A bank account for any organization is a must-have, and non-profits are no exception. Even though non-profits are given the status of “exempt organization” by the IRS, it doesn’t mean they don’t need to do business. A non-profit needs financial services such as a non-profit bank account in order to collect revenues, pay vendors, and invest in operations to achieve their missions. Still there are essential differences between an opening non-profit bank account versus a regular bank account, and there are rules non-profits should keep in mind to protect their status as a non-profit and ensure the bank, the government, and donors that their processes are on the up and up. Here are three things to keep in mind. Show You must be a non-profitFor traditional accounts, banks are required to validate the account’s “beneficial owner” to ensure that the account is owned by a real person or entity. Non-profit organizations are exempt from that rule. However, they must present proof that they are a non-profit, and the bank will still do proper due diligence to validate who is opening the account. Based on this, to open a non-profit bank account, the organization must present their incorporation paperwork, their IRS tax identification number, and the IRS letter of Exempt Status. Some banks may have additional requirements, such as the minutes of the last meeting or the election of officers signed by the organization’s secretary. It is also important to not create issues or misgivings with the bank about who is opening the account. Having internal processes so there is consistency in officers and signatures can help. Two signatures are a good ideaOpening a corporate bank account often requires a dual signature on checks. This means two authorized signers must endorse any checks over a certain value. Non-profits are exempt from this rule as well. Still, it is an opportunity to check your bookkeeping and bylaws and take the opportunity to add similar rules to your processes. For example, it is a good policy to ensure that the person who handles the finances for your non-profit is not the same person who signs the checks. There should also always be two people to count and verify deposits. Further, if large expenditures or regular budget items are approved at a board meeting, they should be recorded in the meeting notes and minutes. These types of practices can provide protection for your non-profit bank account and assure the bank that you are operating in line with solid business standards. Great bookkeeping mattersIn order to prevent crimes and safeguard banking practices, banks are required to complete an IRS “Report of Cash Payments over $10,000 Received in a Trade or Business” any time they receive deposits of more than $10,000 in a single transaction or through two more related transactions. This rule applies to all businesses, including non-profits, as it might be common for non-profits to hold large fundraisers or get large checks from major donors. While these reports are often made and filed without incident, if there’s ever an issue it is important for a non-profit’s internal documentation to match what is reported to the IRS. It is great to get large donations, but what you present to the bank, to the IRS, and in your bookkeeping and board minutes should all tell the same story. Not having a consistent or accurate can raise red flags with the bank and can put your non-profit status in jeopardy. Banking systems for all businesses are important tools, and for non-profits they are just as essential. In addition, a lot of banks have programs and services available specifically for non-profit organization, such as waived monthly fees. Opening a non-profit bank account is a first step for non-profits in organizing their efforts and achieving their missions. And, it creates a paper trail for the bank and IRS that your non-profit is legitimate, honest, and legal when it comes to reporting income and expenditures. To learn more about the right financial products for your organization, contact your local team at M C Bank. Question: What is the proper way to set up an account for donations to assist a family whose home was destroyed by fire? Who should sign on the account, what tax identification number should be used, and how should the account be titled? Answer: When I served as General Counsel for the Oklahoma Bankers Association, this question was frequently asked by bankers. In August, 1994, I wrote an article for the OBA publication that we are reprinting here, as I think it still offers helpful guidance. A family's house burns down, leaving family members with only the clothes on their backs and no money to replace the items they lost. A community member desperately needs a transplant operation. After a drive-by shooting claims the life of a teenager, family and friends mount a fund-raising effort to cover the funeral expenses. A popular news reporter dies in a plane crash and members of the public send money for the reporter's child's education. All of the terrible scenarios described above have one common denominator: they will all generate donations from family, friends, or generous strangers who have heard or read about the disaster. In many instances, those contributions will bring about the need for a special bank account. How you style the account, what documentation you require, and how you keep the bank from being caught in the middle of a fight over entitlement to the funds, are critical issues that must be grappled with before the account is activated. To determine the appropriate way to handle the account, it is necessary to obtain answers to the following questions:
There are several alternatives available to a bank when faced with the prospect of opening such an account. Those alternatives include: Requiring the establishment of a formal trust. The trust would have legal ownership of the funds; the beneficiary would have the beneficial interest. A trustee or cotrustees named in the trust instrument would be given certain specifically enumerated duties and responsibilities. The purposes for which the funds could be used would be delineated, and a procedure for appointment of successor trustees would be clearly set forth, as would an alternative use for the funds should the original intended use cease to exist. If an account is set up in this manner, you would follow IRS guidelines on trusts to determine if the trust itself had to have a separate tax I.D. number. Typically, it would. And a trust tax return would need to be filed. The trustee could either be an individual, or the bank's own trust department could serve as trustee if the account size warranted the use of a professional trustee. Another alternative would be for the bank's trust department to serve as cotrustee with the individual setting up the account. Particularly if the trustee is an individual, be sure the intended recipient of the funds is aware of the existence and nature of the trust and the provisions of the trust instrument in order to minimize the risk of fraud. When thinking about the precautions you must take, it may be helpful to think through the types of scams that could be perpetrated with this type of fund. For example, Dewey Cheatem could come to your bank and set up an account to raise funds to save the dying in Rwanda. Using flyers, newspaper ads, and door-to-door canvassing, he could solicit funds for this cause, deposit them into this account, and then utilize the contributions for his own personal benefit. You must ask yourself at the outset what the connection is between the person seeking to establish the account and the intended beneficiary of the funds. What evidence do you have of a relationship sufficient to warrant allowing the person to deal with these contributions? According to a few of our banks, in some towns these accounts are operated under the auspices of the town's Chamber of Commerce. The Chamber solicits the funds and establishes a special account (such as one styled, "Mt. Vernon Chamber of Commerce, Cynthia Jones Transplant Fund.") The Chamber's tax identification number is used, and the Chamber assumes all responsibility for proper expenditure of the monies collected. Unfortunately, this option is not universally available. Some Chambers of Commerce are unable or unwilling to assume such a task. If the intended beneficiary of the funds is a minor child, an account established under the Uniform Transfers to Minors Act ("UTMA") may be an option. The use of an escrow account is a remote possibility. The problem is that an escrow account requires an underlying agreement between two or more parties that the funds will be held until a stated time, or the occurrence of a particular event, or something of that sort. Who would the parties to an escrow agreement relating to a tragedy account be? Presumably, the bank would act as escrow agent, but the remainder of the arrangements would have to be devised by legal counsel -- if it's possible at all. The account could be set up pursuant to a specifically drafted deposit account agreement in which all the details regarding
and miscellaneous other matters are included. An individual, or group of individuals acting jointly, could then operate the account in conformity with the terms of the deposit account agreement. If the bank could secure from those individuals some kind of performance bond or indemnity agreement to protect the bank and the intended recipient of the funds, so much the better. And lest you think my overactive imagination is simply conjuring up unreal nightmares, consider the following very real and very public instances of tragedy account problems:
The bottom line is that it is important not to enter into these deposit relationships lightly. Because of the potential for fraud or misuse, careful thought should be given to the proper method for styling the account and putting proper precautionary measures in place. First published on BankersOnline.com 3/5/01 First published on 03/05/2001 What is the best way to collect money for a fundraiser?Often, the most effective method to raise funds quickly is to ask for help from the community. First, figure out a way to accept gifts, either at a bank, credit union, or a website like PayPal. Then, spread the word about the person's or family's need.
How do I set up a donation fund for someone?How to Set Up a Donation Page for Fundraising Success in 8 Steps. Create an interesting fundraiser title.. Write a meaningful fundraiser story.. Choose the best types of photos and videos for your fundraiser.. Pick the right fundraising goal.. Share your fundraiser to get more donations.. Thank your supporters.. Do I need a bank account for fundraising?Unless all donations are in cash and donors will not receive a tax deduction, a bank account in the name of the entity receiving the donation is needed to receive deposits and write checks.
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