Maybe your nonprofit started out small, but you’ve outgrown your humble beginnings.
What began as a venture with one local organization has now blossomed into multiple chapters. People saw your mission as valuable, and they wanted to take part in it.
Let’s take a second to recognize this wonderful accomplishment.
Your organization has done something meaningful. You’ve brought in enough like-minded donors and volunteers to find success.
Many nonprofits don’t survive past their fledgling years. We won’t go into all the reasons nonprofits fail here, but if yours has weathered the storm—and even grown to include other chapters—you’ve beaten out some daunting odds.
Give yourself a pat on the back.
Now it’s time to get back to work and face the complex task of managing your nonprofit’s growing finances.
It’s important as your organization grows statewide, nationally, or even internationally, to understand how each chapter, and your parent organization, are viewed by the IRS.
File990 works with nonprofit organizations of various types and sizes, and offers comprehensive solutions for online filing.
We understand that Growing Your Nonprofit Finances Can Be Complicated. Yet it’s important to stay calm, get organized, and remember that Tax Filing Experts Can Help.
How Do Nonprofits Grow?
Different nonprofits grow in different ways. Instead of listing all the various factors bearing on nonprofit growth, we’ll break it down into two major pathways:
- Your parent organization is garnering higher levels of public visibility, volunteerism, and revenue, and/or
- You’re expanding into new regions, with new chapters.
In the past we’ve discussed how a single-entity nonprofit files a different 990 form based on their total gross receipts (more on this below).
However, the kind of growth that requires special attention come tax time is how you form new chapters, and what kinds of legal entities they’re established as.
This is important because, often, nonprofit chapters serve as separately-managed corporations, with their own employees and board members.
They may or may not have their own treasurers or financial officers handling 990 filing each year.
In some cases, your parent organization may need to step in and manage chapters’ relationship with the IRS.
This boils down to how you classify your nonprofit chapters for legal and internal management purposes.
The IRS looks at different types of nonprofit chapters differently.
So should you. Let’s dig in to how your chapters should approach filing.When your Nonprofit Grows, What Does That Mean for Your Taxes?
Most nonprofits must file some variation of a 990 IRS form each taxable year to retain tax-exempt status. You’ll file a 990, 990-EZ, or 990-N (e-postcard), depending on your total gross receipts.
As you expand and grow, you may find yourself filing different versions of your 990 form in successive tax years, or you may apply for tax-exempt status for new chapters as they arise.
Each new chapter may in turn file its own version of the 990 form each year.
How and which form you file depends on many complex factors, one of which is how your organization expands and forms new chapters.
Let’s look at some of the ways nonprofit chapters form.
You’re a Unified Corporation
If you’re considered a unified, single entity, you retain full control over your various chapters. However, you also bear full liability for their actions.
This may very well be the right model for your nonprofit, but it comes with the additional risk.
If you’ve decided to avoid the chance of litigation against your parent corporation’s assets, and don’t wish to operate as a single legal entity, chances are you fall into one of the following categories.
Your Chapters Are Separate, but Subsidiary Organizations
You likely retain control over voting, membership, and managing the executive board, but each chapter is considered a separate entity according to tax law, and maintains its own internal structure, banking and financial records, and must file a separate 990 to retain tax-exempt status.
Your Chapters are Subsidiary, Single-Member LLCs
Your parent nonprofit is the sole member of each chapter LLC. While each chapter is considered a separate entity under the law, the IRS doesn’t require them to apply for tax-exempt status, and tax filing can be handled through the parent corporation.
You can also adapt the level of control each chapter has under the parent nonprofit according to the structure and needs of your organization.
Your Chapters Are Wholly Independent
You retain some control of chapters through a charter and license agreement, but each chapter elects its own directors, who become legally responsible for the chapter’s local activities. If you choose to file for a group exemption, listing chapters as subordinate organizations, these chapters can avoid the process of applying for tax-exempt status.
While each chapter would file its own 990, the parent company would have to show the IRS that each chapter qualifies for group exemption, and must ensure they file correctly.
Tax Experts Have the Prescription for Your Filing Aches and Pains
When you’re suffering, doctors prescribe medicine to make you feel better. However, they can’t get you out of having to file with the IRS.
“The IRS looks at different types of nonprofit chapters differently. So should you.”
Yet the complexities of filing your 990 tax forms—whatever the size and structure of your nonprofit—can leave you feeling sick to your stomach, to say the least.
You’ve got a million things on your plate, and you’re handling new challenges every day.
In this case, tax experts like those of us here at File990 have the knowledge and experience to ease your worries and make your 990 filing one less worry.
If you’re filing a 990-N or 990-EZ, we’ve got your back. File990’s online filing system allows you to put the heavy lifting of tax filing on us. We’ll even track filing for multiple chapters or components and remind you when it’s time to file.
Our enterprise package helps nonprofits of all sizes track and manage multiple chapter filings. Check out all our 990 filing services here.