Determination Letter on its website. Read about similar transparency practices for nonprofits.
There is no magic number or ratio. Each nonprofit needs to analyze what cash is needed for its own operations. See our resources to help nonprofit boards understand operating reserves and craft appropriate written policies for their organizations. For data about the levels of nonprofit operating reserves nationally, see the Nonprofit Finance Fund’s annual State of the Sector survey results.
A nonprofit that is not yet recognized as tax-exempt by the IRS may fundraise, but it may not tell donors that their contributions are tax-deductible – because they aren’t until the nonprofit has received a determination of tax-exemption from the IRS. So that contributions can be deductible to donors, some nonprofits that are not-yet tax exempt (and some that are) seek a fiscal sponsor. Fiscal sponsorship is ideal for projects or organizations that have begun the filing process to become a 501(c)(3) charitable nonprofit organization but have yet to receive official exempt status from the IRS. Establishing a fiscal sponsorship allows those not-yet-exempt organizations to accept tax deductible donations and begin to raise funds through their fiscal sponsor.
Before winding down the operations of a nonprofit, we encourage you to review state law requirements that are set forth in your state’s nonprofit corporation law, as well as to seek advice from an accountant or legal advisor in connection with filing the organization’s final annual report, the IRS Form 990. Additionally there are operational and practical considerations, that are reviewed on this Checklist for Winding Down a Nonprofit (Nonprofit Risk Management Center).
Individual nonprofits join a local state association of nonprofits. By joining a state association of nonprofits, you or your nonprofit will automatically be an affiliate member of the National Council of Nonprofits, part of the largest nonprofit network in the country. We encourage you also to subscribe to our free newsletters.