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April 26, 2011

Uh Oh, Tax Exempt Doesn't Mean Fee Exempt

Do you have the unsettling feeling that your nonprofit is having to raise more and more money just to pay the bills? You're not alone.

A recent survey and report from Johns Hopkins' Center for Civil Society Studies found that, "Despite the belief that nonprofits are free of taxes, substantial proportions of [those surveyed] reported being subjected to one or another type of government tax or fee . . . ."

image012.jpgTypical fees included state or local government use or activity fees.

For example, a new Schenectady, New York fee will require all property owners (whether nonprofit or for-profit) to pay a "curb fee" based on how much of their property fronts the city's streets. This is supposed to help pay for road services. 

In some cases, nonprofits are actually being asked to make voluntary payments in lieu of taxes. Why? To offset their use of government services.

I guess I'd feel better about governments requiring nonprofits to pay their "fair share" if it weren't that government is already shifting so much of the burden of providing services to an increasingly needy public right over to the nonprofit sector!
July 28, 2010

Form 990-N and 990-EZ Lateniks: It's Not Too Late After All!

Big news: The IRS just announced that it has extended the deadline for small nonprofits to file their 990-N or 990-EZ forms this year. The filing deadline was May 17 and has been extended to October 15 for both forms. Form 990 filers are not eligible for any extensions from their filing deadlines.

 Over 350,000 nonprofits failed to file the 990-N or 990-EZ form this year and face revocation of their tax-exempt status if they don't file by the new October 15 deadline.

The smallest nonprofits eligible to file the Form 990-N (e-Postcard) must simply file the required information electronically by the new October 15 deadline.

Other small nonprofits that file Form 990-EZ can participate in a one-time voluntary compliance program. These nonprofits must file their forms with a checklist by October 15, and pay a compliance fee of $100, $200, or $500, depending on their size.

For more information, see Every Nonprofit's Tax Guide, by Stephen Fishman (Nolo) and the IRS website at,,id=225705,00.html and 
July 5, 2010

Fundraising Lessons From Monty Python

And now, for something completely different -- especially, but not exclusively, for fundraisers who happen to be Monty Python fans. If your brain is stocked with phrases like "Nobody expects the Spanish Inquisition" and "Nudge nudge, wink wink," and you occasionally experience an inexplicable craving for Wensleydale cheese, that means you.

Now, as part of your holiday weekend activities, I recommend turning on the telly -- well okay, YouTube -- for a review of the Merchant Banker/Charity sketch. In this lesser-known sketch, a somewhat hapless fundraiser (played by Terry Jones) who's collecting money for an orphans' fund, enters the office of a rich merchant banker (played by John Cleese). In fact, the merchant banker is not only rich, but describes himself as owning "the most startling quantifies of cash," and explains, " I'm very, very, very, very, very, very, very, very, very, very, very rich."

The fundraiser asks for a one-pound contribution. Cleese expresses multiple types of disbelief and confusion and . . . well, take a look, and then come back for the lessons to be learned from this sketch.

Lesson 1: Ask for an appropriate amount. The banker wasn't exactly showing signs of being a willing contributor, but even so, asking for a mere pound in this setting made the fundraiser and his cause appear insignificant. Beneath notice, even.

Lesson 2: Talk to the donor in language he or she can understand. As a businessman, this banker was all about quid pro quo. Even though the "quo" wasn't going to involve direct benefit (other than the little flag offered by the fundraiser, to which Cleese said, "It's a bit small for a share certificate isn't it? Look, I think I'd better run this over to our legal department"), the fundraiser should have been prepared to explain how the banker would benefit. He could have, for example, pointed out the the banker benefits personally from improving his own community, from the increased prestige of being known as a contributor, or whatever else.   

Lesson 3: Know a bit about the tax law. When Cleese, trying to understand the purpose of giving a pound, says, "A tax dodge," the fundraiser says, "No, no, no." I don't know about British tax law, but in this country, the answer would be, "Yes, because we're a 501(c)(3) organization, your gift will be fully deductible to the extent allowed by the law." Why the qualifiers at the end? Because you don't want to put yourself in the position of offering actual tax advice, the law in this area is complex, and whether the donor will reap tax benefits depends in part on his or her personal situation, for example on whether he or she itemizes deductions. For more information on this, see Nolo's free article, "Tax Deductions for Charitable Giving: The Nonprofit's Responsibilities."  

Lesson 4: A return gift won't seal the deal. The banker couldn't even tell what the little flag that the fundraiser offered was. And donors are becoming increasingly aware that a return gift from a charity diminishes the value of their contribution and, if it's worth more than a token amount, of their tax deduction. 

Lesson 5: Revel in the fact that you don't actually have to sell something. Toward the end of the sketch, after the fundraiser has assured Cleese that, "lots of people give me money," Cleese says, "What, just like that?" As the light dawns, Cleese exclaims, "Good lord! That's the most exciting new idea I've heard in years! It's so simple it's brilliant!" And indeed it is. Your nonprofit is in the enviable position of  offering an intangible good that will never break or be cast aside, but allow donors to themselves become part of a greater good. Use that to your advantage! Or, to use a final Monty Python quote, "Always look on the bright side of life."

May 13, 2010

Form 990: Even Tiny Nonprofits Must File Now or Else!

Incredibly, there are said to be hundreds of thousands of nonprofits out there who  haven't heard that on May 17, 2010, the IRS is set to revoke the 501(c)(3) status of tax-exempt organizations that haven't filed tax returns (Form 990) for the last three years.

The problem seems to be that many groups had never had to file Form 990 before, because their annual receipts were under $25,000. And they didn't notice the new law passed in 2006 saying that even these small groups had to at least file an "e-postcard" version of the form.

The LAST CHANCE date to file is: May 15, 2010.

For details, see Nolo's article, "Many Nonprofits Must File IRS Form 990-N to Stay Tax Exempt."
December 17, 2009

Help Donors Use IRS Year-End Charitable Giving Opportunities

The holiday season is upon us and so is the year-end deadline for making charitable donations for 2009. Many people wait until the last minute to make their final contributions for the year -- which can be nervewracking for nonprofits as they compete for those last gifts.

One way to keep your relations with your donors solid at this time is to understand the bigger tax picture, and do your part to make sure they get all the tax benefits possible.

Whether it's cash, stocks, clothing, or other property, the IRS rules for deducting donations have changed over the last few years and gotten stricter. Here's what you should know about the current rules for charitable giving.

  • Clothing and household items. To be deductible, these items must be in "good used condition or better." The IRS doesn't say what constitutes "good used condition or better" but you can create guidelines for what your organization will or won't accept, which are considered helpful in determining what the IRS might view as acceptable. If the amount being claimed for a single item is over $500 and there is a qualified appraisal, then this standard does not apply. You'll also need to give the donor a receipt that includes your nonprofit's name, the date of the contribution, and a written description of the donated property (but not its value). Be sure you train your staff people about the importance of these receipts and how to fill them out.
  • Monetary donations. Under relatively new rules, donors must have a written record for all cash donations -- no matter how small. For donations under $250, donors can use a bank record (such as a cancelled check or credit card statement) or a written communication from the nonprofit. That means, for example, that if you hold an event and pass the hat, donors who make cash donations won't be able to claim a deduction. They'll appreciate it if you remind them of the rules, and recommend that they either use checks or see someone for a receipt. The receipt must show the name of your nonprofit and the date and amount of the contribution. For donations over $250, the long-standing requirement that the donor obtain a written acknowledgment from the nonprofit with amount and date of the contribution still applies.
  • Certain IRA contributions. Under an IRS rule scheduled to expire at the end of 2009, donors age 70 ½ or older can make tax-free transfers from their individual retirement accounts (IRAs) to certain eligible nonprofits of up to $100,000 per year. The transfer must be made directly by the IRA trustee to the nonprofit and the amount transferred counts in determining whether the IRA owner has met his or her required minimum distribution for the year. The donor does not get a deduction for the amount transferred, but it is not taxed as it would be under normal rules.

For more information on charitable deductions and IRS rules for nonprofits, see Every Nonprofit's Tax Guide: How to Keep Your Tax-Exempt Status and Avoid IRS Problems, by Stephen Fishman (Nolo) and IRS Offers Tips for Year-End Donations on the IRS website at,,id=164997,00.html.

September 15, 2008

IRS Advance-Ruling Worries Gone for Young Nonprofits

Until recently, many new nonprofits (those seeking tax-exempt status as publicly supported charities) started their life with a temporary, five-year approval. That's because they had no previous record of their operations, and needed time to prove that they were the real thing.

At the end of the five years, the IRS put them through a literal reality check, asking for proof that they had, in fact, received most of their support from public sources. Although 95% of nonprofits eventually passed this test and received their permanent ruling, it made for some nervousness as the five-year mark approached.

But no more. The IRS recently announced that, because it's so pleased with the amount of information that nonprofits must reveal year by year on their Form 990, it's doing away with both advance rulings and this five-year double check. Better yet, the new rule applies to nonprofits that have already formed but haven't yet reached the five-year mark. As one lawyer I know said, "This will be a relief to the parents on our preschool board."

For details, see the IRS announcement of September 8, 2008.
May 21, 2008

Choosing Between Nonprofit and For-Profit Status? Think B Corp

Don't miss Ilana DeBare's excellent article in the San Francisco Chronicle, "B corporation plan helps philanthropic firms." It profiles a new melding of for-profit and nonprofit status, in which a business explicitly adopts socially conscious goals -- in one case, donating all profits to charity -- and writes these goals into its founding legal documents. The originators of the concept call it a B corporation.

DeBare is careful to point out that, unlike C and S corporations, B corporations have no actual status under the tax code. And if you've researched the dividing lines between taxable and tax-exempt corporations, you know that the tax rules can get gnarly. But by banding together with a self-invented status, B corporations at least put the shareholders and would-be company buyers on notice that they're serious about serving other ends besides sheer profit.

April 11, 2008

Tax Deduction Advice for Your Nonprofit's Volunteers

I got a nice surprise the other day while filling out my federal tax return: That $10 apronHumane Society apron I'd had to buy in order to walk dogs at my local Humane Society (modeled at right) was tax deductible! (And I was looking for every deduction I could get, given the number of unpleasant surprises in this year's return - but that's another story.)

It occurred to me, however, that while most nonprofit organizations do a good job of reminding contributors of money about the tax deductions they'll enjoy, very few say much about tax deductions their volunteers can take. And these volunteers might include everyone from board members to advisory council members to those who assist at special events or commit to regular activities.

True, we're probably not talking about big bucks, since there's no tax deduction for the very thing these volunteers contribute the most of -- their time. However, on the "every penny counts" theory, here's what the IRS will allow volunteers at nonprofits to add to their list of deductions:

  • Car and transportation expenses. Volunteers might need to get back and forth from home to your office, or to meetings or other sites (such as a special event or to deliver food to a homebound AIDS patient). If driving, they can choose between deducting gas and oil, or mileage at the standard rate of 14 cents per mile. As Stephen Fishman advises in Lower Taxes in 7 Easy Steps, however, "Given the cost of gasoline today, the 14 cent per mile limit is absurdly low, so you'd be better off keeping track of your actual driving expenses." Volunteers can also add in parking fees and tolls. But they can't claim general car repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. The public transport-minded can, of course, deduct subway, bus, or taxi fare.

  • Travel expenses. In cases where the volunteer is away from home performing services -- perhaps attending a convention or board meeting, taking underprivileged kids on a camping trip, or monitoring environmental destruction -- they can deduct their related expenses, such as airfare and other transportation, accommodations, and meals. However, there are important limitations on this one: The volunteer must gain no significant personal pleasure, recreation, or vacation in the travel. (Going on a fun trip and refusing to enjoy it probably won't make it deductible, either.) And the volunteer must really be working -- tagging along on an outing while performing nominal duties, or even no duties for significant parts of the trip, won't cut it.

  • Other out-of-pocket expenses. For example, board members might deduct unreimbursed phone, postage, and copying charges associated with preparing for meetings. I can deduct the dog treats that I'm asked to provide in order to help train dogs while walking them.

  • The aforementioned uniforms. This includes both their cost and their upkeep, so long as they're not suitable for everyday use (i.e. a T-shirt with a logo won't fly). Also, your organization must require the volunteers to wear the uniforms while performing services.

Some limitations apply to all deductions associated with volunteering. Volunteers must be itemizing their deductions to take advantage of this (so people who fill out a 1040EZ won't get any benefit). Volunteers cannot double-dip by claiming expenses for which the nonprofit already reimbursed them. The expenses must be directly related to the volunteers' work, and incurred only because of that work. They can't be personal, family, or living expenses (such as meals for children while they accompany the volunteer to a convention). And volunteers must keep reliable written records of the expenses.

Of course, in alerting volunteers to their potential tax deductions, you don't want to get into the business of giving personalized tax advice. For more information, suggest that they see IRS Publication 526, Charitable Contributions, or talk to a financial adviser. Tax-preparation software programs also provide guidance on this deduction.