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.

Walking for Early Literacy

On Saturday May 10 I will be taking part in the Human Race, a fundraising event for Silicon Valley nonprofit organizations. The Human Race is an annual event produced by the Volunteer Center of Silicon Valley that brings together hundreds of organizations from Santa Clara and San Mateo Counties. Taking part in an event like this provides each organization a "ready-made" fundraising event, without the hassle, effort, or costs of developing one of their own. Volunteer Centers throughout the state and nation hold similar events - Check it out for your own nonprofit.

I will be doing the 5K walk to raise funds for Grail Family Services (GFS), an organization in East San Jose that I have been serving on a consultant basis as Interim Executive Director for a little over a year now. And, of course, I'm asking for your support - Click here if you can pledge any amount of money to help our efforts.

GFS "fosters learning and the empowerment of vulnerable families with young children through the delivery of programs that educate, develop leadership skills, and build a sense of community." All GFS programs target parents and their young children ages 0-9, and are designed with community input to address the issues most important to the neighborhood. This approach enriches the child, as well as the parent, and helps them each on the path to success in school, in work, and in life.

Your sponsorship of my Human Race participation could mean:

• $25 – five new books for the GFS Children's Library.
• $50 – developmentally appropriate toys for GFS' child care program.
• $100 – case management services for one parent.
• $250 – four weeks of subsidized child care services for one low-income toddler.
• $1,000 – eight weeks of literacy services to boost the reading skills of one child.

If you can help out, click here - And thank you for your support!

Donors Versus Nonprofits

My postings on fundraising fees and rates get a lot of hits, and sometimes some heated discussion. My recent posting Yet more on percentage-based fundraising was no exception.

While some people have agreed with me that, "it's about time that donors put the needs of nonprofits ahead of their own," others have taken great exception to that. One such person is Barbara Ruth Saunders, who this morning wrote:

Aren't nonprofit organizations, in fact, supposed to be the vehicle by which DONORS direct their resources to goals which are socially important to the DONORS? The board should be determining how the organization can serve the goals. The staff should be executing the programs that support those strategies. But, I have a huge problem with the notion of nonprofits as being a means for a handful of grandiose people to exercise their social aims with other people's money!

That said, the immediate client of the fundraiser is the organization; the fundraiser helps the organization assure the DONORS that it is aligned with the DONORS' ultimate intentions.

To which I replied:

Thank you, Barbara, for your impassioned post, but I do respectfully disagree with your assertion that "nonprofit organizations [are] supposed to be the vehicle by which DONORS direct their resources to goals which are socially important to the DONORS."

I'd put phrase it more like, "Nonprofit organizations are supposed to be the vehicle by which a COMMUNITY achieves the goals that are socially important to it."

If a donor finds that particular nonprofit is doing work that he/she/they/it believes in, they should support that nonprofit.

But when the donor becomes the focus, nonprofits drift from their missions and only chase the money. Program decisions are made, not based on what is most needed or most effective, but based on the question, "What's fundable?"

Donors need to actually trust the professionals within nonprofits to know how to best achieve their mission. If donors don't trust nonprofits, they should simply invest their money elsewhere.

Your notion that nonprofits are "a handful of grandiose people [exercising] their social aims with other people's money" is simply insulting and only demonstrates your incredible disdain for nonprofit staff.

Was I out of line here? Have concepts of charity and philanthropy become so antiquated that there is no longer even a pretense of the donation being a gift?

Do donors really think that it is their place to mold nonprofits in their image and that the people who've dedicated their careers and their lives to serving their communities require such direction and babysitting from people who've never done such work?

Apparently so. Personally, I've had just about enough.

The soul of philanthropy: when giving becomes receiving

Michael L. Wyland of Sumption & Wyland consulting has written an op-ed piece on Argus Leader (dot-com) under the unassuming title of "Accountability changes philanthropic landscape" that perfectly expresses what I'm sure so many of us have been thinking for years.

The opening paragraph reads:

"There has been a major change in philanthropy in recent years. Accountability and impact are increasing the demands placed on charities because the purpose of charity from the donor's perspective has changed. It's become acceptable, in the name of accountability, for philanthropy to be about receiving rather than about giving. Hypervigilant and misapplied accountability risks killing the soul of philanthropy upon which charities rely for support."

I will add to that the charge that this hyper-vigilant accountability is killing the ability of small, local, and grassroots nonprofits to operate at all. The costs of compliance are out of line with the costs of providing needed services, leaving these organizations no options but to either merge with a larger organization or close their doors.

As Mr. Wyland states, the IRS, and all the various nonprofit watch-dog groups that analyze our IRS filings, all base their evaluations on data that is "overwhelmingly financial in nature... As long as every transaction is documented and as long as no one's enriching themselves at the charity's expense, the IRS and the watchdogs are satisfied."

But what happens to the small nonprofit whose administrative expenses seem too high only because of an effort to comply with all the data collection, analysis, and reporting requirements of their funders? The same funders who will then use that nonprofits' high administrative expenses as a reason to discontinue funding them.

In another recent post here, I called out Paulette V. Maehara (president and CEO of AFP) for admonishing nonprofits to "put the needs of donors first." I believe that we've coddled and begged and babied the donor foundation long enough. We need to educate them about the needs of our clients, and how they are best served by locally provided community-based nonprofits, and, perhaps, on the true definition of the word "charity."

More nonprofit video

About a year ago I wrote a post here called "A YouTube for Nonprofits?" about the site DoGooder TV from See 3 Media. I've recently been introduced to a new web site and production house focused on making videos for nonprofit causes: Charity Docs (dot org).

I've been very impressed with the short films I've seen on their demo site so far, and look forward to seeing more from them in the future. They see their mission as helping to connect worthy organizations to potential donors through exposure on the website and by creating a product (the video) that the organization can use in presentations, meetings, mailings, etc. Their fee for a produced video is $2,500.

Personally, I think these "Charity Docs", mini documentaries focusing on the human need and client's story more than just the organization, are a great idea. Too many of the nonprofit promo videos I've seen elsewhere focus too much on the agency and not enough on the cause. This is the type of storytelling that gets signatures on checks.

I'd like to hear from you now - Has your organization produced a video? If so, were you satisfied with it? How have you used it? Use the comment area below or send me an email telling about your experience.

Why do you give? A few answers...

LinkedIn.com has an "answers" section, where users can ask questions (usually related to their business or networking issues) and other LinkedIn members can post answers. Of course, I always monitor (and occasionally answer) the questions in the Nonprofit category.

One recent question was What motivates you to give to charities? Of the five answers posted so far, a couple are from nonprofit experts, but almost more instructive are the answers from people outside the sector, including those who have become disillusioned with charities and no longer give.

Sheilah used to give, particularly to health-related causes, but is upset that "we are no closer to a cure." Her friend is undergoing cancer therapy, has lost her job (and therefor her health insurance) because of her illness, and is unable to find any organizations willing or able to assist her. Sheilah now feels her charity dollars will be better spent giving money directly to people in need and not going through intermediary organizations.

Patrick gives to nonprofit causes that have effected the lives of himself and his family. He and his wife have had to cut down the number charities they support to only two. Their frustration with the rest? "Once you give those same charities sometimes harass you to the point of hanging up, or tossing the junk mail into recycle."

Terri has "cut way back on donations to major charities and switched to smaller groups where I can actually see how my donation is helping." Marisa likewise is looking for "transparency" where she can see the direct result of her giving, "not just pay into some anonymous account and other people's admin overheads."

Is your nonprofit making any of the mistakes that has turned these donors off? Are you harassing Patrick? Are you communicating your progress and results to Sheilah? Do Terri and Marisa know how you're using their dollars and that each one does make a difference?

What are you doing to retain these donors and keep them connected to your work?

New web site - $20 Fundraising

A little over a year ago I blogged about a Reverend in England who gave 90 parishioners £10 each with the request that they do something with it to increase the donation within six months.

I've thought about that story often in the year or so since then, and find I am still inspired by it. This morning I have launched a website dedicated to spreading the word that fundraising doesn't always have to to be difficult or expensive.

I am simply calling it 20Fundraising.com - Twenty Dollar Fundraising Ideas ($20 is approximately £10). I have posted the first ten low-cost fundraising ideas, the Reverend's story, and a form for readers to submit their own $20 ideas.

Please check it out and let me know what you think. Thank you!

Body Bags for Charity

In addition to this nonprofit consulting blog, I also keep a general interest/politics blog (and a guitar playing/collecting blog), and sometimes I have to wonder which blog I'm going to post a certain item to. This is one of those items.

This is one to file under "nonprofit fundraising," but it's also going to my general interest blog, because it's just that odd.

The Los Angeles County Coroner (office of the infamous Thomas Naguchi and inspiration for the classic TV show, Quincy) was facing a fiscal crisis when the County didn't have enough money to fund the Youthful Drunk Driving Visitation Program (YDDVP) - A court ordered alternative sentencing program for youthful offenders, that takes participants through the Coroner facilities and exposes them to the realistic and traumatic consequences associated with their offense.

Their answer? A web site selling body bags, toe-tag key chains, "Undertaker" boxer shorts, and many other less-odd items, each featuring the County Coroner's seal or a chalked body outline design. They'll get a lot of publicity for the store, and - I believe - a lot of sales revenue as well.

I just wish some of the nonprofits I work with could be this creative, original, and off-the-wall with their fundraising efforts.

(Thanks to the Selfish Giving blog for the lead and link.)

"Charities are more than financial statements"

PND (Philanthropy News Digest) today has an article on making the case for funding administrative costs that quotes Bennett Weiner, CEO of the Better Business Bureau Wise Giving Alliance, as saying:

Charities are more than just financial statements, and people shouldn't make donation decisions solely on financial statements.

If a charity spends 80 percent of its expenses on programs, it doesn't necessarily mean that it is doing a better job than one that is spending 70 percent.

As refreshing as it is to read that quote, it is not, however, how most donors think about overhead costs. Donors - individuals and foundations - prefer to fund programs for a number of reasons. First of all, it's far "sexier" to say your money is saving children rather than making paperwork more efficient. Additionally, according to a study by the Center for Effective Philanthropy, "It's easier to track funds allocated to program[s]."

So, how do you make the case for administrative costs funding? Eric Schwarz, CEO of Citizen Schools, Boston, says:

The key is you don't call it overhead. Talk about metrics. Show that to get even better results and expand to reach more kids we need to invest in our team.

It's hard to save the world when you're sitting in the dark without any lights or a computer or coworkers. It may not be "sexy" but it is necessary.

Regifting is Good!

Last week, I received an email from Ashley Gatewood of MissionFish.org saying, in part:

Since the holidays are now over, we’re encouraging people to consider regifting items they received but don’t have a use for by selling them on eBay and donating the sale to a nonprofit. It can also be a great way for people who got a new item, like a digital camera, to turn the older model into funds for their favorite cause.

MissionFish is an official nonprofit partner of eBay and makes it easy for both organizations and individuals to set up charity fundraising auctions online.

Nonprofits can register on the site and either run their own auctions, or have their supporters auction items for their benefit. Individuals who have items they want to sell can search for a cause by name, type, or topic, and select a beneficiary for their personal auctions.

Early in the new year I will be experimenting with a "regifting" auction and reporting back to you about my experience here.

How generous is your state?

Thanksgiving is done with (hope yours was peaceful and happy), and we're now officially into the Holiday Season. That means plenty to each of us personally, of course, but as nonprofit professionals it also means quite a bit work-wise as well.

As you hope for the best return on that holiday pitch you should have already prepared, and as you get set for those final big asks of the year, you might want to see where your state stands in the new state-by-state assessment of charitable giving.

Prepared by the Boston College Center on Wealth and Philanthropy, this second annual survey takes into consideration such factors as each state's religious and ethnic group mix, the existence of nonprofit organizations, and the local cost of living and tax burden, "including changes within states that are driven by levels of urbanization-which affects cost of living at the more local level," in order to more fairly index the comparisons.

Now, however you interpret the results, don't make the mistake of calling this a "generosity index." The authors caution:

"Generosity is a moral, spiritual or social psychological characteristic of individuals and perhaps families and households. We do not believe that the term generosity should be associated with our measures, nor any other measures that do not directly study the inner disposition ... of generosity. In truth, every purported generosity index that has ranked states is, in fact, a charitable giving index."

And the top five states for charitable giving are... New York, the District of Columbia, Utah, California, and Connecticut. And, at the bottom, Iowa, South Dakota, Vermont, West Virginia, and North Dakota.

You can download the full report from Boston College at www.bc.edu/research/swri.

Get younger, wealthier, (better looking?) donors online

Network for Good, an online service that facilitates online charitable donations, has just released a report looking in detail at $100,000 in online giving to 23,000 nonprofits. Some of what stands out from the results are the differences between online and offline donors: they're younger and more generous.

Some more highlights (click here for their summary and link to full report):

- Online givers are young (38-39 years old) and generous, giving several times more than offline donors on average.
[Compare that to an average age of 60+ for "traditional" donors]

- Virtually all of them (96%) have given to charity before, but a sizable proportion (38%) is new to online philanthropy.

- Online giving is tracking to the trends of online shopping and banking, and it is the avenue of choice for donors during disasters.

- Most people give online during the week, during business hours - most commonly, between 10am and noon.

- Giving online follows the same "long tail" phenomenon seen in online sales of books and music.

- Most online giving goes to disaster agencies.

- People say they give online because it's easier than writing a check and a fast way to respond to disasters.

You don't have to be responding to a disaster to get in front of these young, generous donors - They also use the net (and Network for Good) to find organizations for their year-end giving as well.

Does that give you any ideas? If you're not already set-up for, and actively promoting, online fundraising this better give you some ideas.

Tags: nonprofit, online giving, charity, donors, fundraising

Should Philanthropy Go On Forever?

Most charitable foundations in this country operate as perpetual giving machines. That is, they manage their funds and grant making in such a way that they will never spend out their entire endowment. In fact, many manage to grow their endowed base, even while awarding out millions of dollars in grants each year.

The IRS mandates that foundations must spend down at least 5% of their endowment each year, or face penalties. The perpetual foundations usually treat that 5% minimum as their set goal, and rarely give above that. The other 95% stays tied up in investments and helps to grow (or at least maintain) the endowment.

Philanthropists will give you two main reasons for setting up perpetual giving machines.

The first reason most people think of is, "to maintain a legacy." If they can't live forever, at least the foundation bearing their name can. It's usually worded something like, "I want to continue to do good long after I'm gone."

Many in the nonprofit field - who would like to get their hands on the foundation money sooner, rather than later - look at this argument as pure ego. "We have problems that need solving now," we argue, "Why grant out the money 5% at a time, when if you grant it all today we could cure cancer and AIDS, develop renewable energy sources, and end childhood hunger in this generation."

The other main reason for the perpetual foundation is a simple economics equation. By managing endowments in a manner that grows them - even while making grants - more money is eventually generated for nonprofits. Basically, would you rather have $10 million today, or $30 million over time?

It's a sound argument in a strong economy. But all one has to do to argue with it is to remember back just a few years to the dot-com bust, and what it did to foundation endowments (particularly those in my area, which were heavily invested in tech stocks). The means for growing endowments are investments, and there are no guarantees.

More and more, in the last few years, I've seen articles about philanthropists who are saying, "To Hell with posterity," and making plans to give their fortunes away entirely in their lifetimes. The latest of these being Howard G. Buffett (son of Warren).

According to the Chicago Tribune, Buffett doesn't intend to let philanthropy go on forever (get passwords here). As you've certainly heard by now, the senior Mr. Buffet is giving his fortune away over the next few years. A portion of that will be going into the foundations of each of his children, including Howard, who intends...

... to try spending the yearly installments of about $50 million from his father as fast as they arrive. He is not considering having his philanthropy operate in perpetuity but expects to set a distant date at which it will disburse its assets and shut down.

Bravo Howard! Let's see who is the next philanthropist to get on board.

Tags: philanthropy, nonprofits, foundations, charity, philanthropists, Howard Buffet