Nonprofit organizations operate for the public good, which means they are often subject to financial transparency requirements. Whether a charity must disclose its financial statements depends on several factors, including federal regulations, state laws, and donor expectations.
Federal Requirements
The IRS requires tax-exempt organizations to make certain documents publicly available, including:
Form 990, 990-EZ, or 990-PF: These tax forms provide details about the organization’s finances, governance, and activities.
IRS Determination Letter: Proof of 501(c)(3) tax-exempt status.
Annual Reports and Financial Statements (if applicable): While not required at the federal level, nonprofits that produce audited financial statements may need to disclose them upon request.
State Requirements
Many states have additional financial disclosure laws for nonprofits, particularly those that solicit donations from the public. Requirements vary by state but often include:
Filing annual financial reports with the state charity regulator (such as the Attorney General’s Office).
Submitting audited financial statements if revenue exceeds a certain threshold.
Disclosing financial information on request from donors or the public.
Public and Donor Expectations
Beyond legal requirements, financial transparency builds trust with donors, grantmakers, and stakeholders. Best practices for nonprofit financial transparency include:
Posting recent Form 990s and financial reports on the organization’s website.
Providing an annual report summarizing the nonprofit’s financial health and program impact.
Clearly outlining how donations are used to support the mission.
Exceptions and Confidential Information
While nonprofits must disclose certain financial information, they are not required to share everything. For example:
Donor information is generally private and should not be disclosed unless required by law.
Internal budgeting documents and strategic plans do not have to be made public.
Need Help Understanding Your Disclosure Requirements?
If you’re unsure about what your nonprofit must disclose, check your state’s regulations or consult with a nonprofit legal expert. Instant Nonprofit can also guide you through compliance and transparency best practices to help maintain donor trust and legal standing.
For further assistance, reach out to Instant NonprofitSupport for expert advice on financial reporting and compliance.