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Nonprofit Law/reciepts for US NGO

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QUESTION: We are a US NGO that does most of its work in Latin America where receipts are not that easy to come by...so what we do is make paper slips that say how much was paid, date and what it was for..because of our blogs and ridiculous amount of email reports on day to day operations there is way more than sufficient reporting to confirm what we say we do..we in fact are doing. The question is some of the receipts are just scraps of paper with date, amount and purpose...they are signed by the administrator but seldom by the recipient of the funds mostly because the bulk of our work is done on the fly or in the field so carrying a journal or receipt book is possible but not optimal...

what are the legal requirements for receipts for an NGO..do they need to be signed by the person/street vendor/ect ect that receives the cash? keep in mind most of these receipts are less than 100 USD and almost all less than 30 USD.

Any help would be greatly appreciated

ANSWER: See the IRS publication at
http://www.irs.gov/pub/irs-wd/0504031.pdf for details about international grants to and international activities of U.S. exempt organizations. Specifically note on page 2:
--- Start of Excerpt ---

Similarly, a section 501(c)(3) organization will not jeopardize its exemption even though
it distributes funds to individuals, provided the distribution is on a charitable basis in
furtherance of the organization’s purpose.  Again, there is no distinction regarding the
geographic location of individual distributees.  In order to substantiate that individual
distributions are appropriate, the organization needs to maintain records and case
histories showing the name and address of each recipient, the amount distributed to
each, the purpose for which the aid was given, the manner in which the recipient was
selected and the relationship, if any, between the recipient and members, officers, or
trustees of the organization.  Rev. Rul. 56-304, 1956-2 C.B. 306.
---End of Excerpt---

That deals with grants.  As for other expenses, IRS Public charities' record keeping requirements are discussed in the IRS publication 4221-pc "Compliance Guide for 501(c)(3) Public Charities" which is available at http://www.irs.gov/pub/irs-pdf/p4221pc.pdf starting on pdf page 29, "Supporting Documents" and there we see:
--- Start of Excerpt ---
Organization transactions such as contributions, purchases, sales, and payroll will generate support­ing documents.These documents — grant applica­tions and awards, sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks — contain information to be recorded in accounting records. It is important to keep these documents
---End of Excerpt---
In case you are audited, you would have the burden to evidence the purpose of any expenditure and to show that it is not simply a skimming of funds to one of your insiders. Your system is clearly not sufficient for that purpose.  You do not have the recipient give a receipt or an invoice.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    




---------- FOLLOW-UP ----------

QUESTION: Not sure I understand the "In case you are audited, you would have the burden to evidence the purpose of any expenditure and to show that it is not simply a skimming of funds to one of your insiders. Your system is clearly not sufficient for that purpose.  You do not have the recipient give a receipt or an invoice." we are making receipts for every purchase only they many times do not come direct from vendors. I looked over the IRS guidelines and see where for asset purchase there are a lot of requirements for receipts and more for grants which do not apply to us as our funding is all private. From my understanding of the guidelines all the IRS requires is the amount of purchase and purpose...no mention of date which seems odd and definitely no mention of signatures by anyone. It does say there needs to be reports detailing the purpose of the use of funds related to these receipts. Am I reading this wrong or is there more exact requirements in another IRS document defining compliant receipts?

Answer
I don't know what IRS guidelines you are referring to, but, as to the Publication 4221-pc we see, on pdf page 28, "Except in a few cases, the law does not require a special kind of record." In other words, what would be acceptable in an ordinary accounting system is acceptable. I don't know of any standard accounting system that would only require the purchaser's statement as to the use of the funds. You can check at www.fasb.org which is the site of the Financial ccounting Standards Board (FASB) or any other accounting site as to the type of receipts that should be kept. At the minimum it would include the price, the date the name of the seller and the items sold and come from the seller.

See, for example, the discussion of the need for "receipts".
http://killerirscpa.blogspot.com/2011/02/irs-audit-no-records-receipts-proof.htm
By definition, a "receipt" is something that comes from the seller (who received the money for goods or services). http://en.wikipedia.org/wiki/Receipt

The law imposes the burden on the exempt organization to show the
use of its funds. See, for example, Church of Gospel Ministry, Inc.
v. United States 640 F. Supp. 96 - Dist. Court, Dist. of Columbia, 1986
http://goo.gl/e1oKB

There, the court wrote "CGM has failed to keep records adequate to determine the full nature of its operations and failed to show that its operations do not inure in part to the private benefit of its officers." http://goo.gl/WxCtV

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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