2012 New Years Resolutions for Board Members

Question:
I have a nonprofit 501(c)(3) exempt status, and a friend has asked me if she could use my 501(c)(3) to apply for grants for a business venture. What are the pros and cons for letting someone use my nonprofit’s exempt status? I don’t feel comfortable about sponsoring another organization.

Answer:
It’s acceptable for a §501(c)(3) to act as a “financial conduit” for another §501(c)(3) or similar charitable nonprofit. However, it is considered to be an abuse of your nonprofit status to funnel nonprofit grant funds to a for-profit venture, and your nonprofit risks the loss of its §501(c)(3) status.   I was unclear whether your friend was involved with a for-profit or non-profit organization, but the term “business venture” seems to indicate a “for-profit” nature. This would be the first thing to confirm, before proceeding with your consideration of whether your nonprofit should act as a financial conduit.

Some things to analyze as you consider a request to be a financial conduit for another organization:

Risk – Even if the friend’s project is another §501(c)(3) organization, or an unincorporated nonprofit that clearly has a charitable purpose (and not a “for-profit” business), you are right to be cautious. The “financial conduit” is responsible for the grant dollars that flow through to the target entity. If those funds are misused or lost or stolen, your nonprofit might have to repay the lost amount to the granting organization, plus endure the public shame that would come with the public knowledge of the lost funds.

Relationship – Usually, nonprofits that are not §501(c)(3) organizations, or for some reason do not qualify for a grant (for example, they don’t have a large enough budget, haven’t been in existence for long enough, or are too small to be a §501(c)(3)), have some sort of pre-existing close relationship with the financial conduit. For example, in my home town, the local Food Pantry acted as a financial conduit for the local Thrift Shop on a site improvement grant — this was appropriate because the Food Pantry was the landlord, and both had similar stakeholders and constituents, so it was a natural fit.

Mission – If your nonprofit is very different from your friend’s nonprofit, it might be financially awkward for your nonprofit to act as a financial conduit – it might be tough to show the funds on the books (to find an appropriate accounting way to represent the information), and your stakeholders might question why you are funding a project outside of your primary mission.

Bottom line – while it is considered an acceptable practice for one nonprofit to serve as the grant conduit for another (several granting entities provide for a separate set of forms for the financial conduit, so granting organizations support and allow this practice), it requires your board’s on-the-record approval with “open eyes” to the risk and responsibility of the status as financial conduit.

Link to the post:  One Trail-Blazing Small Town

Link to the Carroll County Wabash & Erie Canal Center for more information:  Wabash & Erie Canal

There’s a lot more to the Canal Center than the trails – all of which is top-notch.  Check out the Canal Interpretive Center, the Outdoor  Pioneer Village, take a ride on the Canal Boat, walk the trails or rent a bike to ride the 10+ miles of trails.

What’s great about this center is that it has been built, and it is maintained, solely through volunteer efforts.  The local dedication is a great example to other nonprofits in the area, and has won state and national honors for the site and the volunteers.

Thanks to the blogger for the nice post – which provides a great lead-in for me to urge you to check it out!

If you want to know more about the video and the paintings represented check out this link:  500 Years of Women in Art – Info

Nonprofits – pay attention – If you don’t connect with social media, you will see a decline in attention to your organization as the general population shifts attention to instant content.

The article linked below discusses the pros and cons about whether the tax deduction for charitable donations should be abolished. This cites yet another article which advocates for removal of the tax deduction.

In this case, the article is not that memorable – I have read numerous posts about whether to abolish the charitable tax deduction, and most of them miss a number of key points in the rush prove their position on the matter. The Kim Klein article cited in this post is no different.

What is remarkable, and what I encourage you to read, are the extremely thoughtful and thought-provoking comments to this article that are far more intelligent and “deep-thinking” than the Kim Klein article.

I think we all can agree that our tax system is cumbersome, inefficient, ineffective and unfair. The real argument comes from the difference in opinion on what is “effective” and what is “fair.” The comments to this article share a different perspective that is worth the look.

Link to article: Tax the Rich More? or Less? Blue Avocado.

Saying again, this affects THIS tax year (2010).

The 990N is the on-line reporting that only requires name, tax ID#, address and a few other details – NO financial information is reported.

Nonprofits under the $50,000 gross receipts thresh hold may still choose to file a complete 990EZ or 990 return.  Whether your nonprofit should elect to file a 990EZ or 990 might depend upon the kind of income received and the expectations of your funders.

The increase of the 990N limit to $50,000 should save a lot of time and expense for smaller nonprofits.  However, even very small nonprofits should continue to keep careful financial records and find qualified volunteer or paid people to review the nonprofit financial records on an annual basis.

For more information, check out the informational page at the IRS website:

IRS 990 – Which Form to File

This same one-time extension is available to 990 EZ nonprofit taxpayers earning more than $25,000, but still qualifying for a “small nonprofit” classification.

Nonprofits who have not kept up with filing requirements WILL (not “might” or “may”) lose their tax exempt status.

Is your nonprofit in danger? Check out this link to the IRS website – nonprofits in danger of losing status are organized by state of origin:
List of Organizations at Risk for Losing Tax Exempt Status

If your Nonprofit is on the list, follow the instructions on the IRS website to file your on-line 990N. You will need your organizations tax ID number, the legal name and address of the organization, and the name of a contact person. You also need to check the box to affirm that your organization earned less than $25,000 in gross receipts.

(From the site)  “This site combines in one place a broad menu of legal information prepared by leading law firms and lawyers specifically tailored to the needs of social entrepreneurs and innovators, social enterprises, charities, community organizations,  philanthropies, faith-based organizations and all manner of nonprofit organizations (collectively referred to as “social sector organizations”).”

This is a very comprehensive website from the legal end – a good tool for nonprofit attorneys.

Law for Change

05-24-10 IRS 990 Notice

Note that for this particular nonprofit, the year end in question was September, 2008, so they are technically 20 months delinquent in filing the 990N (as opposed to anyone that missed the recent May 17 deadline).  While this should give small nonprofit some relief, don’t expect a long cycle before your number comes up.

Also note that the IRS is giving nonprofits “one last chance” to comply with the filing requirements – presumably, your nonprofit won’t receive a “you are revoked” letter without prior notice.  Check out this information from the IRS website about what the IRS will do to help small nonprofits maintain their status:

Statement from IRS Commissioner

The IRS 990N website was clogged for the few days before, and the day of, the deadline.  If you couldn’t get online during that time, or if you forgot, entirely, or if you were living under a rock for the past few weeks, all is not lost.  Here are a few tips to protect your nonprofits exempt status:

1.  File NOW.  Do it.  Really – right now!  Don’t read any further in this post, just click on the link below and submit the 990N (if you qualify – only nonprofits earning less than $25K per year are eligible to file the 990N).   File even if you are late – as long as the IRS website will accept your information, you aren’t too late (you might get a letter assessing penalties for late filing, but that’s better than losing exempt status).

IRS 990N Portal

2.  Did you do it?  Good.  Now – make sure all your other reporting requirements are current.  In Indiana, there is an NP-20 form that also is required by May 17, this year.  Here’s a link:

Indiana NP-20

3.  Monitor your status.  The IRS has a searchable database of all current exempt corporations.  You can access it, here:

Search for Charities

4.  Also, you can check out the IRS list of recent exempt status revocations.  Search here to see whether your nonprofit is listed:

IRS Recent Revocations

5.  Check your mailbox! The IRS may send you a notice of revocation of exempt status.  Many nonprofits don’t regularly check their PO Box (if they have one), or they don’t know what address is on the “official records.”  If you have an incorrect address on record, change it – but monitor both the old and new addresses for correspondence from the IRS.

Form 8822 Change of Address (PDF file)

6.  Follow up promptly.  If you learn that your nonprofit has lost its exempt status, take action immediately.  The sooner you respond, the less hassle you will endure to get reinstated.  However, if you find that your organization is outside an “appeal” window, you will have to start over to apply for IRS exemption.

While there is no guarantee that these tips will keep a delinquent nonprofit from losing tax exempt status, prompt action following this path should give you the best chance to save your nonprofit from the “List of Lost Exemptions.”

What are the rules for charitable deductions?  The IRS has a nice “Ten Tips” article that provides plain guidance.   Here’s a very quick and abbreviated summary – for more information check out the link to the article, below:

1.    ONLY qualified charities
2.    NOT time or services
3.    NOT tickets or merchandise for fund-raisers
4.    Fair-market value = deduction amount
5.    Donated items must be usable
6.    Must have documentation
7.    > $250 must have better documentation
8.    Noncash donations > $500 require separate tax form
9.    Noncash donations > $5000 require appraisal
10.    Must be able to itemize (Schedule A) to deduct

Ten Tips for Deducting Charitable Contributions

Check it out:

5 Trends That Will Affect Online Fund Raising in 2010

Lately, I’ve had inquiries about how folks can protect their creative works from being used (or abused) through the Internet.  While I’m not sure that you can completely prevent your content from being used without your permission, you can find unauthorized use on the Internet, through the use of a few good search tools:

Copyscape- checks URL (websites) for plagiarism (text).

Tineye – allows you to upload an image to search against.

There are a number of image search engines that allow you to search for images by words and phrases – here are two to get you started:

PicSearch

Google Image Search

(PS – all the images I use on my website are either free, licensed, or created by me.  Just so you know.)

UPDATE – February 3, 2009

Today’s issue of Blue Avocado has a great article about copyright protection – for more information, check it out:

Nonprofits and Copyright – What You Need to Know