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Following Up on Form 990 Schedule O

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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“O” No! The IRS Has A Few Questions For You

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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This Year’s Form 990 is a Very Big Deal

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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News For Nonprofits

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.

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Avoiding 501(c)(3) Founder’s Syndrome

Founder’s syndrome.  It affects nonprofits and for-profits alike.  And it can be crippling to any organization.  Understanding what it is and how to avoid it is crucial to the future of your 501(c)(3).

Taken from that most-reputable of sources, Wikipedia, founder’s syndrome is defined as, “a pattern of negative or undesirable behavior on the part of the founder(s) of an organization”.  While that can be true, we find that most cases of founder’s syndrome within nonprofits simply involve a founder with too much influence.  In plain English, it means that the universe revolves around the founder…and not in a good way.  Here is an example of the way it usually works:

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How Year-End Contribution Statements Can Raise Money

It’s one of those administrative tasks that must be done every year:  mailing your donors a year-end statement of their contributions.  Even if you are receipting on a per gift basis, a year-end itemized report is a best practice that should be adopted.  If you are already doing that, good for you!  But let me ask you this…

Is your year-end donation letter making money for you?

Have you noticed that some nonprofits are still doing fairly well in this economy, even thriving, while others have suffered dramatically?  What do they know that you don’t?  While there are many contributing factors that underlie success in fundraising, I submit that the most important element is effective communication.  One of the best places to communicate is in your receipting to donors.

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Strategic Thinking For Your Nonprofit’s Year-End

2009 is rapidly coming to a close.  And once again, we find ourselves amazed at how fast the year has gone by.  Funny how we have this conversation every year, but we act like it’s the first time it went by this fast.

Just as December 31 rolls around every year, so does the need to plan for your nonprofit’s year end.  With only a few weeks left in the year, don’t put off until later some of the most important things you need to be doing right now.  Let’s take a look at some key, year-end necessities.

Strategic planning. The economic uncertainty of the past year has forced many nonprofits to shift gears and even change course.  For some, it has caused an existential crisis!  What has the economic downturn meant to your organization?  The end of the year is a natural time to (re)evaluate what you are doing.  Focus on maximizing impact for a minimum of expense.  Easier said than done, no doubt.  But now more than ever, it is imperative to be intentional with everything you are doing.  “Winging it” is ineffective in the good times.  It could be fatal in the bad times.

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Conflict Within Your Nonprofit – Handle With Care

The honeymoon is over.  It seems like yesterday that everyone was full of passion, vision and warm fuzzies.  You were going to save the world and nothing could stand in your way.  Now, passions have cooled, visions have diverged and the warm fuzzies have been replace with contempt and backbiting.  How did things go south so quickly?

Operating a business, especially a nonprofit, is a lot like a marriage…minus the romance.  What starts out with mutual respect and unity of purpose can descend into open hostility.  And, it can threaten your organization’s effectiveness…even its very existence.  Conflict management is an essential skill that every nonprofit leader must learn and utilize.  What follows are some key points to consider regarding effective conflict management:

Conflict is inevitable. Learn it, live it, love it.  The sooner you dispense of the notion that conflict can be avoided, the sooner you can manage the realities of it.  Conflict is inevitable because people are involved.  And where there are people, there will eventually be conflict.  Just like in marriage, you and the other leaders in your organization have different ideas, backgrounds and experiences.  These all color the way you approach life, including your approach to running your nonprofit.

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Surviving an IRS 501(c)(3) Audit – Five Rules

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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IRS 501(c)(3) Audits – 5 Potential Sources

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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