How to determine, or change, your not-for-profit’s year-end

Not-for-profits may choose their fiscal year-ends for IRS purposes. Individuals and many business entities (such as partnerships, sole proprietorships, and S corporations, with limited exceptions) are required to use calendar year-ends for their tax filings. This flexibility available to not-for-profits may provide certain advantages, so it is important for each organization to weigh the options before making a decision. This article discusses key considerations for NFPs when choosing a year-end date and how to make a chosen year-end date change.

What to consider when choosing a year-end

Form 1128. If the organization changed its year-end within the past 10 years, then it must file Form 1128 with the IRS to change it again.
Organizational documents. Sometimes a not-for-profit’s fiscal year is established in its bylaws. The organization’s board of directors should approve the change and amend the bylaws, if necessary.
Audited financial statements. For organizations that get audited financial statements, changing the fiscal year-end will affect the comparability of results in the year of the change, and single-year statements may need to be presented rather than comparative statements. A year-end change also will affect audit billing in the year of the change—accelerating it if the NFP chooses to have an audit for the “short” year and delaying it if the NFP chooses to extend the audit period.
Regulatory reporting requirements.State charitable registrations may be affected by selecting an alternate year-end. Having a partial fiscal year in the year of the change may cause the NFP’s revenue to fall below the required revenue thresholds for an audit or review. Many organizations that have changed their year-end have performed the same state filings with the “short” period as they had with their prior period. Before you make your decision about your audit period, be sure to contact the agency in charge of monitoring charities and clarify what is expected for the “short” period.

Whether new or existing, an NFP’s choice of reporting period warrants careful consideration.