Another tax season is right around the corner and people and organizations all over are working to pull together the necessary documents. For nonprofit organizations, this will include submitting The Internal Revenue Service (IRS) form 990 which now stresses the importance of a document retention and destruction policy.
The IRS’ Form 990 is a tax document/information form that nonprofits have to file each tax season. This form allows the IRS to evaluate nonprofits and how they operate.
Although it’s not required for nonprofits to have a written document and destruction policy right now, the form asks the question about document retention and destruction and it’s meant to get nonprofits thinking about the issue. It indicates the IRS believes this is important and it may indicate this is something the IRS might consider as a future policy. But beyond the IRS aspect, having a document retention and destruction policy is just good business; it can help nonprofits comply with certain laws as well as protect themselves from fraud.
- What and how long to keep files – Nonprofits should consult their legal and accounting staff to determine exactly what should be kept for their situation. Many think seven years is the rule of thumb when it comes to cycling out records, but this isn’t true for all documents. Before you toss files, consult a financial advisor or professional records management center to determine the length of time to keep specific records.
- Retention schedule – Once you’ve decided what you should be keeping and for how long, it’s important to develop a schedule so documents are discarded in a timely manner. Remember, never assume it’s better to be safe than sorry because federal law says that during an audit, they can go through all records on hand.
- Destruction policies – All it takes is the wrong person in the right place getting a few of your records and your organization could find itself trying to recover for years to come. In order to make sure this doesn’t happen to you, shred everything that you’re disposing of. If you have large amounts which need to be shredded, take advantage of local services which specialize in shredding.
Even though nonprofits differ in their business models compared to for-profit entities, it is just as important for them to have a working document retention and destruction plan in place - plus by developing a policy now, your organization will be ready if and when the IRS decides to make this a requirement of nonprofits.
