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Posts Tagged ‘fundraising’

When it comes to nonprofits and their tax-exempt status, faith-based organizations (FBOs) must be especially careful when they decide to go beyond “having church” to providing services that benefit the community overall.  For example, when a FBO decides to go from developing Sunday School curriculum for its own use to developing and selling biblical children’s stories to be used by the general public…or when a FBO expands its transitional housing efforts from housing the homeless in their multi-purpose building to providing shelter in homes the FBO has purchased…or when a FBO intends to purchase land not just for a new church building but for other uses such as senior housing and small-shop retail…and the list can go on.

Even though the examples given above can be deemed as extensions of the FBOs overall mission, these “extensions” may be viewed by the Internal Revenue Service differently.  In fact, there are many recent examples of FBOs and their leaders being investigated by the federal government questioning their tax-exempt status.  Ultimately, these investigations were dropped, but the fact remains that as budgets tighten at the federal and state levels, government bodies will continue to aggressively seek additional sources of revenue and FBOs will continue to be potential targets as the line blurs between their charitable and auxiliary activities.

One way to address this possibility is for FBOs to establish independent organizations that can facilitate these activities without jeopardizing the FBOs tax-exempt status.  For example, using the “bible children’s stories” example from above, I would recommend that the FBO create a separate entity (e.g., a publishing company) that would develop, market and sell the products so that the tax-exempt status of the FBO would not be put into question – especially when the income of the publishing company begins to increase substantially.  In addition, if the FBO intends to secure grants for various charitable activities that will benefit the community as a whole, many philanthropic organizations cannot award grants directly to FBOs, but can make awards to non-profit organizations that facilitate these charitable activities.

The examples given above are merely for illustration and not intended to be definitive.  Case law is constantly evolving in this area, so please consult with a local attorney or CPA who can help you wade through these waters.  If you have questions or comments that would help broaden this discussion, please respond.

Be strong and be blessed!

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There’s a lot of discussion going on these days about taxes – whether to increase them or reduce them, what should taxes be spent on, and so forth.  However, there is one item in the tax laws that I hope NEVER goes away – Section 501 of the Internal Revenue Code.  What is this you might ask?  Well, I’m glad you asked!  Section 501 describes organizations that are exempt from taxation.  You may have heard of the term “501(c)(3) organizations”, which describes many of the nonprofit organizations we’re most familiar with.  This entry will briefly describe the process of becoming tax-exempt.

But before I go on, let’s make sure there’s an understanding that there is a difference between being a nonprofit organization and being tax-exempt.  According to the Internal Revenue Service (IRS), nonprofit status is a state law concept.  Nonprofit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions.  Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax.  Therefore, you must not only become certified as a nonprofit organization in your state, but you must apply to the IRS to become federally tax-exempt.

What are the benefits of becoming tax-exempt?  The two primary benefits of becoming tax-exempt are as follows [1]:

  • Donations to the nonprofit are tax-deductible. With 501(c)(3) nonprofits, donations are tax-deductible to the donor.
  • Access to grants earmarked for 501(c)(3)s. Certain grants and other public allocations are only available to 501(c)(3) organizations.

Is there a fee associated with the application?  The application fee will depend on what your anticipated “annual gross receipts” (AGR) will be – either a fee of $400 for AGR of less than $10,000 during the preceding 4 years OR $850 for AGR of greater than or equal to $10,000 during the preceding 4 years (as of September 2011).

What is the application process?

  • Obtain nonprofit status from your state;
  • Obtain an Employee Identification Number; and
  • Complete and submit Form 1023 (for most organizations) along with supplemental documentation and appropriate fee to the IRS.  NOTE: This process can be a significant investment in time, depending on the amount of work that has already been done (e.g., budget, detailed description of organization and programming, etc.).

There are many organizations, including ours, that assist organizations with completing this application for free or for a nominal fee; however, it is not necessary.  If you have other questions, please visit the IRS’s website or contact me.

Be strong and be blessed!

[1] – Source: http://www.bizfilings.com/learn/tax-exempt-nonprofit.aspx

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“An idea that is developed and put into action is more important than an idea that exists only as an idea.” – Gautama Buddha

You’ve noticed a great need in your community (e.g., teen unemployment, crime, obesity, etc.) and have come up with a great idea to address that need or would like to implement an existing program in your neighborhood.  As you proceed, make sure that you begin with a firm foundation in creating the organization through which your idea will be implemented.  If you plan to, for example, raise funds from outside sources, the decisions made at this stage will determine where you can go to raise needed funds.

Organization Type – There are two primary choices for organization type: for-profit and non-profit.  As the names suggest, each type is driven by its primary objective.  For-profit organizations exist to maximize profits (revenues minus expenses) for its owners and/or shareholders.  In contrast, non-profits are not PRIMARILY motivated by profits, but rather by fulfilling its charitable mission.  However, there are incidences where you can find both types of organizations mutually benefitting each other (e.g., a for-profit organization creating a related non-profit organization to perform charitable work such as the Ford Foundation).  Keep in mind that foundations and some government programs can only award grants to tax-exempt non-profit organizations (we’ll talk about becoming tax-exempt soon).

Organization Name – It has been said that “words have meaning and names have power”[1].  Don’t underestimate the importance of choosing a name for your organization that communicates who you are, what you do, and/or who you serve (e.g., American Cancer Society).  In choosing a name, you will need to make sure that the proposed name is not being used by another organization.  Various sources you can use to check on the availability of a name include your secretary of state and/or your local registar.

In order to become an official organization, you would submit an application or articles of incorporation to your secretary of state or similar entity.  In addition, you may be required to apply for a business license from your local jurisdiction.  Check with your state and local governments for their specific requirements for creating your organization.

Be strong and be blessed!

[1] – Author unknown (Source: http://www.quotegarden.com/names.html)

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According to the U.S. Department of Labor, Labor Day is a creation of the labor movement and is dedicated to the social and economic achievements of American workers.  It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country. [1]

As we approach the Labor Day holiday, I can’t help but to think about how blessed I am to be employed.  I would consider myself a “modern-day employee” in that for much of my career history, I sought out opportunities to expand my skill set either through a new position with my present employer, with a new employer or through entrepreneurship.  With this strategy, I have been blessed to have gained a wide variety of experiences, with a primary focus on community and economic development.  Nevertheless, there have been times when, unfortunately, I did not receive a steady paycheck or the entrepreneurial pursuit did not turn out as I expected.  Through it all, God provided for me and my family and I thank Him for that!

I, also, can’t help but to reflect on those who are unemployed or underemployed.  As of this writing, the unemployment rate in the U.S. stands at 9.1% (August 2011).  There are more than 13 million people who are seeking full-time employment, but have been unsuccessful for a number of reasons (e.g., jobs moving to lower cost locations, skills mismatch, etc.).  This has implications for all areas of the economy, including homeownership, meeting basic needs, obtaining the training needed for today’s jobs, and others.  With the current direction of federal and state governments to reduce spending at all costs, the work and mission of nonprofits become even more important.  Nonprofits have to become even more efficient in their operations and programming to address the ever-increasing needs of its target population, constituency and community.

Do not become discouraged in the present state of affairs, but rather use this time to be more creative in meeting the need and more emboldened in requesting and securing assistance for your efforts.

Please pray with me that the unemployed, employers, government leaders, nonprofits and other willing participants will work together to improve our economy and increase meaningful opportunities!

Be strong and be blessed!

[1] – U.S. Department of Labor (http://www.dol.gov/opa/aboutdol/laborday.htm)

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By now you should have a general idea of how much money you need to operate and are aware of some funding sources that could contribute toward your efforts (if not, visit some of our earlier blog entries for help).  However, there are still some key questions you should be able to answer, such as “who’s going to actually write the grant applications?” or “what’s the best way to account for these funds?” or “are there other requirements that come with this money and how do I handle them?”…among others.

A good start to answering these questions can be found in identifying some key persons and their associated tasks, including grant writers, grant managers, and bookkeepers/accountants.

Grant Writers
Just as the name implies, grant writers develop the grant package that is sent to potential funders and can assist in identifying other potential funders.  In many organizations (especially start-ups), the organization’s grant writer may also be the board chair or a congregant at the church or a student volunteer or…  In any case, this person ensures that the organization and its programming is placed in the best light for the potential funder to see. 

According to the American Association of Grant Professionals, freelance grant writers must guard against unethical behavior on the part of the organizations on behalf of which they write grants.  Some organizations may try to pay a grant writer only after the grant has been awarded or pay the grant writer with a percentage of the grant money. According to the Association, both of these practices are ethics violations.  Be mindful of this as you consider compensation for your grant writer.

Grant Managers
Consider this scenario:  You got the grant!  Everyone is thrilled…until reality hits.  Someone has to be responsible for administering the project, complying with regulations, reporting to the funder…and that someone is (drums, please) the grant manager.  Regardless of whether you are seasoned professional at a large institution or a volunteer for a grassroots organization, the job of a grant manager is a balancing act – making sure that program staff have the flexibility to accomplish something meaningful, while at the same time that every obligation to the funding source is met. [1]

Bookkeeper/Accountant
Starting out, you may be able to use Microsoft Excel or even a basic version of QuickBooks to account for revenues and expenses for your organization’s administration and programming.  However, as you secure greater amounts of funding from government and philanthropic sources, their compliance requirements may dictate that you seek out an experienced bookkeeper or accountant to report on the use of their funds.  At a minimum, they may require an annual audit of your financing by an independent CPA which, depending on the size of your organization, can cost thousands of dollars.

In conclusion, make sure that your organization’s financial plan include not only raising funds, but properly managing and accounting for these funds as well.

Be strong and be blessed!

[1] – Source: Essentials of Grant Management: A Guide to the Perplexed by Henry Flood (2001).  Article can be found at http://www.tgci.com.

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We are all familiar with the famous quote from the movie “Jerry Maguire” – Show me the money!  It means “put up or shut up”…do what you say you’re going to do…walk the talk.  When it pertains to raising funds for your organization, it is rare that someone will walk into your office and say “I have a million dollars to give to your organization” (it would be nice, but highly unlikely – unless you’re close to Henry Ford or Bill Gates).  Therefore, you have to SEEK out the funds and then do what it takes to SECURE those funds.

Whether it’s a foundation or government grant, each has a process by which you communicate your funding needs as well as how your needs match the funder’s priorities.  There are a number of methods by which you can communicate your needs, including:

  • Face-to-face – As you network in your community, you will meet different people who may have an interest in working with you to address your funding needs.  Take the opportunity to tell them about your organization and, if appropriate, ask for a follow-up meeting to discuss your needs, including financial.  The saying is true that people tend to help those whom they know.  Also, you never know how a person may be able to help you – don’t just focus on the money!
  • Letter of introduction/interest – This is an effective way to introduce your organization to a potential funder without the pressure and time commitment associated with a formal application.  In fact, many funders require this as a “pre-application” step to screen out ineligible requests before time and effort are spent by the applicant to complete a more detailed application.
  • Formal application – Most funders use an application to obtain information about an applicant such as its organizational structure, its target audience, its programming, and its desired use of the funds being requested.  More and more applications for funding are being completed and submitted on-line.

To talk a bit more about formal applications, there are some key pieces of information that are requested (many we’ve talked about before).

  • Tax-exempt status – Many funders can only make contributions to organizations that have obtained tax-exempt status from the IRS.  This means that contributions made to this type of organization are tax-deductible to the contributor and that many purchases made by the organization can be purchased tax-free.  For more information on obtaining tax-exempt status for your organization, please contact me or visit the IRS website.
  • Evaluation – As mentioned in a previous blog entry, a funder wants to know that their contribution will have the desired impact that led them to make the contribution in the first place.  To better ensure this, the application will request details up front on how the program will be evaluated to determine success.  For example, if your goal is to reduce the number of students dropping out of school, how will you know you are successful (e.g., benchmarking, pre- and post-testing, etc.)?  You may consider securing outside assistance from, say, a university to provide expertise and objectivity.

There are many other items included in formal applications for funding.  However, if you are diligent in following the recommendations above as well as those giving in previous blogs, you will be better prepared to apply for and secure funding.  Our plan is to talk about the human capital needs associated with fundraising in our next entry.

Be strong and be blessed!

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When it comes to fundraising, knowing where to find the money is as important as how to get it.  We’ve talked some about the “how” in the past, so now we’ll provide a brief introduction to the “where”.

There are five primary sources of funding for nonprofits – individuals, foundations, federated funds, churches/organizations and government [1].

  • Individuals – Individual contributors make up the largest source of giving to nonprofits and once they are contributors, they can become your most fervent advocates.  However, one key disadvantage is the cost associated with developing and reaching these individuals, with a relatively small return per contributor.
  • Foundations – According to the Foundation Center, there are more than 76,000 grantmaking foundations in the United States that give more than $40 billion in gifts annually.  There are three types of foundations: community, corporate and independent.
  • Federated Funds – A federated fund is a cooperative enterprise, owned and controlled by the nonprofit members, whose purpose is raising program and operating capital for each member agency (e.g., United Way).
  • Churches/Organizations – Depending on your organization’s mission, churches and other organizations can become key partners in achieving your goals and objectives.  These organizations are more likely to be a source for volunteers and other in-kind assistance.
  • Government – While a great source for large sums of money, the application process and on-going compliance requirements can be time-consuming and arduous.  To find out about federal government grants, go to www.grants.gov.

We’ll go into more detail on the application process and other issues regarding fundraising in future entries.

Be strong and be blessed!

[1] – Source: managementhelp.org
[2] – Source: www.businessdictionary.com

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