1. New interactive Form 1023 available for review
In an effort to make applying for tax exemption easier, the IRS Exempt Organizations (EO) office is in the development stage of an alternate version of Form 1023, Application for Recognition of Exemption. The new application is available for preview until September 20, 2013.
The Interactive Form 1023 (i1023) features pop-up information boxes for most lines of the form. These boxes contain explanations and links to related information on IRS.gov and StayExempt.irs.gov, EO’s educational website. When final testing is completed later this year, you'll print and mail the form and its attachments just like the standard Form 1023.
Although viewers are unable to print or submit this “review” version of i1023, EO encourages the public to click through its new features and promote the i1023 to colleagues and business associates. After reviewing the i1023, please send your comments to firstname.lastname@example.org.
Anticipated i1023 benefits:
* Applicants will be able to submit a more complete form
* IRS processing time is reduced
* Applicants receive a tax-exempt determination more quickly
The i1023 was developed from recommendations by the IRS’ Advisory Committee on Tax-Exempt and Government Entities (ACT).
New: Free for Nonprofits--Borrow books of interest for nonprofits from the John Gear Law Office nonprofit library
One of the biggest challenges facing nonprofit businesses is access to reliable guidance about how to do business -- how to be effective while complying with the myriad laws that affect how the nonprofit operates.
To help Oregon nonprofits meet this challenge, I've decided to make my library available to Oregon nonprofit board members and nonprofit executives. Check out books tagged as "nonprofits" in my office library here, and contact me if you want to arrange to borrow any of the resources, at no charge.
I'm skeptical of any bright-line rule that says that a nonprofit is no good because it spends too great a percentage of its revenue on administrative overhead. In fact, what I tend to see is the exact opposite: nonprofits that starve their administrative side in an effort to please the raters, which only sets them up for terrible problems of the gravest sort, including embezzlement, failure to find or retain good people, employment and wage claims, etc. The bottom line is that nonprofits are small businesses, and running small businesses is not easy, especially newer and smaller ones. So bright-line cutoffs are usually to be taken with a big grain of salt.
Ok, that said, here are some outfits that require a charitable interpretation of the word "charity" just to be considered as one. In other words, these aren't close -- these are the stinkers that cause good nonprofits such problems, because when the public gets a whiff of these stinkers, all nonprofits get a bad name. The best thing to do with this list is check it before you write your end-of-year gift checks -- and make sure you avoid these outfits. I'll just give the top three -- download the full list of 20 below.
Organization Average Annual Percent Spent
Expenditures Charitable Cause
Law Enforcement Education Program $2,299,994 2.7%
Shiloh International Ministries $846,340 3.2%
La Verne, CA
Research Organization $783,217 4.2%
(I'm pleased to note that there are no Oregon nonprofits among this "Worst 20" list, although sad to see several in Everett, Washington.)
A good essay about the biggest risk in nonprofit leadership (pdf):
Seeing but not really observing what's going on in the organization.
Nearly all of Behn's public management essays are good -- although supposedly aimed at the government sector, I can't think of a single non-governmental nonprofit that would not benefit greatly by having all its board and senior staff read and discuss one of his essays every month. Or share them all and do a retreat where different board members summarize the ideas and discuss how they could be applied within their own organization.
The time to verify your recordkeeping systems are in place and working well is BEFORE the crash.
The case below is a vital reminder for nonprofits of the value of keeping proper records about your organization:
Failure to keep accurate records about what employees do cost this small business almost $70,000 in higher worker's comp premiums.
The only differences between that business and most nonprofits are
(1) that the business will definitely learn from the experience, and
(2) that the business will have the resources to pay the higher assessment until the records are straightened out, if they aren't already.
If your nonprofit thinks keeping timely and accurate records is just something to aspire to, you and your group are probably at risk in any number of areas. Remember, the prime duty of a board member for a nonprofit is to do what a reasonable and prudent person would do to oversee the affairs of the organization, which means paying attention, which requires timely and accurate records.
As a board member, you don't have to check every record yourself, but you have to assure yourself that there is a SYSTEM to make sure that the records are being kept, that there is a SYSTEM so that they are checked as much as necessary to give you confidence that they are accurate, and (most important) that there is a SYSTEM in place so that, if they aren't kept or are being kept poorly, you will quickly know it --- before you get the $70,000 bill.
I advise nonprofits as a key focus in my practice. Like all small businesses, nonprofits struggle with payroll taxes, worker's comp, unemployment insurance, and sometimes the board decides, "hey, I've got an idea, let's just use independent contractors instead of employees."
It's possible to do that, but you really have to work hard and take special care to do it right, or you can face penalties and interest on the not-quite-avoided payroll taxes.
Remember, authorities at every level (IRS, SAIF, Employment Dept.) have a very serious interest in making sure that only those people who are truly independent contractors get treated that way. And don't think that the "contractor" wanting to be treated that way cuts any ice with anybody. People have a funny way of having memory lapses in times of trouble -- such as when budget cuts force you to drop the contractor, who only then realizes that "independent contractors" can't claim unemployment, or when they fall down the stairs while working for you and only then learn that they don't have any worker's comp coverage (of course, not having worker's comp also might mean that they could have a right of action against your agency for personal injury).
If you're only going to know one thing about this area of law it's this: Anyone who does work for pay is an employee unless you establish otherwise, and the burden is on you, the employer to prove otherwise; in other words, if you are using an independent contractor in your nonprofit and someone decides that you have misclassified that person and that you should have been paying payroll taxes on their wages all along, it is you who has to prove them wrong. (If you fight them to a tie on the issue, then you lose, because you failed to carry your burden.)
The opinion announced today in Oregon is a well-written, clear cut guide to the issue that anyone who is using independent contractors might want to review and discuss with an attorney versed in this area.
I've been especially gratified by the response to the services I offer for nonprofit organizations. When I went into practice, I knew that there were lots of places where many hardworking folks needed a hand, but I also know that too many nonprofits wait until it's very hard to help them to reach out and ask for it. Some of the most satisfying work I do is to help groups of volunteers who have formed (or are thinking about forming) an organization to pursue their vision for a better community. I love being able to share some of what I've learned over the years.
And one reason I founded the Nonprofit Organizations Law Section as a professional practice section in the Oregon State Bar was that I saw that there wasn't enough sharing of resources among people who support the sector. Sometimes it seems like competitors in the for-profit sector were doing more sharing than nonprofits who don't even compete with each other.
Then, today, it occurred to me that I could do more, because I have a lot of great resources on my shelf that could benefit more groups than just my clients. So, to continue with the sharing theme, I would like to offer to make my bookshelf available to nonprofits here in Salem (or with board members willing to come to Salem). Just call or send me an email to make an appointment to have your executive director or a couple board members come by to check out what's available -- when I got to looking at it today, I realized it's quite a decent collection of current materials.
I hope I can share some with you soon.
One of my favorite authors wrote this:
Ugly language: strategic planning
Sam Smith - The phrase "strategic planning" is a pretentious business school substitute for the far more descriptive term "long range planning." Progressives should wipe business school words from their vocabulary and this is a good place to start.
Prompting me to send him this reply:
You know I tend to agree with you far more often than not, but as someone who tries to help nonprofits, I make a particular and, I think, quite meaningful distinction between strategic planning and long-range planning.
As I use the terms, strategic planning is not schedule based at all; rather, it works best when the participants identify their specific critical dependencies -- the things they have to have to operate and to reach their goals -- and then assess the stability/instability facing each of those critical dependencies and the causes for those.
The key task is to identify the most important threats to the most important things that the organization has to have to function (attain its goals). If there is any time element at all, it's usually only when figuring out which of the problems identified need to be addressed first. Strategic planning actively assesses the "out there" -- the larger forces in society, including limits on natural resources, that will affect the organization's ability to attain its goals.
Long-range planning, on the other hand, is just that -- an inwardly focused look at the organization's goals and objectives. Ideally, leaders consciously relate the results of their strategic planning work to their long-range planning, recognizing that, like federal budgets, the further out you go, the more fanciful they are, particularly because of the factors that the strategic planners have identified.
What most organizations do, to the extent that they plan at all, is a watered down form of long-range planning that occurs during sessions called "strategic planning." You can immediately recognize the faux strategic planning by its assumption that the larger world will remain pretty much as it is today (business as usual assumption) for the indefinite future.
John Gear Law Office opened in September 2010. Thanks to the many clients I've been able to help since then, the doors are still open and I'm able to share some of my good fortune with others -- so thanks to you all. All of these organizations (scroll down) merit your consideration and your support if you are looking for places where your shared good fortune will do some good. And all those icons are hotlinked -- they'll take you right to the page where you can make a gift of support.
Yes, you can't just accept its answers uncritically, but even for the errors that creep in, Wikipedia is a treasure indeed. It's the closest thing we have to giving everyday people low-cost access to the mass of human knowledge.