In this tough economy, nonprofit organizations are needed more now than ever. More and more people are finding themselves in difficult circumstances and, according to all available evidence, it's going to get worse before it gets better. Despite all the…
On January 24, 2009, National Heritage Foundation filed for Chapter 11 bankruptcy protection in federal court. Is this the end for NHF?
National Heritage Foundation, NHF, was founded by J. T. “Dock” Houk as a 501(c)(3) fiscal agency for nonprofits using a donor-advised funds scheme. NHF operated under the premise that people shouldn’t have to be burdened by the regulatory compliance headache of running their own 501(c)(3) in order to do good and charitable things. One could just start an NHF “foundation” and have donors give directly to NHF, but designate the funds to their “foundation”. “Foundation” is in quotes because that is NHF’s terminology. NHF “foundations” are not considered true foundations. The idea was that by signing up with NHF, people could have what looks like a charity, but piggy-back on NHF’s tax-exemption. In theory, the “foundations” were an extension of NHF’s charitable mission. In return for its efforts, NHF took a small percentage of the donations for operating expenses.
Like so many theories, NHF’s didn’t work so well in practice. Early on, NHF aggressively promoted the idea that “foundation” directors should pay themselves well, even if they were the primary donor. In other words, you could start a “foundation” to do whatever, donate to your own “foundation” tax-deductibly through NFH, then pay yourself for your good deeds. Needless to say, this generated enormous controversy within charitable circles and drew the ire of the IRS and Congress. But technically, there was no law directly prohibiting such since these “foundations” were part of NHF and, in theory, NHF controlled the expenditure of funds.
Sounds like scary stuff, doesn’t it? The decision to start a nonprofit organization is difficult in the best of circumstances. But in a downright frightening economic climate, does it make any sense at all? Some experts are predicting that this economy may doom up to 100,000 existing charities this year. Could you possibly pick a worse time?
For the first time since 1979, the IRS has completely overhauled the Form 990 – Return of Organization Exempt From Income Tax. And boy, is it a doozy! This time, they weren’t fooling around.
“So what’s new?,” you ask. Literally everything…from the filing requirement thresholds to the information they are seeking…it’s all different.
Got your attention? Good…because what we’ve got to report on will shock you…and could have a devastating impact on some charities and the families that depend on them.
Congress, in a stroke of genius that was too smart by half, passed the Consumer Product Safety Improvement Act in August 2008. It takes affect February 10, 2009. The public is only now becoming aware of the draconian nature of the statute.
At the end of most newsletters, we put out the call for “topic requests”. We wanted to get to some reader questions before the year ended. We will try to answer questions like these, that don’t require a whole article, from time to time. If you have article topics that you would like us to cover, email them to us at email@example.com or simply reply to the email newsletter when you receive it. We cannot guarantee your question will be chosen, but we’ll try. On to the questions…
Q) Do all donations need to be spent by year’s end?
A) The quick answer is, no. “Nonprofit” does not mean that at the end of the year there should be no money left in the account. A 501(c)(3) organization can have money left at the end of the year. It would probably be a good idea if it can. Money left over can go toward adding programs, improving existing programs, make up for less funding next year, etc. Never forget that you’re still running a business (of sorts)…you gotta make more than you spend!