Archive for the ‘Fundraising’ Category

Dear Nonprofiteer, Is the banquet deductible?

March 5, 2013

Dear Nonprofiteer,

I am the Development Manager for a small nonprofit that operates on a budget of around $500,000 a year. Something came up this year for the first time, and I’d like your opinion.

The ticket price to our annual benefit is $100, and we routinely send acknowledgements to guests that $50 of their $100 ticket is deductible. This is a fairly accurate estimate of the value of the food, drink and entertainment cost, and according to our business manager and auditor, standard best practices (as well as the way benefit tickets have been handled at every nonprofit for which I have ever worked, during the past 20+ years).

This year, we got an RSVP from one guest with a note saying, check to follow. When the check arrived, it was from a donor advised fund with a letter stating that endorsement of the check would confirm that the full amount was tax-deductible and that no goods or services had been received in exchange. My Executive Director and I felt that to treat this differently from all other benefit ticket purchasers would be inappropriate, and compromise the integrity of our nonprofit. I contacted the donor advised fund representative, and explained the situation. I made it clear that the woman would be welcome at our event, but that we would not deposit the check without further instruction from him.

At the benefit, the woman handed me a check for $50. She was very kind, but basically said, these things are done all the time, there’s a fine line, you are on the wrong side of it, but “you’ll learn.” She also told me that the board member who invited her will be speaking with me about this.

I realize this is a relatively small amount, but it’s a larger principle. One of the reasons I value my job at this particular nonprofit is that there is a strong commitment to integrity, consistency and transparency here. My ED and I both feel that we made the right call; but this is very likely not the end of it, as we haven’t heard yet from the board member.

What do you think?

Sincerely, Just Following The Rules

Dear Following:

It’s not a matter of what the Nonprofiteer thinks; it’s what she knows, and you know and your Executive Director knows.  There’s nothing at all “fine” about the line between deductible and non-deductible payments: the IRS permits deduction of the amount that goes to the charity, and not of the amount that goes into a guest’s belly.  It’s what any lawyer would refer to as “a bright-line rule.”  So maybe the banquet guest just got her lines mixed up.

Seriously, this isn’t even a close call.  What this person has asked you to do is to lie to the IRS on her behalf.  Let’s leave aside ethics, integrity, all those mushy things.  Lying to the IRS is a really bad idea–just ask Al Capone.

Now, is your agency likely to be audited for breaking the rules (also known as “the law”)?  No.  Nor is the guest likely to be audited for misreporting her charitable contributions.  But that’s not a reason for you (or her) to pretend that she received no value for the money she handed over.  You were wise not to endorse the donor-advised fund’s check embodying such a pretense, and you will continue to be wise by not issuing a tax-deductibility receipt for the $50 personal check she ultimately forked over.

If and when the Board member comes at you, you will reiterate what we all know to be true: that the IRS does not permit you to certify the food, drink and entertainment costs as tax-deductible contributions, and that you’re sure she wouldn’t want an agency she governs to participate in such a dangerous and false maneuver.  If she presses, observe that the guest may make any use she pleases of her cancelled $50 check.

If the Board member continues to press, turn the matter over to the Board president.  It’s her/his responsibility to make sure no one member of the Board in any way tarnishes the reputation of the whole group.  If s/he resists addressing the issue, try using the words “tax evasion,” and if s/he continues to resist, try using the word “fraud.”

You don’t have to be in the business of judging or disparaging the guest (though she richly deserves it. Wealthy enough to have a donor-advised fund and wailing about $50?).  But you likewise don’t have to be in the business of abetting her dishonesty.  And if anyone argues, “Well, it’s only $50,” make sure to agree.  “Our agency’s good name isn’t for sale,” you’ll say.  “But if it were, it would cost a hell of a lot more than $50.”

Keep on abiding by the law, and may the Force be with you.

Translation Services: What Does Venture Philanthropy Really Provide?

January 10, 2013

The Nonprofiteer threw a bit of a bomb at a meeting today.  (“Now, dere’s a bolt from da blue,” as Andy Sipowicz would say.)  Perhaps she should be sorry—but she’s not.

After a group of young “venture philanthropists” described their efforts to help expand a small number of poverty-fighting nonprofits and to attract other philanthropists to support them, she had a few thoughts which she generously shared.

  • Their analysis of Return On Investment in this context was very exciting, comparing the dollars spent to the dollars added to the projected lifetime earnings of program participants as a result of whatever intervention the nonprofits provided.
  • Their goal of “Scaling Up What Works,” while admirable, had challenged many other institutions.  Did they have a template for determining which nonprofits would continue to succeed after significant expansion?  (Not really: they look for leadership and give it management support; but management support can’t clone inspired leaders.)
  • Their main achievement was to have assembled a group of white people (staff and Board) to whom other white people would give money.  White people are reluctant to give money to black and brown people (she observed).  But this group, by virtue of its comfortingly familiar MBA-speak upper-middle-class front, is able to overcome that reluctance. 

Afterward, the meeting’s host suggested to the Nonprofiteer that her last comment had been both off-putting and dismissive.  On reflection, she concluded that, while she was sorry to have embarrassed her host in front of his guests, she was glad to have given voice to the Subject That Dare Not Speak Its Name: the gap between the resources available to white people and those available to nonwhites.  We’d like to think that philanthropy responds to need, but most donors actually respond to being asked by those who look a lot like they do.

If these people can level that tilted playing field, more power to them.  And if some of them can make a career out of doing so, mazel tov.  But while the advice and management training and analysis and for-profit perspective on nonprofit problems are all very well, let’s not fool ourselves about what’s really useful in this model: the ability to look and sound like the sort of people who should be entrusted with a lot of money.     

That’s not a critique of pale people who want to help.  It’s just a plea for frankness about how racism plays out in our sector.

In other words

January 4, 2013

Another day, another idiotic Top 5 list, this one purporting to identify marketing trends in philanthropy. As it turns out, the list actually identifies what its author believes to be methods of fostering planned giving. Faced with this basic lack of clarity, the Nonprofiteer refrains from making snarky comments about the content. Instead, she translates it into English.

[N]onprofits in the new year [are] advised just to be themselves. “People expect exaggeration in marketing. They don’t expect a matter-of-fact voice that addresses people’s reservations about buying or donating,” says [someone getting paid for spouting content-free advice, who]. . . . calls this first trend “humanvertising” . . . . [and] suggests a pitch might go like this: “Your gift won’t be used to pay the utility bills or marketing expenses. It will be used to advance our important mission through remarkable programs such as…” “Humanvertising,” as opposed to the messages nonprofits so frequently direct at paramecia and ferns. From context the word appears to mean, Sound like every other agency; pretend not to have any operating expenses.

Story Superpowers: “Nothing can generate emotions or stimulate behavioral responses like stories,” [genius] says. And, he says, these stories need to be not only educational, but also inspirational. Mention that you serve people and they benefit.

Photo Assembling: “Photos are an evolutionary preference for consuming information in a short amount of time[.]” A picture is worth a thousand words.

Crowdsourced Inspiration: “For 2013, you should ask more of your dedicated supporters,” [he] says. “Ask them for their voice.” When you want money, ask for advice and pretend to listen.

Stigma-Free Singledom: A record 100 million Americans are not married. . . . So why are singles almost ignored in the [planned giving] world? People without families are losers but they also have nowhere else to leave their money.

Now, aren’t you better off for knowing all that?

Really bad advice about year-end giving, and some really obvious responses

December 31, 2012

The Nonprofiteer just received an e-mail entitled “Five Things You Need to Know About Year-end Giving” which was distinguished primarily by the utter wrongness of each and every one of the items identified.  Names have been omitted to protect the guilty, but commentary appears in bold.

1. Background Check….[B]efore you reach for your wallet, take the time to look into how charities spend their money. It is important know how much of your money actually reaches those in need. A rule of thumb is around 7% to 9% for administrative costs, though some online outlets with low overhead structures are able dip below that.  First clue that this is wrong: the imaginary precision of “7% to 9%.”  Second clue: use of the term “overhead” without definition.  “Overhead” includes such profligate expenditures as electricity and health care for employees.  The last thing we need is for donors to make it a condition of their gifts that nonprofit employees live in poverty. Rather than spend time trying to divine a charity’s wastefulness, donors should work on ascertaining its effectiveness.

2. Beware of dogs….Check the IRS database of more than a million charitable organizations to make sure the one you’re giving to is legit. The IRS database will not tell you which organizations are legitimate, only which organizations have filed appropriate paperwork.  Yes, of course, don’t give your credit-card number to any random jerk who calls; but more important, don’t give money to any agency about which you know nothing but a name and a 501(c)(3) designation.

3. Target the Need. If you see a specific need you want to affect, specify where your donation should go by adding a note, writing an email or by designating it on your check…. Money is fungible: whatever you give to a nonprofit inevitably supports its entire range of purposes and activities.  All that happens if you “designate” a spot for your money is that the recipient nonprofit shifts preexisting funds to another program.  If you don’t trust the charity to use your money wisely, don’t give it money; if you do, get out of its way and let professionals do their jobs.  The Red Cross responds to all sorts of disasters; if it gets more money than it needs for the victims of Hurricane Sandy, it will use that money for the victims of Hurricane Tom, or the house fire around the corner from you.  If you object to that, you’re more concerned with being trendy than with helping, so don’t bother to support the Red Cross.

4. Get More Than a Good Feeling….Be sure to get receipts for large donations above $250. Many non-profits are now accepting direct deposits and can accept funds with the click of a button.  Be aware of the tax deductibility of your contribution as not all non-profits can give you a tax-deductible receipt.  It’s true that donations to the NFL or the American Bar Association are not tax-deductible though  those agencies are nonprofit; but gifts to virtually anything you think of as a charity ARE tax-deductible.  Ask about it if you’re concerned but this is the least of your worries.

5. Simplify and Centralize Your Giving. Simplify your giving by using a one-stop-shop that makes finding and giving to charities easier. [Our company's] users can give to any 501(c)(3) recognized by the IRS. [Our company] keeps a record of donations so you don’t have to and provides a year-end receipt for tax purposes.  Again, don’t be trolling around looking for charities in somebody’s data-base; give money to agencies in your community whose work you know, or to organizations active in the field (social services, the environment, the arts) with which you’re concerned.  It’s no easier to find the names of random charities in some commercial Website’s data-base than directly from the IRS (or from the phone book, for that matter), and if you’re worried about having a receipt you could always just write a check, which is perfectly adequate documentation for the Revenue agents.  Don’t be dazzled by announcements of great on-line services which can direct you to charity: there’s nothing difficult about making your own gift, and “research” in this field means nothing more than familiarity with an agency’s work. What’s being ballyhooed here is the equivalent of an offer to chew your food for you: sure, you could hire someone to do it, but that would eliminate not only all the fun but all the nourishment.

Don’t feel desperate about giving away your money before December 31: there will be plenty of need (and plenty of tax-deductibility) in the new year.  Take the time you need to find out about the mission, services and effectiveness of the organizations you want to support.  There’s no charitable fiscal cliff, so don’t bother searching for a charitable bungee cord; your personal sense of balance will be more than sufficient to support you.

Giving Tuesday: A Holiday Tradition Worth Creating

November 27, 2012

This is glorious: someone figuring out how to divert some of that pointless holiday shopping into social good.  Go bust some charity’s door today!

Dear Nonprofiteer, Whose money is too filthy to take, and why?

April 6, 2012

Dear Nonprofiteer:

I’d be interested in your take on the Tucker Max/Planned Parenthood issue. That whole issue, which I’m sure you’ve touched on before, of NPOs making tough decisions about accepting donations is one that constantly comes up.

Signed, Hoping to Keep Clean Hands and Full Coffers

Dear Hoping:

So Tucker Max (a blogger the Nonprofiteer had never heard of until this letter) tries to give half a million dollars to Planned Parenthood, which has just lost funding from the Komen Foundation and is at risk of losing Federal funding, and PP turns the money down.

Under ordinary circumstances the Nonprofiteer would say, “WTF? So he’s a sexist piece of dog excrement! So he’s trying to whitewash his reputation! Why shouldn’t we help impoverish sexists by accepting their contributions? Why shouldn’t they pay restitution for their crimes and sins?”

But these aren’t ordinary circumstances, because the donor describes himself as follows:

My name is Tucker Max, and I am an asshole. I get excessively drunk at inappropriate times, disregard social norms, indulge every whim, ignore the consequences of my actions . . . sleep with more women than is safe or reasonable, and just generally act like a raging dickhead.

Years of public education about what Planned Parenthood actually does would go right down the drain if it permitted itself to be publicly tied to an advocate of reckless, consequence-free sex. The Republicans have clearly hit a responsive chord when they strive to outdo each other in demonizing PP, and that chord is that the very existence of Planned Parenthood represents an utter breakdown of sexual morals. Never mind that this isn’t true: Tucker Max actually DOES represent an utter breakdown of sexual morals, and Planned Parenthood can’t afford to be associated with him.

In general, though, the Nonprofiteer remains in favor of taking money from bad people: it’s not possible to eradicate them, and they ought to be good for something. If she still shudders (as she does) at entering the David H. Koch Theatre at Lincoln Center, she consoles herself that it represents millions of dollars the self-same Koch no longer has available to give to the Tea Party.

It’s fine if donating makes an evil donor look good. Just be sure that accepting doesn’t make you look bad.

Dear Nonprofiteer, How dare they tell me what to give?

February 6, 2012

Dear Nonprofiteer,

Maybe I’m just being pissy.  It’s possible.  But….

I’m on the board of two smallish non-profit arts organizations, and a regular financial supporter of several others. I’ve noticed a trend in fundraising appeals- in letters that go out to previous funders, the dollar amount they contributed in previous years is named, with a request for a specific increase in the current campaign.  (“Thank you for your generous contribution of $100 in 2011. Would you consider a gift of $125 in 2012?”)

Why should this bother me?  But it does.  It really irritates me, especially from the organizations that I contribute to generously.  And this year, when, as a board member, I was given the fundraising “ask” letters that were going out under my name to my personal contacts, I felt especially irritated to see the request for a specific additional amount.  I would certainly never have written my friends directly with this request.  Now that the dust has settled and our annual appeal has ended, I intend to speak to our director of development about it.But, in the meantime, could you illuminate me as to when this practice started?  Why it started?  And whether I should offer, in a kind way, feedback to the other organizations that are asking for a specific dollar amount increase to my giving?Does this bother anyone else? Or am I just being pissy?

Signed,

Possibly Pissy, But Really Very Generous At Heart

Dear Generous,

The practice likewise raises the hair on the back of the Nonprofiteer’s neck.  There’s something creepy about the notion that an organization is 1) keeping track of what you’ve given, in violation of some notion of privacy and 2) asking for more, as if in reproach, instead of trusting you to give more if you’re able.  But of course they’re keeping track of what you’re giving—how inept would you think them if they weren’t?—and of course they’re always working to raise more—ditto.  So the first thing to recognize is that it’s not the practice so much as the expression that annoys you.

The practice is at least 40 years old, and was pioneered by the universities, probably because it’s natural for those institutions to think of givers in terms of the passage of time: the class of 1960 can reasonably be expected to have more resources than the class of 2010.  It arose, the Nonprofiteer suspects, in response to the habitual nature of many people’s giving: if they gave $100 last year, they go on giving $100 into eternity.  This seems like a great thing and, in fact, is the reason individual giving is such an important source of funds to organizations: while foundations often won’t continue their support unless you do something new and different for every grant, most individuals will just keep on giving unless you affirmatively offend them.

But what you’re saying is that the request for elevated support is just such an affirmative offense.

The problem is that the cost of everything continues to go up, and unless the monetary inflow goes up at the same time the agencies you support will find themselves seriously behind the 8-ball.   Perhaps the agencies requesting your increased support would do better if they reminded you of that—”We haven’t been able to give our actors a raise for five years while their rents and grocery bills just keep on rising”—rather than beginning with a flat-out demand that you do more.

The Nonprofiteer prefers to err on the side of thinking that’s what they meant, anyway, and that the only thing they can be reproached with is their effort to raise money based on need instead of on opportunity.    Most prospective donors, whether offended by an appeal or not, give money to agencies because of what they’re going to do and not because of how much they need.  That, most probably, is the source of your feeling offended by the approach: that what you want to hear is how great they are and how much they can do with your help, not how needy they are and that they’re so desperate for your support as to reach their hands directly into your pocket.

The question of what gets said to people who are getting fundraising letters over your signature—or at least under your aegis—is a separate one.  You are utterly within your rights as a Board member to say “I’m happy to solicit my friends but I won’t send out a letter telling them how much to give,” so that the staff can prepare your letters without the offending terminology.  Those letters are from you, and therefore should represent your own approach to the people you’re soliciting, whether that’s “This group is in desperate need” or “This is the only group I’m supporting this year because of the fabulous new program they’ve launched.”

In other words, it’s one thing to shake off what you consider a slight directed at you, and another to permit the agency to direct that slight at your friends.   In that spirit, it certainly wouldn’t hurt to notify the agencies whose appeals have troubled you that you wouldn’t ask your friends for money with that inflection and that they might consider not asking their friends for money that way, either.

But consider this.  The Nonprofiteer remembers being unable to ask how much something cost in Paris because the straightforward “Combien?” seemed so abrupt and rude but she lacked the syntax skills to soften it, not to mention the language facility to know what phraseology would constitute appropriate softening.  People who ask for money and people who get asked are speaking different languages.  Those doing the asking never mean to be rude—they just lack the skills to determine what constitutes being polite.  Perhaps if you consider the transaction from that perspective you’ll be less annoyed.

Dear Nonprofiteer, Who are they to tell me what to give?

February 6, 2012

The Nonprofiteer has been wondering what to write about . . .

February 1, 2012

but she’d really have preferred not to have this as an inspiration.  There is no excuse for the decision of Susan G. Komen for the Cure, until now a respected source of information and funding in the fight against breast cancer, to defund Planned Parenthood‘s program of providing breast exams to poor women.

In fact, the decision doesn’t even make sense–unless you consider that a recent addition to the Board of Komen is an anti-choice ex-politician from Georgia.  As another commentator has wisely noted, Planned Parenthood will survive this latest injury–the Nonprofiteer’s determination to support the agency has just been redoubled, and probably her gift will be, too–but Komen may not.

Please join the Nonprofiteer in notifying Komen of your distress at its decision to let irrelevant politics endanger the lives and health of poor women, and of your decision to redirect to Planned Parenthood any support you may have been giving to Komen.

Dear Nonprofiteer, Does an alumni association chapter have to file tax returns?

January 5, 2012

Dear Nonprofiteer,

I am the president of my local alumni chapter for a large university located in another state. The National Alumni Association is a 501(c)(3) organization with by-laws that state it can create various chapters around the country.   When our local chapter was created, the founding president filed the paperwork for an EIN so we could open a checking account. That is all he did; we are not incorporated as a 501-anything.   When he filled out the EIN paperwork, for “type of entity,” he clicked the “other” box and wrote “social club” in the blank. Our little chapter brings in less than $10,000 per year. We then funnel most of that back to the university’s scholarship fund.

My question is: are we supposed to be paying federal income taxes? State of Illinois income taxes?

My university is being remarkably unhelpful.   They did definitively say that they strongly advise their chapters against incorporating as their own 501(c)(3).

I have done some research and seen that other universities structure their alumni associations so that the national association is a 501(c)(3) and the local chapters are 501(c)(4)s. The local chapters then file what is called a “IRS-990 postcard.” This seems a reasonable solution, but it also requires that my chapter incorporate as a 501(c)(4), and I am hesitant to do that without official word from my university. I have a fellow board member who is breathing down my neck, convinced we are breaking all kinds of laws.  What should I do?

Signed, Clueless in Chicago

Dear Clueless:

The Nonprofiteer knows even less about tax law than you do, so she turned to her Association of Consultants to Nonprofits colleague Kathryn Vanden Berk, whose nonprofit law practice makes the Internal Revenue Code her constant companion.  Kathryn characterized your question as “easy but in multiple parts,” and her answer appears below.  Many thanks to her for her guidance, and for demonstrating that the author of Good Counsel isn’t the only nonprofit lawyer the Nonprofiteer knows!

There are four ways to handle this.  (1) ask the national association to take you on as a fiscal agent, (2) ask the national to file as a group exemption so that each chapter may get its exemption from the central organization of the group; (3) incorporate and go through the exemption application; and (4) do nothing.

Of these, the easiest is to be sponsored by the national (or any other already-existing) 501(c)(3).  The exempt entity confers the local chapter with its exempt status automatically and no paperwork needs to be filed.  However, the fiscal agent must report to the IRS on what happens within the local chapter.

The easiest for the locals, but harder for the national, is for the national to seek a group exemption.  It can then manage each of the local chapters as subsidiaries.  As above, the national is responsible for reporting to the IRS.

If the local decides to incorporate and seek its own exemption, it should identify its purpose as “educational and charitable”.  Generally, a scholarship organization must file a Schedule H with its exemption application, but it appears that this local forwards its funds to the national, and the national makes the selection.  In that case, it is not necessary for the local to go through the scholarship preparation.

An organization that identifies itself as a “social club” is exempt under 501(c)(6) of the Code.  However, I would not suggest that in this case.  The money collected is used for scholarships, and that is clearly a charitable purpose.  Since the national was able to get a 501(c)(3) ruling, it would be foolish for the locals to seek a different, less valuable exemption.  If the IRS balks at the (c)(3) classification, I would suggest that the national seek a group exemption.

Doing nothing is maybe not a crazy approach, but it risks exposure and the protections of the IRS Code and IL law are not available to the chapter leadership and members.  The reason I say it’s not crazy is the small amount of $$ that flows through the organization.  No one is going to come after them unless (and this is the big risk) something happens.  Then I can predict that there will be a great deal of embarrassment and perhaps even personal liability.

Bottom line: if you have not filed for a tax exemption, you must file as if you are a for-profit business, using Form 1120.  If you give your funds to the national at year’s end, then it is unlikely you will have to pay taxes.  However, your members cannot take deductions for the gifts they make to the local, even if they go to the national’s scholarship fund.  Same with Illinois: if the chapter is not tax exempt, then it is taxable and must file as such.

I should note that if you collect charitable funds in Illinois, you really need to be registered with the IL Attorney General, even if you are not exempt via the IRS.  The AG’s office is very strict about this.  You will have to pay a late filing penalty because you have been soliciting without being registered.  You might be exempt if you can convince the AG that $$ was raised only from members, but they are not as flexible on this as they once were.

I don’t know why the university advises against incorporation.  It’s a fairly inexpensive thing to do, and it gives liability protection to every member.  It’s a small price to pay for the protection it gives.  You need to have someone agree to be your Registered Agent, and to have his/her office or residence registered as the Registered Office.  You need to file annual reports (in Illinois and most states) to stay in good standing.  In Illinois, this costs $10.00 per year.

I don’t know why the (c)(3) and (c)(4) approach is used.  You would want every part of the organization to be classified as 501(c)(3) so that all gifts, grants and contributions are tax exempt and deductible to the donor.  I’d want to explore this further before acting.

So, Clueless, the answer is that no good deed goes unpunished.  Having investigated the question, you’ve now unearthed a series of obligations, decisions and tasks which I’m sure you’d rather not have known about.  You’re not about to go to jail but to protect yourselves it seems that getting your university to agree to serve as your fiscal agent, and then registering to raise funds in the state of Illinois, is the bare minimum you should do.


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