As we head into tax season, our Land Conservation Law Program wants to remind land trusts of the importance of following Land Trust Standards and Practices, in particular Standard #2: Compliance with Laws, which requires that land trusts maintain their state and federal nonprofit status.
A recent story puts legal compliance center stage. Recently, a nonprofit organization in Wisconsin faced community scrutiny when it was discovered the organization had not filed annual forms with the Wisconsin Department of Financial Institutions (DFI). When the organization reviewed the filings completed for them by their accounting firm, they realized that, not only had certain forms not been filed, but other reports that were filed included incorrect accounting of the group’s finances.
What led to this situation? It was primarily because the accounting firm hired by the organization was unfamiliar with how to apply Generally Accepted Accounting Principles (GAAP – more detail here) to their audit and was not familiar with state reporting requirements for nonprofits. But it was the organization’s failure to review the filings that ultimately allowed the mistakes to occur.
So, back to land trusts.
In order for Wisconsin land trusts to be in compliance with Land Trust Standards and Practices #2, the following steps need to happen.
Land trusts must:
- Maintain their federal tax-exempt status by annually filing a 990 Form with the IRS.
- File an annual financial report with the Wisconsin DFI that includes the same information as that on their 990 Form filed with the IRS.
Both state and federal filings can be complicated. Often land trusts will hire a Certified Public Accountant (CPA) to assist. Nonprofit financial records differ substantially from those of a for-profit enterprise. And land trust finances offer even more complexity in how their land holdings are recorded and reported. It is important that the CPA selected has the knowledge and experience necessary for working with a nonprofit, and more specifically with a land trust.
Here are some considerations for hiring and working with a CPA.
- Ask the CPA about their experience working with nonprofits, and if they have experience working with land trusts in particular.
- Ask your fellow land trusts for recommendations for CPAs or firms they know to have a clear understanding of both GAAP for nonprofits and of the complexities of land interest valuations. If a CPA doesn’t have experience working with land trusts that hold easements, it is your organization’s responsibility to provide them with enough information and background to conduct an audit and prepare reports accurately.
- Create or adopt a policy that guides how a CPA is selected and identifies who at the land trust has final authority for review and approval of reports produced by that CPA. At a minimum, the Board, via the Executive Committee or some other designated committee, should see all reports before they are filed.
Hiring outside expertise to help with annual filings is generally a good use of land trust resources. But your land trust must ensure that the work done by a third party meets state and federal reporting requirements, particularly for an organization that holds interests in property.
Approach your annual financial reporting with care and diligence, and remember: it only happens once a year!
Questions?
Contact Karen Bassler, Staff Attorney, at karen@gatheringwaters.org.
Please note this is not legal advice. Consult your attorney or tax professional for specific guidance.