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A Word About Good Recordkeeping for Tax-Exempt Chapters

By Patti Arthur, Esq. EAA Legal Advisory Council

It's no secret non-profits, tax-exempts and private foundations have suffered during this challenged economy. The non-profit sector is usually one of the first to feel the sting of a weakening dollar and tighter personal and corporate finances.

However, even during this time of lessened giving, the IRS is ramping up surveillance efforts on tax-exempt entities and strongly focusing on good governance and recordkeeping practices. In fact, the IRS is looking to the securities world for financial standards tax-exempts would do well to follow.

In his remarks to the Independent Sector on November 10, 2008, IRS Commissioner Douglas Shulman noted that portions of the Sarbanes-Oxley Act, which was passed after the collapse of Enron, would be helpful for even small non-profits as a guide for proper governance, financial recordkeeping and overall solid management practices.

In other words, the IRS wants to see tax-exempt entities follow the same very strict accountability and recordkeeping guidelines as for-profit businesses.

Should this be seen as overly burdensome for even the smallest tax-exempts? Not at all. In fact, the IRS wants you to keep your desirable tax-exempt recognition. They have even raised the dollar threshold filing requirements for the complex Form 990. For the 2008 tax year (filed in 2009) if your Chapter has gross receipts of $25,000 or less, all you need to do is file a postcard with the IRS letting them know you are still active. That amount is raised to $50,000 for 2010 (filed in 2011)!

So where does all this leave us today? Recordkeeping with a capital "R" is the name of the game.and I can't emphasize that strongly enough for even very, very small chapters. Keep receipts for everything. Hold regular meetings and take minutes, pass resolutions whenever you can. Document all purchases and expenditures, and at least once a year, go over all your books and make sure everything is in order. And keep files of all your records.

I also strongly recommend taking a look at the IRS website www.stayexempt.org. It's a fantastic resource for small non-profits and states its message in clear and easy to understand terms. Try to stay up on the law. EAA does its best to provide you with the latest information. If a transaction even seems remotely questionable, get as much background as you can before you make a decision. It's the best thing you can do in this changing tax and economic landscape.

Patti Arthur, Esq. is a member of EAA's Legal Advisory Council. She has practiced tax law with a special emphasis on the non-profit and aviation sectors for nearly 20 years. She has a Masters Degree in Taxation from the University of Denver and lives in Colorado.

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