What is charity compliance software?

Charity compliance software helps nonprofits track and manage regulatory requirements — Form 990 filings, state registrations, restricted fund rules, FASB reporting standards, and audit preparation. It replaces spreadsheet-based compliance tracking with automated reminders, built-in reporting, and audit trails.

What compliance requirements do charities have?

Charities must file IRS Form 990 annually, maintain state charitable solicitation registrations, follow FASB accounting standards (ASC 958), track restricted fund spending per donor intent, produce audited financial statements if required by state law or grantors, and maintain proper documentation for tax-deductible donations.

How does compliance software help with Form 990?

Compliance software maps your chart of accounts to Form 990 line items, tracks functional expense allocation (program vs. admin vs. fundraising), monitors board governance data, and generates the financial schedules needed for filing. Purpose-built nonprofit software like Alignmint does this automatically from your transaction data.

Do small nonprofits need compliance software?

Yes. Even small nonprofits must file Form 990-EZ or 990-N annually, track restricted fund spending, and maintain records for tax-deductible donations. Missing three consecutive Form 990 filings results in automatic revocation of tax-exempt status. Compliance software prevents these costly oversights.

Charity Compliance Software: What Nonprofits Need to Stay Audit-Ready

Nonprofit compliance isn't optional — it's existential. Miss three years of Form 990 filings and the IRS automatically revokes your tax-exempt status. Misuse restricted funds and you face donor lawsuits. Fail a state audit and you lose the ability to solicit donations. Charity compliance software prevents all of this by automating the tracking, reporting, and documentation that keeps your organization in good standing.

Most nonprofits manage compliance with a patchwork of spreadsheets, calendar reminders, and institutional memory. That works until someone leaves, a deadline slips, or an auditor asks for documentation you can't find. Purpose-built compliance tools eliminate these risks.

What Charity Compliance Actually Covers

Compliance for charities spans five areas, and most organizations underestimate at least two of them.

Federal Tax Compliance

Every 501(c)(3) must file an annual information return with the IRS:

Form 990 for organizations with gross receipts ≥ $200K or total assets ≥ $500K
Form 990-EZ for organizations with gross receipts < $200K and total assets < $500K
Form 990-N (e-Postcard) for organizations with gross receipts ≤ $50K

The Form 990 requires detailed financial data: revenue and expenses by category, functional expense allocation, officer compensation, program accomplishments, and governance policies. If your accounting software can't map transactions to 990 line items, someone is doing it manually — and that's where errors happen.

State Charitable Solicitation Registration

If your nonprofit solicits donations in multiple states, you likely need to register in each one. Over 40 states require charitable solicitation registration, each with different forms, deadlines, and renewal schedules. Missing a registration can result in fines and loss of solicitation privileges.

FASB Accounting Standards

FASB ASC 958 governs nonprofit financial reporting. Key requirements include:

Net asset classification (with donor restrictions vs. without)
Revenue recognition for contributions, grants, and pledges
Functional expense reporting (program, management, fundraising)
Liquidity and availability disclosures

Your accounting software either handles these natively or it doesn't. If it doesn't, you're building compliance reports manually.

Restricted Fund Compliance

When a donor gives $50,000 "for the building fund," that money can only be spent on the building. Restricted fund tracking isn't just good practice — it's a legal obligation. Misusing restricted funds can trigger donor lawsuits, IRS scrutiny, and loss of future funding.

Compliance software tracks restricted fund balances in real time, prevents overspending, and generates fund-specific reports that prove you honored donor intent.

Audit Readiness

Many states require audited financial statements for nonprofits above certain revenue thresholds. Grantors often require audits too. Being "audit-ready" means:

Clean, reconciled books with complete audit trails
All four FASB-required financial statements generated automatically
Documentation for every transaction, donation, and fund transfer
Board meeting minutes and governance policy documentation

What to Look for in Charity Compliance Software

Not all nonprofit software handles compliance equally. Here's what separates purpose-built compliance tools from generic accounting software.

Native Fund Accounting

Generic tools like QuickBooks use "classes" as a workaround for fund tracking. That's not fund accounting — it's a hack that can't calculate restricted fund balances, enforce spending restrictions, or generate fund-level financial statements. True fund accounting software tracks every transaction by fund from the moment it's recorded.

Automatic Form 990 Mapping

Your chart of accounts should map directly to Form 990 line items. When it's time to file, the data should be ready — not requiring weeks of manual reclassification.

Functional Expense Tracking

Every expense needs to be allocated across program services, management and general, and fundraising. This allocation drives the Statement of Functional Expenses and multiple Form 990 schedules. Software that handles this at the transaction level saves hours of year-end work.

Complete Audit Trails

Every transaction, edit, and approval should be logged with timestamps and user attribution. When an auditor asks "who approved this $15,000 expense and when?" you should be able to answer in seconds, not hours.

Donor Receipt Compliance

IRS rules require written acknowledgment for donations of $250 or more. The acknowledgment must include the amount, date, and a statement of whether goods or services were provided in exchange. Donor management software that generates compliant receipts automatically eliminates this risk.

How Alignmint Handles Charity Compliance

Alignmint is purpose-built for nonprofit compliance:

True fund accounting with restricted, temporarily restricted, and unrestricted fund tracking
79-account chart of accounts mapped to IRS Form 990 line items
Automatic functional expense allocation at the transaction level
All four FASB-required financial statements generated automatically
Complete audit trails on every transaction with user attribution
Automatic tax receipts for every donation, compliant with IRS requirements
Restricted fund enforcement that prevents overspending donor-designated funds

The Starter plan is free for nonprofits with up to $100,000 in annual donations. Schedule your free setup to see how Alignmint keeps your organization audit-ready year-round.