Background and why a checklist matters

Maintaining tax-exempt status is an ongoing obligation, not a one-time victory. The IRS expects organizations to follow operational rules and meet filing deadlines every year. Failure to comply can result in penalties, loss of public trust, and in severe cases the automatic revocation of tax-exempt status after three consecutive years of failing to file required returns (see IRS guidance on annual filing requirements) [https://www.irs.gov/charities-non-profits/annual-filing-and-filing-requirements].

In my work advising over a hundred small and midsize charities and community nonprofits, the same themes repeat: most compliance failures are avoidable with a simple calendar, clear delegation, and routine board oversight. The checklist below focuses on the high-impact items that keep entities in good standing with federal and state regulators.

How does the compliance checklist work?

A compliance checklist turns legal requirements into operational tasks assigned to specific people with deadlines and documentation rules. It should be part of your organization’s policy manual and reviewed at least annually by the board. In practice, that means:

  • Setting recurring reminders for federal and state filings.
  • Documenting who prepares and who reviews each item.
  • Keeping a single, indexed folder (physical or digital) of compliance documents.
  • Escalating any missed deadlines immediately to the board and counsel.

Below is a practical checklist organized by category, followed by tips, common mistakes, and resources.

Annual Federal Requirements (high priority)

  1. Form 990-series filing
  • Determine which Form 990 variant applies: Form 990, Form 990-EZ, Form 990-PF (private foundations), or Form 990-N (e-Postcard) for small gross receipts organizations. See IRS guidance about Form 990 for specifics [https://www.irs.gov/forms-pubs/about-form-990].
  • Due date: the 15th day of the 5th month after the organization’s fiscal year ends (e.g., May 15 for calendar year filers). You may request an extension using Form 8868 for up to six additional months — file the extension before the original due date [https://www.irs.gov/forms-pubs/about-form-8868].
  • Risk: Three consecutive years of failing to file any required Form 990-series return leads to automatic revocation of tax-exempt status.
  1. Public disclosure obligations
  • Make the organization’s Form 1023 (application), Form 990 (most recent), and exemption letter available for public inspection and provide copies on request or by posting to the website.
  1. Unrelated Business Income Tax (UBIT)

State-level compliance (frequently overlooked)

  1. Charitable solicitation registration
  • Many states require nonprofits to register before soliciting donations from residents. Registration rules differ by state and often require annual renewal and financial reports. Consult the National Association of State Charity Officials or your state attorney general. The National Council of Nonprofits provides a good state-by-state map [https://www.councilofnonprofits.org/].
  1. Sales and employment taxes
  • Verify state sales tax exemptions for merchandise sales and ensure payroll taxes are properly withheld and reported.
  1. Local business licenses and permits
  • Check for required local permits for fundraising events, raffles, or other activities.

Governance and organizational practices

  1. Bylaws and articles of incorporation
  • Keep current copies and amend them when governance or mission changes occur. Document amendments and board approvals.
  1. Board responsibilities and documentation
  • Maintain minutes for meetings, records of votes, and attendance records. Document board recruitment, terms, and conflicts of interest.
  1. Conflict-of-interest and whistleblower policies
  • Adopt and enforce a written conflict-of-interest policy and a whistleblower policy to protect the organization and maintain IRS-compliant governance practices. The Form 990 asks whether the organization has such policies.
  1. Executive compensation
  • Follow a documented process for setting and approving executive compensation (comparability data, independent board review, and written approval). Excess benefit transactions can trigger intermediate sanctions under the tax code.

Financial management and recordkeeping

  1. Chart of accounts and books
  • Maintain a consistent chart of accounts, reconcile bank statements monthly, and retain backup documentation (receipts, contracts, grant agreements).
  1. Annual budgeting and variance reporting
  • Prepare an annual budget approved by the board and provide periodic reports comparing budget to actuals.
  1. External audits or reviews
  • Determine whether audits, reviews, or compilations are required by funders or state law. Even if not required, consider independent financial reviews for transparency.
  1. Document retention policy
  • Adopt a written records retention schedule (timeframes for tax records, payroll, donor records) and secure data backups.

Fundraising compliance and donor stewardship

  1. Donor acknowledgment and tax substantiation
  • Provide written acknowledgments for donations $250 and above and ensure fundraising communications accurately describe how donations will be used.
  1. Gift acceptance policies
  • Define limits and review procedures for non-cash gifts, restricted gifts, and planned giving.
  1. Professional fundraisers and vendor contracts
  • When hiring third-party fundraisers, document terms and confirm the fundraiser’s licensing and registration status.

Practical, prioritized checklist (operational)

Every month

  • Reconcile bank and credit card statements.
  • Track grant deliverables and reporting deadlines.

Quarterly

  • Review financial statements with the board (balance sheet, P&L, cash-flow projection).
  • Confirm payroll tax deposits and filings.

Annually

  • File Form 990/990-EZ/990-PF or Form 990-N; request extension with Form 8868 if needed.
  • Hold an annual board meeting and approve an annual budget.
  • Complete state fundraising renewals and charitable registrations.
  • Update insurance coverage and nonprofit policies.

Trigger-based

  • If mission or activities change materially, update articles/bylaws and notify the IRS (amend Form 1023 or file Form 1024 as applicable).

Common mistakes I see in practice

  • Treating compliance as administrative rather than governance: board members must own oversight.
  • Missing state registration for multi-state fundraising: this can create fines and require refunds or rescission of solicitations.
  • Inadequate documentation of executive compensation decisions.
  • Ignoring small, recurring tasks (e.g., monthly reconciliations) that create audit risk later.

Example scenario and remediation

A small arts nonprofit in my practice missed filing Form 990-EZ for two years and did not realize the third-year consequence until a funder asked for their exemption letter. We immediately filed the delinquent returns, filed a Form 1023 for reinstatement support documentation, and implemented a compliance calendar and delegated responsibilities. The organization avoided permanent loss of exemption by timely remediation and establishing better internal controls.

(Use the IRS pages above for authoritative filing instructions and the FinHelp links for practical, step-by-step guidance.)

Quick action plan (first 30 days)

  1. Create a compliance calendar with federal and state filing deadlines.
  2. Assign primary and backup responsible persons for each calendar item.
  3. Gather prior three years of Form 990s and your IRS exemption letter into a single folder.
  4. Adopt or update conflict-of-interest and records-retention policies and present them to the board.
  5. If you find missed filings, consult counsel or a CPA experienced with nonprofit reinstatements immediately.

Frequently asked questions (brief answers)

  • What if we miss a filing deadline? File as soon as possible, assess penalties, and prepare to document corrective steps; three consecutive missed filings result in automatic revocation (IRS). If revoked, follow the IRS process for reinstatement.

  • Do all nonprofits need to register for fundraising? Many do — requirements vary by state. Confirm registration rules before soliciting donors outside your home state.

  • How often should the board review compliance? Annually at a minimum; more frequently if your organization has complex programs, many funders, or multi-state fundraising.

Disclaimer

This article is educational and does not constitute legal, tax, or accounting advice. For advice specific to your organization’s circumstances, consult a qualified nonprofit attorney or CPA experienced in exempt organizations.

References