Archive for the ‘Hot Topics’ Category

It seems that there has been some confusion regarding last week’s article on IRS Form 990, particularly Schedule O.  In this short article, I want to expand a bit on that discussion and clear up some misconceptions.

We had a caller last week take us to task for hyping Schedule O as some kind of monster.  His comments (paraphrased) were along the lines of,

“You guys have some nerve.  You are intentionally trying to create confusion to increase your business.  I looked at Schedule O and it’s no big deal.  It’s a blank form!”

Point taken..sort of.  Yes, it is true that Schedule O is a mostly blank form with a bunch on lines on it.  But no, we are not hyping anything at all.  First of all, that would be a disservice to our clients.  It would also be a very short-sighted business plan.  The truth is that, like everything related to 501(c)(3), things are more complex than they appear.

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I can already hear some of your sarcasm…

“Tell me something I don’t know!”

“You’re kidding!  The IRS?  Really?”

Point taken.  It seems like the IRS always wants to know a thing or two about you.  Whether it is your personal tax situation, your business or your nonprofit organization, the Internal Revenue Service seems to always be there.  We’ve spent a great deal of time educating you about the seriousness of the 2008 changes to IRS Form 990 and what they mean to your nonprofit.  Well, the screws are getting tighter with the recent release of additional changes for the 2009 return.  Specifically, it is the changes to the Schedule O that have the potential to shake things up pretty dramatically.

What is Schedule O? The name of the schedule, Supplemental Information to Form 990, sounds harmless enough.  It was introduced in 2008 as part of the overhaul to Form 990 that added Schedules C – R to what had previously been just Schedules A & B.  The purpose of the schedule is to provide the IRS with…wait for it…supplemental information about the activities of nonprofit organizations that is not captured elsewhere on the return.  What is new for the 2009 tax year is that Schedule O is required of all Form 990 filers.  This is where the game begins to change…

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The filing deadline for the 2009 Form 990 is May 17, 2010 for 501(c)(3) and other tax-exempt organizations running on a calendar year basis.  There is nothing particularly new about that.  What IS new is that this year’s filing obligation has the potential to cause an enormous amount of heartache to those nonprofits that are unaware of the requirements and fail to do what is necessary.  We touched on this briefly in our last article, but we want to expand on it a little bit.  We implore all of our clients and friends to read this article carefully and be informed.

ALL tax-exempt organizations must file Form 990. With the distinct exception of churches, all 501(c) nonprofits are required to file a version of Form 990.  We’ve been saying this over and over, but we still find that the message is not quite getting through.  To make it easy to understand, ALL means ALL.  No exceptions!

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As long-time readers of our articles know, most of our posts focus on tips and best practices for effective nonprofit management.  This post is going to be a little different.  There is so much going on right now that affects nonprofits, we thought it would be a good idea to provide you with a brief run-down of some things you need to know.  Some of it is related, some not.  Here we go…

1.  Many smaller nonprofits could lose their tax-exemption this year. How?  Tax filing year 2009 is the third year that the IRS has required the filing of Form 990-N for organizations averaging under $25,000 in annual revenue.  Prior to 2007, no filing was necessary.  IRS regulations state emphatically that any 501(c)(3) public charity that fails to file a required Form 990 for three consecutive years will automatically lose their tax-exempt status.  Unfortunately, many organizations are either still unaware or just whistling Dixie and not taking this seriously.  I expect panic to set in when letters of revocation start hitting mailboxes later this year. Read the rest of this entry »

Given the sheer number of clients we work with, we rarely highlight specific ones or their needs.  The devastation caused by the earthquake in Haiti is almost beyond imagination.  Below is a list of Foundation Group clients that work in Haiti and are responding to the disaster.  Please, take a moment and pray for the people of Haiti, then donate to a charity that is working to make a difference…

• Child Reach International (646-739-0944)
• The Kids Connection Haiti (http://www.friendsoftheorphans.org/haitiquake)
• Love One Another Embassy/Orphanage (615-453-5777)

Please help.  Thank you.

IRS Audit Division

In our last post, we took a look at five of the most common sources that could spark an IRS examination or audit of your 501(c)(3) organization (or other nonprofit).  In this article, we’re going to equip you with five rules you need to know should you get the dreaded notification that your organization is going to be examined.

If you haven’t read the prior article, go here to read it first.

Rule #1:  Don’t panic. Breathe.  Yours is not the first nonprofit to ever be audited.  You can survive this.  I’m not going to lie and say it will be a pleasant experience, because it won’t be.  But, fear causes you to react out of emotion, not logic.  Slowing down and calming your nerves will put you in a much better frame of mind to tackle the next few steps.

Rule #2:  Don’t go it alone. If you could survey every person, business and nonprofit that has ever gone through an audit, I suspect you would find near unanimity about this one.  You need professional representation.  You simply do not have the depth of knowledge or understanding necessary to do this on your own.  It is very much like being your own lawyer at a trial…and you know what they say about that:  “Fool for a client…” Hopefully the professional who helped you prepare your IRS filings is competent to represent you.  Such representation, should it be necessary, is always a part of our preparation services.  A professional understands both the law involved and usually has experience dealing directly with the IRS.  Let them handle it.

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Free t-shirts for all audit targets! (no, not really)

There is one phrase in the English language that generates more fear and trepidation than any other out there:  IRS AUDIT.  Just hearing the words is enough to cause many a fearless person to break out in a cold sweat and to shrink in terror.  It is bad enough when an individual has to deal with IRS questions.  But when it happens to a nonprofit organization, there is plenty of pain to go around.  Directors, employees, members, donors…all can be affected.  Plus, just the potential bad publicity is enough to cause nonprofit leaders to reach for the Rolaids.

So how does a nonprofit avoid an IRS examination?  It helps to understand some of the situations and events that can trigger an audit.  In this article, we are going to look at 5 sources of audits and give you advice on how stay out of Uncle Sam’s cross-hairs.

1.  Complaints. One of the most common causes of IRS examinations is a complaint filed by a third  party.  Such “whistle-blower” situations may or may not have a shred of credibility to them.  Typically, if the IRS decides to look into the allegations, it will start out as a compliance exam.  It is possible for one of these exams to progress to the status of a full-blown audit, but most do not…at least for those organizations that are operating completely above board.

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In case you missed our blog about this story earlier in the year, the nanny-state strikes again.  Back in January, we told you about a new consumer “protection” law, the Consumer Product Safety Improvement Act, that was going into effect that would effectively put thrift stores out of business.  Many retailers of second-hand items, including many in the nonprofit world who operate thrift stores, protested loudly.  The Consumer Product Safety Commission backed off a bit, not only delaying the implementation, but also exempting second-hand sellers from mandatory lead testing, a previous requirement that would devastated the industry.

Well, the topic is in the news again.  Seems that  even though the testing requirements have been relaxed, the potential financial penalties for selling a recalled or otherwise unacceptable product has not.  Imagine this scenario:  Someone comes to your thrift store (or yard sale) and purchases a child’s toy.  Unbeknown to you, the toy was recalled a couple of years ago due to child choking hazard.  You could be facing up to $15 million in fines!  Yes, that is the number 15 followed by 6 zeroes.  Nevermind that no one choked on the toy.  If that happened, then you have the parent’s civil suit to worry about.

Again, it seems we’re facing a situation where big government knows best and John Q. Public takes it on the chin.  This wildly out of proportion law puts an undue burden on all resellers, especially charity thrift stores.  If this at all matters to you, contact your Senator, your US Representative and the Consumer Product Safety Commission and make your voice heard.  It works…just ask ACORN!

For the whole story, see New Government Policy Imposes Strict Standards on Garage Sales Nationwide

Bad seeds?

The Association of Community Organizations for Reform Now, aka ACORN, was, until the past year, a relatively unknown organization to most Americans.  Founded in 1970 and based in New Orleans, Louisiana, ACORN’s most visible face is that of a 501(c)(3) public charity ostensibly advocating for low- and moderate-income families in the areas of neighborhood safety, voter registration, health care, affordable housing, and other social issues.  ACORN also has a non-charitable arm that lobbies for primarily left-wing causes and candidates, as well as dozens of affiliated splinter groups.  ACORN’s “charitable” division receives millions upon millions of dollars in federal grant money each year.

ACORN’s profile increased dramatically during last year’s presidential campaign, with then-Senator Obama’s candidacy and subsequent victory, himself having been a community organizer with close ties to the group.  The problems for ACORN started when numerous chapters were busted for voter registration fraud.  Estimates go as high as 400,000 falsely registered voters, including Mickey Mouse and Paul Newman.  ACORN’s voter registration program is under investigation in 14 states, with over 30 indictments having been handed down so far with likely many more to come.

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September 15, 2009 is Foundation Group’s 14th birthday.  As one of the founders of this company (the other being Mr. Blair Dudley), I’ve been here since day one.  Believe me…there are days when it seems like a lot longer than 14 years!  But most of the time, it is truly hard to wrap my head around the fact that we’ve been doing this for so long now.  Plus, so much has changed over the years…

Since many of our readers are new to the Foundation Group family of friends and clients, the occasion of our birthday is a great opportunity to share a little of our story…who we are, where we came from, and why we do what we do.  At the end of our tale, we will let you know about a special gift we are providing during the month of September, but don’t skip ahead just yet .

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Bernie Madoff heads for prison

Fraud is a word that conjures up many images in your mind.  Maybe your definition of fraud is someone lying to you, stealing from you or conspiring against you while pretending to help you.  All of these are true…and it can happen to your nonprofit if you don’t know how to protect it.

Those who seek to harm or defraud you can come from both inside and outside your nonprofit.  Either can be devastating to the health of your organization, both financially and psychologically.  Let’s take a look at both scenarios and I’ll give you some tips on how to avoid becoming a victim.

Outsiders. For anyone who hasn’t been victimized by an outsider, it can seem like a remote concern.  “Surely we can spot a scam”, you tell yourself.  Ask any victim of Bernie Madoff how easy it is to be taken.  Just among our clientele at The Foundation Group, we have a Florida nonprofit that invested its entire endowment in a sure-thing Madoff fund.  It’s all gone…every penny.  Granted, this one was hard to spot.  Madoff made-off for many years right under the noses of regulators!  But it doesn’t take a Bernie Madoff to cause severe damage to your organization.

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The idea for this article came from my good friend, Belinda from Madison, Alabama.  A few weeks ago, she wrote us an email asking the following:

“Due to the economic downturn and, with the increasing requests for benevolence assistance, are there guidelines for churches and non-profits on what they can assist with and how much?”

Great question, Belinda.  I know others are asking the same thing.  Benevolence is synonymous with charity.  It’s the very definition of it.  But, there is a definite line between charity and what the IRS calls inurement (or private benefit).  This economic recession has caused many churches and charities to be overwhelmed with requests for help.  So, what follows are some things to consider when asking, “How much is too much?”

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Charitable Solicitations Registration. “Never heard of it,” you say.  Well, you are not alone.  As astounding as it may seem, estimates of noncompliance range from 85-95% of charities and nonprofits nationwide.  This level of noncompliance has persisted primarily because of 2 reasons:  1) lack of communication between state agencies and 2)  grace.  But, the times…they are a changin’.  It is time to get compliant!

What is it? It is helpful to start by explaining what we’re talking about.  42 states and the District of Columbia require nonprofit organizations that raise or intend to raise financial support from the public to register with that state’s Charitable Solicitations Department.  This department is typically run from within the state’s Attorney General’s office, though some originate within the office of the Secretary of State.

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You’ve seen the news.  You know it’s tough out there.  Just this morning I saw the following headlines on my Chronicle of Philanthropy RSS feed:  “Charitable Donations Fell by Nearly 6% in 2008″, “Ford Foundation Offers Buyouts to One-Third of Employees”, and “Robert Wood Johnson (Foundation) Offers Buyout to 40% of its Employees”.  Tough stuff indeed.  I’m sure that you have your own stories about what the current economic situation has meant to your family and friends.  So, the question is this:  Is there any way to survive, maybe even thrive, in such circumstances?  We resoundingly say, “Yes!”  Consider this your 2009 Nonprofit Survival Guide.

First off, stop listening to the news.  I mean it…turn it off.  I’m not advocating locking yourself into a cave and shutting out the world.  But, the constant drumbeat of negativity takes its toll on you after a while.  I saw a great sign on a realty office near my home the other day.  It said, “We have decided not to participate in this recession.”  What a great message!  The half-empty folks driving by no doubt scoff at such a sign and call it denial.  I call it taking responsibility for your own success.  The facts around them may not have changed, but at least for this one realty office in Mt. Juliet, Tennessee, they aren’t making excuses.  So what about you?  Yes, it’s harder to win than to lose.  But you have people (or animals or something) that need what your organization brings.  Determine to make it.

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Occasionally, you have to protect people from themselves.  Even those with the best of intentions can mess things up so badly that it can jeopardize what they are trying to accomplish.  In the nonprofit world, there are best practices, good practices and acceptable practices…and, really, really bad practices that will cause your organization, its board, donors and beneficiaries headaches galore.  This week, we are going to explore the Dirty (Half) Dozen Nonprofit No-Nos, in no particular order.  We will limit our discussion to 501(c)(3) nonprofits.

1.  Dictatorships. If you want to be your own boss and run the show as a benevolent dictator, then by all means, go start a business.  Just don’t start a nonprofit organization.  What many people fail to understand before they establish a 501(c)(3) organization is that nonprofits do not have shareholders, i.e., owners…only stakeholders.  Stakeholders can be defined as an organization’s board of directors, its members and its beneficiaries.  No one can legally assume ultimate control.  In fact, the IRS requires tax-exempt organizations to be structured such that control rests within a group of individuals.  This protects everyone involved.  Many times we’ve seen placeholder boards who basically rubber-stamp every decision made by a dictatorially-inclined president or executive director.  That does everyone a disservice.  Even worse, the IRS will hold all the leaders accountable for the governance and management of the organization, not just the dictator.

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