Impacts of government regulations and tax reforms on Not-For-Profit organisations

By Israel Tannenbaum

Not-For-Profit (NFP) organisations are an essential sector that focuses on raising awareness for honourable causes and making money to continue their outreach programmes and pay their workers. As is the case with anyone who hires people and depends on external funding to operate, potential regulatory risks may arise.

Emerging concerns

Here are the potential impacts of changing government regulations and tax reforms on your non-profit organisation:

Loss of non-profit status

NFP organisations are subject to a high standard of government regulations, as they're exempt from taxes and have access to public funding. Since these benefits aren't available for for-profit organisations, laws are in place to protect the public and make sure non-profits don't abuse their financial privileges. Although your NFP receives key financial benefits, failing to meet new government regulations can put you at risk of losing your non-profit status. 

Loss of access to government grants

Many NFPs receive funding from government entities through grants. A grant is a financial award that an organisation receives for a specific purpose. It helps provide funding for educational advances, economic developments, medical research, and various projects that provide public services. Thus, if your NFP fails to comply with the new regulatory requirements, you may face steep penalties, such as fines and loss of access to government grants. 

Reduced budget

A government may reduce funding as revenues decline. A governmental budget deficit can result in reduced funding for your NFP. At times, funding cuts are driven by changes in the policy. Shrinking budgets at state, national and municipal levels means there's less to go around, and your NFP may end up getting less funding than it wants or needs while experiencing a marked increase in demand for its charitable services.

Loss of tax-exempt status

NFP organisations can apply for exemption from income tax. Approval for exemption is a privilege that the government can easily revoke if a your NFP fails to comply with the charitable purposes guidelines. If, for any reason, the government suspects that you're abusing your NFP's financial benefits, you'll be subject to pay the income taxes in question and your NFP may lose its tax-exempt status for good. 

Utilising charitable income for private benefit or increment, failing to meet annual reporting requirements, not complying with acceptable lobbying guidelines, and deviating from your organisation's original purpose are just a few activities that may lead to more serious litigation.

Addressing the impact 

Here are some solutions that could help you address the impact of changing government regulations and tax reforms:

Keep up with regulatory changes

While many organisations are focused on their critical charitable work, it’s important to remain up to date on regulations affecting your non-profit's specific area of operation. To get the latest updates regarding regulatory changes, consider monitoring the websites or social media accounts of governing agencies and regulatory bodies. By regularly checking each governing agency's website, you can see if there are any updates you should be aware of.

Another way to keep tabs on all regulatory changes is to attend conferences and events. Highly relevant webinars and conferences can provide insightful ways to meet new regulatory requirements. They can also give you an opportunity to learn from experts and hear from others in your industry about how they’re navigating the new requirements.

Expand your sources of funding

Non-profits should always look to expand their sources of funding, whether through donations or public/private grant opportunities. That way, if there are government grant reductions, you still have several other avenues for keeping your organisation running strong. Here are other ways to fund your non-profit organisation:

  • Company donations: There may be companies in your community that are willing to contribute to your NFP. Consider doing your research and approach the right people in a company with a proposal for how they can help and what their donations will contribute toward. 
  • Foundation grants: Foundations are often set up by extremely wealthy individuals or families to serve society, and indeed, many NFPs help themselves liberally to the grants from these foundations. Foundations often have an application and approval process for these awards, so it's important to do your research to increase your chances of getting approved. 
  • Community donations: Donations and other gifts from community members are probably the least reliable form of funding, but they often make up a large percentage of an NFP's revenue. Research revealed that of all donations made to nonprofit organisations, around 71% come from individuals.

Manage regulatory risks now

Keeping up with government regulations and tax reforms is no easy feat, as it involves several complicated processes. Consider consulting an expert to take the right steps toward protecting your nonprofit.

Retain a trusted advisor

As soon as the government announces new regulatory changes, seek the assistance of a trusted advisor or legal professionals who have specialised expertise in the legislative area in question. An experienced professional can guide you through the often complex and nuanced charitable regulations in your jurisdiction of operation.

They can also help you conduct an internal audit to evaluate your current level of compliance and address potential gaps in your existing practices compared to the new requirements. If you need help with nonprofit compliance, please contact one of HLB's NFP team of experts. Get in touch with us today.

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