Non Profit Tax Returns

Although there are not that many laws that state how a Not for Profit is suppose to operate, there are many financial guidelines that may have a material impact on the internal finances of the organization.  There are indirect reporting requirements and accounting standards, in which most funding agencies require "supported" organizations to follow.  Another words, most agencies in practical terms, "recommend" standards and demand certain accounting treatments and other financial procedures be followed.

IRS REPORTNG ON NOT FOR PROFITS:  The IRS requires most tax-exempt organizations to submit an annual information report, the Form 990 and its related schedules, which include a significant amount of financial reporting.

1. A statement of Revenues or Income, with particular categories specified (e.g. salaries, postage, rental revenue),

2. A balance sheet with particular categories specified (e.g. cash, accounts receivable),

3. A statement of functional expenses, in which all expenses are allocated to either program services, fundraising, or operations, and

4. A report of expenses segregated by individual program service (e.g. educational mailings, a seminar program).

5. A support schedule that details the organization's sources of revenue, with particular categories specified (e.g. charitable donations, membership fees, investment income).

Because the IRS provides specific categories and classes into which revenue and expenses must be allocated, any organization that does not build its accounting systems around these categories and classes would face serious hurdles preparing its annual IRS report. This provides in part a basic standard for financial reporting. Fortunately, most of the categories given in the revenue & income and the balance sheet are standard accounting categories.

Other aspects of the reporting requirements are more complex than would be required in small commercial businesses. Like reporting expenses for individual program services, that correspond to divisional accounting methods for tracking expenses incurred by different segments of an organization's total operation. As in that case, the various classifications of income are necessary because the IRS requires different treatment of the income classes for determining taxes. Unlike in commercial reporting, the IRS also uses these revenue classifications to help determine if an will retain its tax-exempt status recognition.