Successful business practices depend on documentation and accountability, especially for not-for-profit agencies. It can be difficult to remember and account for all the business activities that need detailed documentation, but lawful and dependable business rests on careful tracking of all business activities.

6 “Must Have” areas of documentation:

1. Donors - Cash or property donors contributing $250 or more must obtain a contemporaneous written acknowledgement of the donation from the donee Section 501(c)(3) organization that contains the donee organization’s name, address, contribution date, amount donated, and a description of any property donated. The most crucial piece that must be included in the written acknowledgement is a statement detailing whether any goods or services were offered in consideration for the contribution. Make sure you complete the acknowledgement sooner rather than later to avoid the possibility that a donor files his/her tax return before receiving the acknowledgement.
2. “Who’s who?” Lists - It is vital for both tax and governance purposes for a non-profit organization to maintain a detailed list of every relationship connected to the company. These lists should be updated every six months. Some important people to include:
   • ​Disqualified persons/ conflict of interest persons- Any “disqualified person” who receives economic paybacks from a section 501(c)(3) public charity, (c)(4), or (c)(29) organization which exceeds the value of the consideration for such benefits are required to pay a tax of 25% of the additional benefit received. Anyone who (during the 5 year period ending on the date of the excess benefit transaction) exercises control over organization’s activities is considered a disqualified person, as well as members of that person’s family or entities where the person or his/her family has more than a 35% ownership interest. The same applies for conflict of interest purposes, but both adopted and natural children are included in the definition of “family”, in this case.
   • Related organizations- An organization is required to identify all related organizations (like a Brother/Sister organization or a supporting/supported organization) to validate all applicable transactions and make sure all disclosures are made on Form 990.
   • Donor advised funds- Again, it is important to list family members and any connections the organization has, and in the case of donor advised funds, a distribution from a fund that results in excess benefits to specific people that can influence an excise tax on the recipient.
3. Conflict of interest policies- Though a written conflict of interest policy is not required, the IRS strongly suggests one. Any transaction in a not-for-profit organization can present a possible conflict of interest when the people held responsible for safeguarding the company’s financial interest are in a position to reap personal benefits from it.
4. Compensation reviews- It is important for organizations to carefully detail the compensation of all trustees, directors, officers and employees. Those who receive compensation deemed excessive by the IRS can be obliged to pay an excise tax. Be sure to research the amounts usually paid for similar services and see how your compensation policies compare (one of the IRS safe harbor requirements).
5. Public Inspection and Distribution of Form 990 and 990 T- Make each annual information return available for a period of 3 years beginning on the date the return is required to be filed or is actually filed, whichever is later.
6. Written Disclosure- A charitable organization is required to provide written disclosure to a donor who receives goods or services in exchange for a single payment exceeding $75 partly as a contribution and partly for goods and services provided by the organization. A contribution made by a donor in exchange for goods or services in known as a quid pro quo contribution.

Making sure your organization is aware of these documentation requirements are key to avoiding any tax or governance consequences. Organization and detailed tracking will help ensure that you are staying in line with the law and are operating ethically and effectively. For more information or questions on gathering your organizations documentation, contact us.