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Be Prepared for State Not-for-Profit Tax Filing Requirements

Although not-for-profit (NFP) organizations are not taxpayers in the traditional sense, they may still have state filing obligations. The consequences for not assessing an NFP’s potential state filing requirements and then missing these filing obligations go beyond just failure-to-file penalties. Many states provide a charity lookup function on their website to enable donors to check an organization’s standing with the state before donating, so a donor may choose not to donate to an organization if it is not in good standing. Additionally, states may limit the changes that an organization can make to its formation documents if it is not in good standing, such as changing the organization’s name or dissolving.

Annual reporting

Many states have annual filing requirements for NFPs domiciled, or doing business, in that state. In some states, meeting the filing requirements is as simple as submitting a copy of Form 990 to the state and paying a filing fee. Other states have developed their own forms to compile information and may have different revenue or contribution thresholds for determining the filing requirement. While these forms generally use information from Form 990, there can be instances where the state has a lower reporting threshold for additional details, such as contributions paid or received.

Fundraising considerations

Most states require organizations that are soliciting contributions in the state to register with the state and file renewals of such registration on an annual basis. Simply having a “donate now” button on the website may not create an immediate requirement to register in all jurisdictions that require registration. However, if an organization receives a donation from a donor in a particular state through its website and later sends an annual appeal letter to that donor, that would likely be considered a solicitation that triggers the requirement to register with that state. Several states provide exemptions from the requirement to register for certain types of organizations, such as educational institutions and religious organizations, however, an application may need to be filed to obtain the exemption.

Requirement to obtain audited or reviewed financial statements

As part of the above-mentioned reporting, many states also require the submission of financial statements that have been audited or reviewed by independent accountants. Some states base this requirement on receiving funding from donors located in the state that exceeds a particular threshold, while others require it based on the organization’s total revenue exceeding a particular threshold. It is important to consider these potential requirements as an organization grows, to make sure there is adequate time to prepare for and obtain an audit or review, should it be necessary.

Unrelated business income

Another important potential trigger to consider for NFP organizations is unrelated business income (UBI) sourced to a particular state. Many states require an organization to file a return if the organization generates UBI in that state. NFPs invested in partnerships will need to review the Schedule K-1s provided by such partnerships carefully for state-sourced UBI information to evaluate which states they may need to file in. While states typically do not have minimum income thresholds for filing, the organization should consider developing a policy that establishes its internal criteria for determining when it will file an initial return with a state. This is because it will create an additional annual administrative burden until the organization no longer has activity in that state and files a final return.

How Citrin Cooperman can help

Determining your organization’s state filing obligations can be a daunting task and result in negative consequences if the state’s requirements are not met. Citrin Cooperman’s Not-for-Profit Industry Practice can help you determine your filing obligations and assist you with those filings, if necessary. If you have any questions or would like further information about how we can assist your organization, please contact Amanda Adams at or your Citrin Cooperman advisor.

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