Tag Archives: internal revenue service

IRS Tells Us What ‘Good Governance’ Means, Part Uno

Photo courtesy of alykat on Flickr.

We hear this language all the time in charity circles:

 

  • governance
  • accountability
  • transparency
  • board responsibilities
  • conflict of interest
  • whistleblower protection
  • executive compensation
  • document retention

… and other words and phrases in the nonprofit lexicon. What do they mean to the federal agency that reviews public charities when they apply for tax-exempt designation and again every year when most file an information return?

The most comprehensive (read “burdensome”) of the returns, form 990, asks lots of questions about whether policies are in place, but doesn’t (and shouldn’t) provide any detail as to what the expectations are around these arcane concepts.

If only we could agree on what the practices mean.

I found this gem on the IRS website, “Governance and Related Topics – 501(c)(3) Organizations,” that makes it pretty clear what the agency is looking for. (It’s from February 2008, but these definitions don’t change much.) The Internal Revenue Code does not require documentation or detailed policies in these areas.

But–big but–IRS believes, “A charity that has . . .a knowledgeable and committed governing body and management team, and sound management practices is more likely to operate effectively and consistent with tax law requirements.”(page 1)

That explains the Service’s opinion of the relationship between good governance and tax code compliance, and their interest in the former. So what do these things mean?

Good Governance. This is the broad category. It means having in place “policies relating to executive compensation, conflicts of interest, investments, fundraising, documenting governance decisions, document retention and destruction, and whistleblower claims.” (page 3)

Executive Compensation. You pay reasonable compensation for services rendered. Pay is determined by people knowledgeable about compensation practices and financially uninterested in the levels set. (page 3)

Conflicts of Interest. The Service “encourages a charity’s board of directors to adopt and regularly evaluate a written conflict of interest policy that requires directors and staff to act solely in the interests of the charity without regard for personal interests . . .” You set up the policy and monitor compliance. (page 4)

There is considerably more detail at the page references I’ve given you. Read the document and consult your legal counsel. Do not construe this post as legal advice. It isn’t.

Over the next few weeks I’ll take on additional governance topics from this informative IRS paper.

There are expert attorneys much more knowledgeable than me in the legal requirements for running your nonprofit. I suggest you pay attention to Carter Ellis and Gene Takagi. Gene and his colleague Emily Chan will be regular legal contributors to Tony Martignetti Nonprofit Radio starting in July. I’m sure we’ll talk a lot about governance.

IRS “Dirty 320,000” List Coming

GuideStar advised in an email yesterday that IRS will soon release its “Nonfiler Revocation List.”  The Service says the same in a February article.

According to GuideStar, the list contains “as many as 321,000 nonprofits.”  That’s one-quarter of all the public charities in the United States.  The New York Times had the same estimate in coverage last April, ahead of the May 15 filing deadline that caused the loss of tax-exempt status for so many.  Failure to file form 990 with IRS for three consecutive years lands you on the list.

From the IRS article: “Loss of exempt status means an organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations.”

And from a July, 2010 IRS press release: “If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.”

You know I’m big on compliance issues.  CEOs and boards have got to step-up to their fiduciary duties to the charity and stop ignoring legal requirements.

The regulatory environment is only going to get more hostile to scofflaw nonprofits.  This applies to tax code requirements, governance issues, and state laws, like charity solicitation registration filings.  The days of mom-and-pop boards “doing good” are long over.

This filing requirement was heavily publicized by IRS last year ahead of the deadline, and the agency extended the deadline to October for small charities.  It was covered by mass media.  There’s just no excuse if your charity is an active organization.  File your delinquent returns.  If the organization has terminated activity–or merged with another nonprofit–you need to disclose that to IRS on a final form 990.

Nonprofit Radio for March 18, 2011: Legislative Lookout and APPrehensive

Big Nonprofit Ideas for the Other 95%

You can subscribe on iTunes and listen anytime, anyplace on the device of your choice.

Me interviewing Emily Lam and Perry Wasserman
Legislative Lookout:
I’ll discuss the possible change in the charitable deduction with nonprofit lobbyist Perry Wasserman. Perry is managing director of 501(c) Strategies, a Washington, DC-based lobbying firm that works exclusively with nonprofit organizations.

We’ll examine what Congress is debating that hits home for you:

  • Is the charitable deduction at risk?
  • What’s the fate of the IRA charitable rollover?
  • What are continuing resolutions, and why are they killing important nonprofit programs?

 

APPrehensive:
Should you develop a smartphone app for your nonprofit? Scott Koegler is our regular tech contributor and editor of Nonprofit Technology News. He will explain what it takes and how you get started.
    

Top Trends. Sound Advice. Lively Conversation.

You’re on the air and on target as I delve into the big issues facing your nonprofit—and your career.

If you have big dreams but an average budget, tune in to Tony Martignetti Nonprofit Radio.

I interview the best in the business on every topic from board relations, fundraising, social media and compliance, to technology, accounting, volunteer management, finance, marketing and beyond. Always with you in mind.

When and where: Talking Alternative Radio, Fridays, 1-2PM Eastern

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Here is the link to the podcast: 033: Legislative Lookout & APPortunity

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More Nonprofits Filing Long IRS Form This Year

Darth Tax Evader - photo courtesy of swanksalot, on Flickr

Last year there was a big concern over charities losing their tax-exempt status if they hadn’t filed any annual tax form with the IRS for three consecutive years. This year, more nonprofits face the requirement of filing the longest form, as IRS reduces the filing threshold.

Public nonprofits enjoy a short menu of forms, and your selection is dictated. Whether you file the 990-N (postcard), 990-EZ or full Form 990 depends upon your gross receipts and total assets. Last year, the lengthy, onerous (avoiding temptation to use “taxing”) Form 990 requirement kicked in if your gross receipts were more than $500,000 or total assets were greater than $1.25 million. In 2011, those limits are down to $200,000 and $500,000, respectively. Those are considerable reductions and IRS will embrace more organizations into the 990 filing family.

The postcard is a breeze, asking merely nine simple questions. The 2010 EZ form (filed this year) has 52 questions, plus subparts and 8 schedules. The full 990–may I speak freely on my blog? we’re all adults here–is a bitch. It boasts 12 parts across 12 pages with nearly 200 primary questions plus 15 schedules.

The 990 is a bold, robust effort at oversight and disclosure, with more than a hint of burden, intended to protect the public from those who would absquatulate with charitable dollars. Witness the story of the U.S. Navy Veteran’s Association as evidence that protection requires more than a form.

More nonprofits will file the postcard this year, too. That threshold doubled from 2010, to gross receipts under $50,000. Over that, the EZ or 990 is submitted. That means fewer EZs and more postcards this year from charities whose annual receipts are between $25,000 and $50,000. Good news for small nonprofits.

The rules are all laid out in this IRS chart.

Stop Squawking About Charitable Deduction Reduction

Puffin courtesy of AmySelleck.

Obama’s 2012 budget proposal is out and it revives the charitable deduction limitation for wealthy donors.

That means we’ll have to listen to the doomsayers, like Independent Sector’s Diana Aviv, exclaim how devastating this will be to the nonprofit community. From last December, here’s a preview of what we’ll hear very shortly. The only nonprofits she speaks for in that article, “Nonprofits Fear Losing Tax Benefit,” are the members of Independent Sector.

I’m thinking of the other 95%, the vast majority of nonprofits who don’t care because they don’t have donors, or many donors, who earn over $250,000 a year, the income at which the deduction reduction would kick in.

We know that tax incentives are not people’s primary motivation for giving. Altruism is. We know that giving always bounces back after depression, recession and tax changes that depress it. This will not destroy the nonprofit sector.

Can’t we trust our donors for Pete’s sake?

On the day the President’s proposal was released, here’s what Independent Sector had on its home page:

Link provided to the webcache of the Independent Sector website (click on the image).

I remember that. It was about two months ago, and it all sounded quite good for charities, including the 95% unheard “minority” that fundraise from low and middle income donors. Charities scored big in December. Do we have to score big again in 2012?

Why can’t the vocal nonprofits step-up this time and say, “Well, we don’t love it, but we’ll do our share to help reduce the deficit that, in small but noticeable part, the charitable deduction has contributed to for decades. Plus, we got these bennies in December 2010 so we’ll sit out this round.”

Doom-and-gloomers: stop squawking. Spend your lobbying money and strategy time visiting prospects, reminding them how critical your good work is, and soliciting and closing gifts.

The most foresighted charities will stand out from the crowd, and publicly proclaim, “We accept the charitable deduction reduction. We want to do our part to help America’s recovery.” I see a full-page ad in The Times with a hundred CEO signatures. Their donations will triple. Run it in The Journal and donations will quadruple.

I trust America’s altruism. I base my trust on history. (Should “God Bless America” be playing in the background? I hear “This Land Is Your Land.”)

As this gets posted the day after Obama’s proposal was released, I could be wrong about the doomsayers. Maybe they’ll come around and accept what’s fair. If they do, look here for my congratulations and apology.