Will Your Nonprofit Lose Charity Status on May 15?

It may be April, but this is no Fool's joke. Up to 25% of the nation's officially recognized 501(c)3 Nonprofit Organizations have never filed an IRS form 990; the nonprofit tax return. That's been fine, as those organizations with income of under $25,000 have always been exempt... until now.

While smaller groups may still not required to file on an annual basis, a provision of the Pension Protection Act of 2006 included a requirement that the Internal Revenue Service revoke the nonprofit status of organizations that fail to file for three years in a row. That third annual deadline is fast approaching.

The IRS has sent out notices to thousands of organizations that may be effected and, with the lightning speed of bureaucracy, the actual de-certifications may not happen till January, but there are still likely to be small community organizations that fall through the cracks, don't get informed, and wind up with no tax-exemption.

Don't let this be your organization! If you are working or volunteering with a small, community nonprofit, make sure they've completed an IRS 990 or quickly request an extension and begin work on your filing.

I have mixed feelings about this new requirement. The 990 is not an easy form to complete. To compare it to personal taxes, it's more like the 1040 long form with extra schedules than the 1040 EZ. It frequently requires the assistance of professional accountants to complete correctly.

For an organization with less than $25,000 of income, this is quite an expensive burden and a cost way out line with their other expenses. That fact, of course, once reported properly on the next year's 990, will make the organization look inefficient and earn them poor ratings with those who analyze over-head to program cost ratios.

On the other hand, our sector is often accused of unprofessionalism and told to "be more business like." Tougher 990 standards that apply to all nonprofits is one way in which we prove our ability to manage donated funds in a prudent and professional manner. The 990 is required transparency; it is the window into our financial affairs by which we demonstrate the value of our work.

And, frankly, my own feeling is that the majority of the organizations that will be de-certified as a result of these new rules have probably ceased operating long ago. The de-certs will likely include many start-ups that never started, one and two-person organizations that lost steam and disbanded, and other dreams and good ideas that never quite made it.

Clearing these non-organizations off the rosters of legitimate charities could only be a good thing, as it will leave a clearer picture of what organizations are active, and all the good work that they are doing.

What are your volunteers worth?

According to the Independent Sector, the estimated dollar value of volunteer time for 2008 is $20.25 per hour. According the report, this value

"...is based on the average hourly earnings of all production and nonsupervisory workers on private nonfarm payrolls (as determined by the Bureau of Labor Statistics). Independent Sector takes this figure and increases it by 12 percent to estimate for fringe benefits."

Of course, for specialized work (lawyers, architects, etc.) the BLS assigns higher average rates, but only use them when the specialist is volunteering in their professional capacity (IE: Don't value a Doctor's work at the higher rate if she's helping with the filing).

Why are these values important? Because volunteer time is part of how we in the nonprofit sector leverage donor dollars. It's part of the story of how we can get $10 worth of services out of a $5 gift. Donors, large and small, private and institutional, want to hear that their investment in your organization is helping to bring in additional resources.

Track the hours and assignments of your volunteers, and include that value in budgets as an in-kind donation. Tout that figure in newsletters and annual reports. But, according to FASB (the Financial Accounting Standards Board), only include the figure in official reporting if "the organization would have purchased the services if they had not been donated."

So, what do you think of the $20.25/hour figure? Too high? Too low?

Thinking of the small, local nonprofit where I'm currently the Interim Executive Director, and other like-sized organizations, I wondered if we were now valuing the volunteers more than the staff.

Our average wage for non-supervisory staff would be about $15/hour, adding 12% as Independent Sector did for "benefits" (really, just payroll taxes, SSI, etc. - most of these staff are part-time and not receiving health insurance, etc.), that bring our figure up to $16.80/hour.

Do we now need to launch into a conversation about how we value our staffs?