Dallas Nonprofit Compliance Essentials: 501(c)(3) and Texas Requirements

Dallas nonprofits must navigate 501(c)(3) requirements, Texas registration, fundraising regulations, and governance standards. This guide covers essential compliance for sustainable nonprofit operations.

Federal Tax-Exempt Status

501(c)(3) Application

IRS Form 1023:

• Application fee: $600
• Processing time: 3-6 months
• Requires: Articles, bylaws, financials

Form 1023-EZ (simplified):

• Fee: $275
• Eligibility: $75: Disclosure
• Non-cash >$5,000: Appraisal

Penalties:

• Failure to provide: $10 per contribution
• Max: $5,000 per event

Grant Compliance

Requirements:

• Grant agreements
• Restricted fund accounting
• Progress reporting
• Financial reporting
• Outcome measurement

Cost: Grant management software: $100-$500/month

Governance and Operations

Board of Directors

Texas requirements:

• Minimum: 3 directors
• No compensation (generally)
• Duty of care
• Duty of loyalty
• Duty of obedience

Best practices:

• 5-15 directors
• Term limits
• Regular meetings (quarterly minimum)
• Committee structure

Conflict of Interest

Required policy:

• Annual disclosure
• Recusal procedures
• Documentation
• Board approval

IRS Form 990 disclosure:

• Related party transactions
• Excess benefit transactions

Document Retention

Permanent records:

• Articles of incorporation
• Bylaws
• IRS determination letter
• Board minutes
• Financial statements

7-year retention:

• Tax returns
• Grant agreements
• Donor records
• Employment records

Employment Compliance

Employee vs Volunteer

IRS guidelines:

• No compensation = volunteer
• Nominal fees allowed
• Expense reimbursement OK
• Benefits = employee

Misclassification risks:

• Back taxes
• Penalties
• Loss of exemption

Payroll Requirements

If employees:

• EIN required
• Payroll taxes
• W-2 forms
• Unemployment insurance

Cost: Payroll service: $40-$100/month

Volunteer Management

Best practices:

• Volunteer agreements
• Background checks (if working with vulnerable populations)
• Training
• Insurance coverage

Cost: $500-$2,000/year

Financial Management

Accounting Standards

GAAP for nonprofits:

• Fund accounting
• Restricted vs unrestricted
• Functional expense allocation
• Statement of activities

Software:

• QuickBooks Nonprofit: $50/month
• Aplos: $79/month
• Blackbaud: $100+/month

Audit Requirements

Texas requirements:

• No state mandate
• Grantors may require

Best practices:

• Revenue >$500K: Annual audit
• Revenue $250K-$500K: Review
• Revenue $1,000
• Tax rate: 21%

Private Benefit/Inurement

Prohibited:

• Excess compensation
• Insider transactions
• Personal use of assets

Penalties:

• Excise taxes
• Loss of exemption

Political Activity

Prohibited:

• Candidate endorsements
• Campaign contributions
• Political campaign intervention

Allowed:

• Issue advocacy
• Voter education
• Lobbying (limited)

Best Practices

1. Strong Governance

Elements:

• Active board
• Regular meetings
• Written policies
• Strategic planning

2. Financial Transparency

Practices:

• Public Form 990
• Annual reports
• Donor communications
• Financial statements

3. Compliance Calendar

Key dates:

• Form 990 deadline
• State registrations
• Insurance renewals
• Board meetings

4. Professional Support

When needed:

• Legal counsel
• Accountant/CPA
• Grant consultant
• Fundraising professional

Dallas Resources

Support Organizations

Dallas Nonprofit Resource Center:

• Training programs
• Consulting
• Resources
• Networking

United Way of Metropolitan Dallas:

• Capacity building
• Funding opportunities
• Collaboration

Professional Services

HAIEC Nonprofit Compliance:

• Form 990 preparation: $149/month
• Compliance tracking
• Document templates
• Training modules

Legal services:

• Nonprofit attorneys: $200-$400/hour
• Pro bono: Texas RioGrande Legal Aid

Conclusion

Dallas nonprofit compliance requires attention to federal tax-exempt status, state registration, fundraising regulations, and governance standards. Budget $4,775-$20,600 for startup and $5,500-$36,000 annually.

Key investments:

• 501(c)(3) application: $275-$5,600
• Annual Form 990: $500-$5,000
• Insurance: $2,000-$5,000/year
• Audit/accounting: $2,000-$15,000/year
• Ongoing compliance: $5,500-$36,000/year

Ready to ensure nonprofit compliance? Get nonprofit compliance guide →

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Related Resources

• Dallas Business Compliance
• 501(c)(3) Application Guide
• Nonprofit Governance
• HAIEC Nonprofit Platform