The issue of a charity having operations in a foreign country is rather complex, one that involves oversight not only by the Internal Revenue Service, but also Homeland Security. It is fraught with pitfalls that can only be avoided if…
Once upon a time, there were two websites, each belonging to a different charity. Our tale follows the adventures of these websites.
The first website…we’ll call it “the good site”…was considered a real asset to its owner. While not fancy or flashy, it was nice to look at and was obviously well taken care of. The content of the good site talked about the charity, the charity’s mission, its programs…it even had nice pictures of some of the volunteers helping the charity’s beneficiaries. And, everything was correct and up to date. The good site was very good indeed.
The other website…we’ll call it “the bad site”…was also considered a real asset to its owner. It was fancy and flashy and quite beautiful to behold. The content of the bad site talked a little about the charity, the charity’s mission, its programs…but, it talked a lot more about the charity’s president, John, and John’s for-profit business. In fact, it was kind-of hard to tell who the website was supposed to be promoting, John or the charity. There were some nice pictures of John, John’s family…even John’s dog…plus lots of conveniently placed “Buy Now” buttons for website visitors to snap up John’s new book. The bad site was very bad indeed.
The headline for this article is not really “new” news. The Internal Revenue Service has been stepping up enforcement of its regulations governing nonprofits for several years now. Those who have been keeping up with the changes to the Form 990 annual reporting requirement know this to be true. What is new this time is that the IRS is focusing hard on two, key areas: 1) nonprofit pay practices and, 2) abusive activities by charities. Let’s take a look at each of these.
1) Nonprofit pay practices. The topic of nonprofit pay practices has long been an area of concern for the IRS. Federal regulations require that compensation paid to employees of tax-exempt organizations must be “reasonable”. Unfortunately, “reasonable” is a subjective evaluation of the situation as a whole, not necessarily an objective check list. Moreover, the IRS is the ultimate arbitor of what is considered reasonable. So what is new? The overall economic downturn, along with the focus on executive pay, has ramped up IRS scrutiny of the compensation nonprofits pay their executives.
In last week’s blog post, we looked at a set of core principles that are critical for nonprofit organizations needing to raise financial support. If you haven’t read it yet, check that one out before diving into this one. It will make the ideas discussed below more effective.
So, what are some funding strategies that work? Let’s explore four categories of fundraising: direct appeal/pledging, professional programs, self-directed programs and grant funding.
Direct appeal/pledging. With this type of fundraising, you are literally asking people to give money to your organization, either through an individual gift or a pledge. This is the simplest and most direct method of funding your nonprofit and it should be a component of most funding plans. To be effective, however, you must be able to clearly articulate your program’s purpose and why someone should support it. This requires your program to be a more attractive target for someone’s giving than some other cause. I would again recommend you read last week’s blog article for a refresher on getting your pre-funding ducks in a row. After convincing someone to donate, you must maintain a consistent stream of communication with your donors, keeping your program before them on a regular basis if you want them to continue supporting you. That can be done through a variety of creative methods, one of the best being monthly newsletters. Technology has made this so much easier and cheaper, too. Instead of the hassle of dealing with printed material and postage costs, you may wish to consider a number of online communication tools that allow you to send newsletters, promos, etc. via email. We like Constant Contact for this purpose. You can also check out Aweber and some others. All are similar in features and price. They all come with pre-designed templates that make it simple to create good looking communications. Another often-overlooked tactic is to send a receipt/thank you letter for every donation, not just at the end of the year. Just remember that donor cultivation is a never-ending process. As soon as you start letting that slide, you’ll see your support slide right with it.
It is the burning question of every nonprofit organization: "How do we get funding?" With the economy in the dumps, and recovery looking like a distant hope, this question screams for an answer. In fact, we get more requests from…
If there is one constant in life, it’s change. And most people don’t do “change” very well…even the IRS! The new 2008 Form 990 is a complete, top-to-bottom overhaul of the form (as we’ve discussed in previous posts). As we talk with more and more clients/prospects, we’re really starting to see some trends develop…most of them not good.
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.