Nonprofit Compliance, Post-IRS Determination Letter

After months of preparation and waiting, you finally receive your IRS Determination Letter! That means the startup process is over, right?

Sadly, no.

A “determination letter” is official confirmation from the IRS that your 501(c)(3) application has been approved.

With this letter, your organization is exempt from federal income tax. Additionally, your donors may be able claim their contributions to your organization on their annual tax return.

Don’t get me wrong – this is a crowning achievement in the life of a new nonprofit. The startup process is long and arduous, and it feels great to get that letter.

However, it’s not time to rest on your laurels.

There are at least six major nonprofit compliance activities to do once you’ve received a determination letter! This is not an exhaustive list, as there might be compliance activities specific to your organization.

1) State tax registration and exemption

Depending on your state, you may need to register for state-level tax exemption. Sometimes, your determination letter is enough, but other times, you’ll have additional forms to file. Contact your state’s Department of Revenue for your specific requirements.

2) Fundraising registration

Forty states and DC require a nonprofit to register to solicit funds from its citizens. This means before you even ask for donations in those states, you must register with the appropriate authorities. Failure to register can trigger penalties from the state.

As your organization grows, this process gets extremely complicated, so check out our 50-State Fundraising Compliance Guide for more info.

3) Obtain licenses and permits

Each state, county, and municipality has separate licensing and permit requirements for business and nonprofits. Additionally, they depend on your activities and line of work. Make sure you research and obtain necessary licenses before you start “transacting business.”

Hey you! Get your ducks in a row!

4) Fundraising

If your letter stipulates that your donors’ contributions can be claimed on their tax returns, and now that your organization has the credibility of 501(c)(3) tax exemption, you should have an easier time fundraising.

Before you start, make sure you’ve registered with your state’s fundraising authority, and that you include adequate disclosure statements in your fundraising materials. Once you’ve done that, get out there!

5) Marketing

While you’re not done with other registrations, you can certainly use your new determination letter to your advantage. Include that you’re a 501(c)(3) organization on your website, and in your marketing and fundraising materials, both to attract donors, and to add credibility to your nonprofit.

6) Recordkeeping

Be sure to keep your determination letter in your nonprofit records kit because you never know when you might need it. Your records kit should contain your bylaws, minutes, and government documents (such as your Articles of Incorporation and SS-4).

These are very important nonprofit compliance activities for running and growing a successful nonprofit. Take them seriously!

If your organization has its determination letter, and you’d like assistance with nonprofit compliance filings, please contact us. We’d be happy to help.