In 2024, several regulatory updates have made tax exemption compliance more challenging for Black-led nonprofits. Key concerns include heightened IRS audit activity, evolving state tax obligations due to remote workforces, and updated accounting standards for crypto assets.
IRS Audits and Internal Controls: The IRS has intensified its scrutiny of tax-exempt organizations, with more comprehensive audits being conducted. Nonprofits must maintain strong internal controls, including proper documentation of governance policies, compensation arrangements, and employment classifications. Ensuring that employees are classified correctly (versus independent contractors) is crucial to avoiding penalties during audits. This is especially relevant for organizations that frequently rely on volunteers and part-time staff.
State Tax Nexus: For nonprofits expanding across state lines or employing remote workers, the concept of "tax nexus" becomes critical. Even though a nonprofit may be federally tax-exempt, it still needs to apply for state-level tax exemptions. Failure to do so could result in unexpected state tax liabilities. Nonprofits must be proactive in identifying which states they have nexus in and ensure compliance with both sales tax and income tax regulations.
New Reporting Requirements: Accounting standards have also evolved to include specific rules for cryptocurrency holdings and related assets, categorizing them as intangible assets. Nonprofits that accept donations in crypto or other digital assets must ensure they report these accurately on their financial statements.
Conclusion: As Black-led nonprofits continue their vital work in advancing social equity, staying compliant with evolving tax regulations is more important than ever. Seeking expert advice and keeping robust documentation can help these organizations navigate the complexities of tax exemption in 2024.
Sources:
Fox Rothschild LLP: https://www.foxrothschild.com/publications/the-corporate-transparency-acts-effects-on-nonprofits
CLA Connect: https://www.claconnect.com/resources/articles/2024/audit-accounting-and-tax-updates-for-nonprofits-2024
