Tax-exempt? Yes or No?

The Internal Revenue Service announced the launch of a new online look-up tool, Exempt Organizations Select Check, that will allow taxpayers to find out whether an organization is eligible to receive tax-deductible contributions or has had its tax exemption revoked. Select Check replaces the online version of Pub. 78 and the IRS’s Auto-Revocation List.

(source: JournalofAccountancy.com)

Give to the Max Lessons Learned

Give to the Max Day, put on by Razoo, was a great success and provided an interesting lesson in how the nature of fundraising has changed. The Case Foundation analyzed this new method of fundraising and published a case study.

Razoo complied some important lessons learned from the Give to the Max Day:

• Easy Asks – the event was promoted in advance, giving donors time to get in the mindset and establish brand recognition resulted in better responsiveness;
• Cross Pollination wins – people visited the site to donate to one organization but could easily find more and made additional donations;
• Competition Wins – having grant prizes awarded to the organizations that raise the most money or got the most donors encouraged people to give to that nonprofit and root for their cause;
• Participation as the Goal – people responded better to the participation concept than the older model dollar goal.
• The last three concepts tie together and can be summed up as Hitching  a Ride on Bigger Coat-tails. Smaller organizations benefited from larger groups who were more seasoned in fundraising and had more public presence. Razoo did the big work and it became a community-wide effort.

None of us are as strong as all of us put together.

Use these lessons and get ready for the net Give to the Max Day.

To see more visit http://social.razoo.com/2012/03/seven-lessons-nonprofits-can-learn-from-give-to-the-max-day/

To see the full findings from the case study visit http://www.casefoundation.org/case-studies/give-max-dc-case-study.

Proposed Raising of A133 Federal Grant Threshold

The Office of Management and Budget (OMB) has released advance notice of proposed guidance that could raise the threshold for grantees required to have Single Audits in compliance with OMB Circular A-133. The goal is to concentrate audit and oversight resources on higher dollar and higher risk awards. Changing the threshold would enable agencies to focus and follow up in a more efficient and effective manner, targeting improper payments, waste, fraud, and abuse.

The proposal would release entities expending less than $1million from conducting a Single Audit. This would raise the current threshold of $500,000 below which no Single Audit is required.

Entities that expend between $1million and $3million would be required to undergo a proposed new version of a Single Audit that would be a more focused audit. As opposed to auditing the 14 areas of compliance, auditors would review only 2 compliance requirements. Allowable/Unallowable costs would always be required to be included and the awarding agencies would have the discretion to select the second compliance requirement to be audited. Agencies would be directed to select requirements at a program level (not grantee level) that would best target the risk of improper payments or waste, fraud, and abuse.

Entities expending more than $3million would undergo a full Single Audit. The full audit procedures would be modified to give agencies stronger tools to reduce improper payments and eliminate waste, fraud, and abuse.

The proposal is open for comments and questions. Any questions or feedback should be submitted no later than 5pm EST on March 29, 2012 electronically through http://www.regulations.gov. These comments will assist OMB in its development in the coming months of a further Federal Register notice to be published for comment later this year. Federal Fund Management is having a webinar on the topic March 22, 2012 from 2pm-3:30pm EST. Click here to find out more.

For more detailed information see the Federal Register, Vol.77, No.39 section 11778

10 Tips on Year End Closing and Audit Prep

It is that time of the year again. Auditors have turned into mole rats that never see the sun, and accountants are purchasing wigs to cover the bald spots from pulling their hair out during preparation for the audit.  Yep, that’s right! It is audit season – everyone’s favorite time of the year.  Here are ten steps to make this time of year, if not seem like a cakewalk, at least go a little more smoothly.

• Try not to let it pile up at the end of the year. If there are schedules you can update monthly or quarterly that will help you with closing and help with the audit, plan these out in advance. Doing what you can throughout the year will help things not be as crazy at year end.
• Have a detailed checklist – This helps ensure nothing is missed or overlapped in a multi-employee office, as well as helps track what is left to be completed. Use the PBC (audit requests) letter from last year as a starting point.  You don’t need to start from scratch each year.
• Coordinate the closing of your books with preparing for the audit – This helps to keep you from duplicating your work or needing to redo it.
• Ask your auditors questions throughout the year as issues crop up. If you have a new situation or something has changed and you need to know the proper treatment – it’s best to handle these things as they occur instead of waiting for the audit.
• Schedule the audit far enough from year end to allow yourself time to close your books and prepare for your audit – If you don’t need your audited statements until June, why schedule the audit in January?  Discuss the real deadline needs with the board to hash out what is reasonable vs. unrealistic.
• If you determine you will not be ready in time for your scheduled audit or if your needs change let us know as soon as possible.  Your auditors are willing to work with you.
• Set aside specific time each day in the weeks before the audit to prepare – This should help you from going (too) crazy.
• Notify your auditor if you make changes after sending any schedules – This helps to keep a lid on the confusion.
• The week scheduled for the audit fieldwork is not the week to start preparing for the audit. Everything should be ready as much in advance as possible.
• Be sure to have time for your auditor during the audit. We know you still have your full time job to do and we work to be respectful of that, but the more responsive you are to our questions, the sooner we can get out of your hair.

The it Award – Apply Now!

C.Fox Communications is still accepting applications for its 2012 it Award–worth up to $30,000 in pro bono PR services!  The application is only available until February 29th.

The it Award is open to any United States-based nonprofit with 10 or more employees and there is no fee to enter. You just need to tell them why your organization should be it.

You can apply here.

If you’ve looked at the application and have questions, join C.Fox Communications for a conference call Thursday, February 23, at 3 p.m. They’ll be answering questions and giving advice about completing the application. Please RSVP to Julia@cfoxcommunications.com.

Do you know an organization worthy of the award?  Pass along these details, and feel free to reach out to C.Fox Communications at itaward@cfoxcommunications.com with any questions during the application process.

The Dirty Dozen – according to the IRS

The IRS has released its list of the Dirty Dozen Tax Scams to watch for when preparing and filing returns for 2011. “Illegal scams can lead to significant penalties and interest and possible criminal prosecution,” according to the IRS website. The list is published as a way of increasing public awareness and cautioning people to be on the look-out.

While identity theft and phishing top the listing, of particular interest are these two items:

• Abuse of Charitable Organizations and Deductions, and
• Misuse of Trusts

Intentional abuse of 501(c)(3) organizations includes: arrangements that improperly shield income or assets; attempts to maintain control over donated assets or the income from donated assets; over-valuing non-cash assets; arrangements to buy back the donated asset at a time and price set by the donor; and inaccurate appraisals.

Misuse of trusts include: questionable deductions of personal expenses, and promises of reduced income, estate, and/or gift tax.

IRS personnel have witnessed an increase in the abuse and misuse of these entities. Organizations should be aware of the possible motives behind some donor objectives and strive to not be complicit in such activities. Penalties and the damage to the organization’s reputation might not be worth whatever temporary benefit received.

See the full listing here.

Mandatory Volunteerism? Realistic Option or Just an Oxymoron?

Last week, Senator Richard Burr (R-N.C.) introduced a bill that proposes to reform the unemployment system. The key points in the bill are as follows:

• Require long-term unemployed to volunteer for 20 hours a week in order to continue receiving unemployment benefits,
• Those drawing six months or longer must search for work at least 20 hours a week,
• Allowing states to conduct their own drug testing of applicants.

The last point is an explosive political issue with intense arguments on both sides so let’s steer clear of that one entirely and just deal with the first point. The concept behind the first point, according to the senator, is that being involved in volunteer service helps workers maintain job skills, marketability, and a sense of self-worth.

Similar proposals have been shuffling around for a few years now about the possibilities of different types of mandatory volunteerism: college students receiving federal education tax credits, or having a high-school volunteer requirement (also here). The arguments for such requirements tend to cite the personal growth of the volunteer and the benefit to the community. Both are true. Arguments against tend to point to that if people are forced, they will resent it, that is time that could be spent looking for work, and that “mandatory volunteer” is an oxymoron.  Also true.

Only a few have mentioned what the impact on the nonprofit community could be. Yes, volunteers are needed but a sudden influx of volunteers that don’t want to be there? Hmmm… There are certainly organizations that need help but many might prefer to cultivate and train their volunteers. Many organizations are concerned with and work hard to increase volunteer longevity, which is at odds with the idea of short-term placement in order to push back into the work force. Ultimately, organizations may not be cut out to care-take a mob of volunteers as well as their clientele. Having peace officers supervise clean-up efforts and similar low-training tasks might be a better fit, and then you have arrived at what this actually is, which is community service. Community service is a great thing and many organizations have structures in place for that, but whether they could manage a sudden influx is still a possible issue. There’s also the possible issue of it feeling punitive. But sticking to the nonprofit’s point of view, organizations have to be able to conduct their mission without getting overwhelmed with supervising. Supervision takes resources and funding that many organizations don’t have room for in the budget right now. There’s such a thing as a kind of help that hurts more than it helps.

Read more about the proposed bill here and here.

Drug Valuation Impact on Ratings

As previously discussed, the valuation of donated medication has been coming under intense scrutiny of late, with Food for the Hungry landing in the news and garnering a hefty federal penalty in the process. It should be noted that at this time, Food for the Hungry maintains it has done nothing wrong. At issue is the method by which nonprofits ascribe worth to donated drugs – some of which may have a “donative intent” in the form of steep discounts on purchase price.

Many nonprofits are re-assessing their valuations with the results being a drastic change, in some cases what was previously valued at $10.64 per pill adjusted down to $1.54 per pill. The impact of decreasing the value of the donation is a significant drop in income. The watchdog group, Charity Navigator is taking a closer look at the potential fall-out for organizations in this position.

Charity Navigator gives rankings to charitable organizations based on their financial health, accountability, and transparency. Typically, an organization with sizeable decreases in revenue get points taken off but in this case, the group is trying to determine if that’s a fair assessment or if these organizations deserve special consideration. The group is soliciting feedback from humanitarian membership groups, gauging the interest in giving the organizations a chance to file restated financials for the past four years, using the reassessed pill values, thereby not having to show a sudden drop in income for the current year.

Arguments are being made for and against allowing the amended reporting. One argument against it being that it would be difficult for an auditor to reassess the fair value four years back. Others note that it wouldn’t be fair to organizations that hadn’t hyper-inflated their medical donation values in the first place. Those arguing in favor are likely the same parties that have needed to make the valuation adjustments.

Read more about the case here. See Charity Navigator here.

Clarifications on 2011 Form 990

The 2011 Form 990 is not significantly changed from the prior year, but the instructions do have some possibly significant clarifications contained in them, if the particular area is applicable to your situation.  Here is a bullet list of the significant clarifications:

• Any organization must file Form 990, 990EZ or 990-N, even if an exemption application has not been filed or approved yet.  (The exemption for churches and certain religious organizations still exists.)
• If you had foreign investments valued at $100,000 or more, you must complete Schedule F, Part I and IV.
• Clarification on when to complete the parts of Schedule F providing grants or assistance made to organizations or individuals outside the United States.
• Clarification with examples for when a board member is considered independent.
• If the governing body allowed an executive committee to act on its behalf, it must provide an explanation in Schedule O.
• The governance section now asks if any governance decisions of the organization reserved to (or subject to approval by) members, stockholder, or persons other than the governing body.
• Instructions added that an organization cannot say “yes” to the governance area question (line 11a) about providing the 990 to the voting governing body before filing with the IRS if it merely notifies them that the 990 is available upon request for review.  It is satisfactory, though, to provide a link to a password-protected web site on which the entire Form 990 can be viewed.

The 2011 form can be found at: http://www.irs.gov/pub/irs-pdf/f990.pdf.

The 2011 990 instructions can be found at: http://www.irs.gov/pub/irs-pdf/i990.pdf.

Fiscal Sponsor Closes its Doors Amid Speculation of Ponzi-like Scam

After a 3 year investigation by the IRS, the International Humanities Center (IHC) is closing its doors. IHC was a 501(c)(3) organization that functioned as an umbrella structure and fiscal sponsor, holding funds for 200 groups that are now trying to piece together what happened to their money. Estimates of $1 million or more of money appears to have vanished and that estimate is growing as members pull together to compare information.

The concept of a fiscal sponsor is one where small groups that might not have the wherewithal or inclination to set up their own 501(c)(3) organization can buy in to the sponsor’s umbrella structure for 10% of the funds managed. IHC would receive and deposit charitable donations in restricted accounts and distribute funds based on requests.

Some groups reported some lack of responsiveness in the last months of 2011 but all were blindsided by the sudden closure with little explanation. The California attorney general, IRS and FBI are all getting involved in attempting to sort out what happened. IHC CEO Steve Sugarman is denying any wrong doing and claiming recent donations would be returned.

According to the Nonprofit Quarterly, the numbers just don’t add up. “If the Center had not diverted the money, it would have been able to return the funds collected for its projects – or transfer them to some other fiscal sponsor that would take on its assorted projects – and call everything even.” The article also points to IHC’s 2009 990 which showed beginning the year with almost $600,000 in cash but ending with only $103.

What the ultimate fall-out will be remains to be seen. The Nonprofit Quarterly is going to analyze lessons learned in part II of its coverage of this developing story.