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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.

2.  The IRS has increased filing fees for new applications for 501(c)(3) status.
Yep, they did it again effective January 3, 2010.  The last increase was about 3 years ago.  The two-tiered structure remains two-tiered with the lower fee (for applications expecting to make under $10,000 per year in revenue) now at $400.  The standard fee of $750 has increased to $850.  This increase is in anticipation of Cyber-Assistant, a web-app for preparing Form 1023 (see below).  Just like the last time the fees went up, the IRS has not yet updated Form 1023 to reflect the changes in the filing fee.

3.  Cyber-Assistant is slated to be released sometime in 2010.
The rumors have been out there long enough that more and more people are asking questions about it.  Yes, Cyber-Assistant will be software specifically intended for preparing Form 1023.  No, you won’t be able to get it from the IRS.  It will only be available through approved, third-party partner-vendors like Foundation Group.  Yes, it should improve the speed and ability of the IRS to review applications.  No, it will not make it much easier to prepare Form 1023…with the possible exception that an incomplete application cannot be printed.  Yes, I said printed.  No, Form 1023 will not be electronically fileable…at least not yet.

4.  New organizations targeting Haiti relief may qualify for expedited IRS review.
This is an area often overlooked by applicants for 501(c)(3) status.  The IRS has a method for requesting expedited review of a Form 1023 for an organization addressing an existing disaster situation.  A detailed letter request for expedited review must accompany the Form 1023 when it is filed.  There is no guarantee that the IRS will grant the request, but they often do if the applicant effectively makes their case.  For all startup clients we work with that are forming such an organization, we prepare those letters for them.  We’ve had a good track record over the years of seeing the request granted.  Given that the IRS is taking 6-12 months to review most applications, expedited review can mean weeks instead of months.

5.  2009 was a rough year financially for nonprofits.
Real newsflash, right?  Last year was probably the worst in 20 years for many nonprofits.  The statistics show that the pain was spread all around.  I reviewed a survey this weekend regarding religious organizations that stated only 9% of churches nationwide saw donations increase in 2009 over 2008.  9%!  The numbers aren’t much better for other categories.

6.  2010 will be similar.
Sorry…don’t mean to be a downer.  But the reality is, all signs point to another lean year.  So, how can you get your nonprofit into the growth club in 2010?  Though far from a scientific fact, I can tell you that the organizations we see bucking the trend just think differently.  They are aggressive, focused and intentional about everything…from program operation to vision-casting to creative fundraising.  Just putting into practice the advice you find in our articles will put you miles ahead of most organizations.  It matters that much!

It is important to us to keep our clients and friends in the nonprofit community informed of the things that matter to them.  If we haven’t already told you, “Have a great 2010!”

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 14 Comments

  1. I am wanting to start a Non profit thrift store. Needless to say, I do not know where to start. can you tell me where I need to start to file to become non profit. What I will need? I have read everything I could to find out,but no one comes right out and tell you what you need. Any help would be great. Thanks in advance!

    1. The answer to that question could go several directions. Technically, you have two filing steps: state-level nonprofit incorporation and then federal 501(c)(3) recognition. Realistically, there is more to it than that. Sounds like you could use some direct assistance. Call us and speak with one of our team members who can better help you understand what needs to be done.

  2. My friend's husband who is now deceased, was the non profit's CEO. She wants to keep him in that position or somehow honor him when reorganizing the organization structure. How can she do this?

    1. Umm…he's dead, right? Unless they intend to reenact Weekend at Bernie's, that won't work. Very bad jokes aside (sorry), he could always be honored as the founder somehow. Create a "chair". This is a symbolic designation that really means nothing, but honors someone. For example, the new CEO could occupy the "Founder's Chair". There is no magic answer here. As long as real, breathing people occupy the actual board and officer positions, a little creativity to honor the founder is fine. Hope that helps.

  3. Is it common for the IRS audit team to come and watch your Bingo session before your audit scheduled date?

    1. That really happened? Wow! It's probably only as common as gambling-related fund raising. That would be a tip-off that they likely intend to examine your gambling activity.

    1. These changes do not affect the organizations you describe. Keep in mind that sub-$5,000/yr organizations can operate as tax-exempt, but are considered by the IRS to be clubs, not true 501(c)(3) charities. As such, donations to them are never tax-deductible.

      1. Thank you very much..!! We are a small org. and we are working on the paperwork for 501C3. We were waiting for the new changes to come into effect, because the procedure is going to be easier and cheaper. However, seems like there is not much change in the amount of paperwork we are required to do. We are also looking for some guidance on the final draft of our paperwork.

        1. If your organization is serious about pursuing 501(c)(3) status, I recommend having a representative of your organization to contact our office for guidance on how best to proceed. At this point, the changes are not imminent…so waiting is probably not the best choice.

  4. Hello and thank you for all the helpful information. We filed our articles of Inc about 2 years ago and received the certificate but misplaced it in a move. First question, how do we obtain another copy also we have done nothing as an organization as when we filed we had more time but now the time is freeing up again. Are we threatened with losing our exemption status because we have not filed 990 with IRS. Please advise. Thank you.

    1. It's not clear from your question whether you lost your Articles or your IRS determination letter. If it is the Articles, the Secretary of State's office can get you a certified copy. If it is your IRS letter, contact the IRS at (877) 829-5500 and request a new copy. Assuming your organization is not a church, you must file Form 990. You can lose tax exemption if Form 990 is not filed for 3 years in a row. Just make sure your file for 2009 and revocation should not be an issue for you.

  5. Does this apply to churches? If so, I have never heard about this – and we have certainly gone longer than 3 years without turning in a form!

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