The Wide Weird World of Tax-Exempt Status


What do the National Football League, Karl Rove's Crossroads GPS, and your local church have in common? They are all classified by the IRS as tax-exempt organizations under federal tax codes.


This means that the NFL, like all organizations in the 501(c) category, is exempt from federal income tax (and under state status from property taxes). The league, a designated 501(c)(6), describes itself as a "trade association promoting the interests of its 32 member clubs." I'm sure you'll be thrilled to know that the NFL commissioner's 2009 salary was $11,544,000 - which gives new meaning to the word "nonprofit." Rest assured, however, that the NFL teams themselves aren't tax-exempt.


Your classic 501(c)(3) is defined by the IRS as "religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international sports competition, or prevention of cruelty to children or animals organizations." In order to qualify for this category, your agency must be formed and operated specifically for these stated purposes, none of your earnings can go to enrich your grandmother, you are prohibited from campaign activity to support or oppose political candidates, and influencing legislation cannot be a "substantial" part of your activities.


Some of your favorite (and not so favorite) government agencies have established nonprofit conglomerates in order to raise money they no longer receive through the federal budget. The CDC, NASA, and FDA all have them - and FEMA has an application in process. The CIA's foundation, In-Q-Tel, had 2010 revenues totaling $56.4 million. This raises an interesting question about the ethics of forming foundations that compete with nonprofits that have historically partnered with government in delivering services - and the ramifications of shifting funding for these services away from government.


This tax-exempt category has one big plus: donations to 501(c)3) organizations are tax-deductible. That's why the American Legislative Exchange Council (ALEC) insists it deserves its 501(c)(3) status - despite the fact that the New York Times has called it "a conservative nonprofit that acts as a stealth lobbyist."


Note that 501(c)(4) status - which includes affiliate organizations funneling money directly to super PACS - doesn't get your donors a tax deduction. It does allow lobbying that is germane to the organization's purpose (while prohibiting direct or indirect involvement in political campaigns) - but this cannot be the organization's primary activity. The big plus here is that campaign donors can remain anonymous; public disclosure of donors to 501(c) organizations is not required.  By the way, the Tea Party of Dayton Ohio recently applied for 501(c)(4) status but withdrew its application in a huff, claiming political harassment, after the IRS started asking probing questions about what it really does.


For your entertainment purposes, check out these 27 other 501(c) categories: labor and horticultural organizations, business leagues (here's where you find the NFL), social and recreation clubs, civic leagues (the category for Crossroads GPS as well as Obama's Priorities USA), fraternal beneficiary societies, benevolent life insurance associations, teachers' retirement fund associations, state-chartered credit unions, mutual insurance companies, employee funded pension trusts, military organizations, black lung benefit trusts, and  state-sponsored organizations prodding health cover for high-risk individuals and workers' compensation. 


And here are my two personal favorites: trusts with multiple parents and cemetery companies. Don't you just love the IRS?

More Jokes for Fundraisers


A year ago, I wrote a blog post featuring my favorite fundraising jokes. Little did I know that this would become my most popular post! Here are a few more, in honor of April Fool's Day:


     A doctor, a lawyer, and a fundraiser arrive at the Pearly Gates. St. Peter tells them they each get one wish before entering Heaven. The doctor asks for a million dollars, St. Peter grants the wish, and the doctor enters Heaven. This generosity did not go unnoticed by the lawyer, who proceeds to ask for a billion dollars. St. Peter grants his wish, and the lawyer enters Heaven.
     Then St. Peter asks the fundraiser what she would like. She quickly replies, "If it's not too much trouble, could I please get the business cards of the two people who entered heaven just ahead of me?"


     A local United Way office realized that they had never received a donation from the town's successful lawyer. Their development director called to persuade him to contribute.
     "Our research shows that out of a yearly income of $500,000, you donate not a penny to charity. Wouldn't you like to give back to the community in some way?"
     The lawyer mulled this over for a moment and replied, "First, did your research also show that my mother is dying after a long illness, and has medical bills?"
     Embarrassed, the United Way representative mumbled, "Um...no."
     The lawyer interrupted, "Or that my brother, a disabled veteran, is blind and confined to a wheelchair?Or that my sister's husband died in a traffic accident, leaving her penniless with three children?"
     The humiliated United Way representative, completely beaten, said simply, "I had no idea..."
     On a roll, the lawyer cut him off again. "So if I don't give any money to them, why should I give any to you?"


     Four ladies from their synagogue's fundraising committee are driving home one Sunday afternoon when they are involved in a terrible car crash. Unfortunately, none of them survive. When they arrive at the Pearly Gates, they are kept waiting to get into Heaven because the angel at the Gates can't find them listed in the book of new heavenly arrivals.
     "I'm sorry," he says to them, "but I can't find you in the book." So he sends them down to Hell.
      A week later, God visits the Pearly Gates and says to the angel, "Where are those nice Jewish ladies who were supposed to be here by now?"
     "You mean the fundraisers? I didn't see them listed, so I sent them down to Hell," replies the angel.
     "You did what?" God says. "I wanted them here. If you don't want to join them, you'd better call Satan and get them transferred back here right away."
     So the angel phones Satan and says, "Satan, you know those Jewish ladies I sent you last week? Well, we really need them up here. Could you please send them back?"
     "Sorry, I can't oblige," Satan replies, "they've been down here only one week and already they've raised $100,000 for an air conditioning system."


Have any good fundraising jokes of you own? I'd love to add them to my collection. Post your joke in the comment section, or email it to cjay@horizoncable.com.

Reflections on the Susan Komen Saga: Lessons for Nonprofits


Like so many others, I've been glued to the computer screen following the ups and downs of the Susan Komen saga. To recap, the controversy centers on the decision by Susan G. Komen for the Cure Foundation to cut its support for Planned Parenthood's breast screening exams for low-income folks.


Komen spokespeople stated that the decision was based on a new rule prohibiting funding for any group under government investigation. Yet news reports established that other groups being investigated were not defunded and that the decision was driven by anti-abortion stances from board and staff members. The foundation ultimately reversed itself after massive public outcry, most of it fueled through social media sources.


Like the United Way scandals of the mid-1980's, this story will reverberate for years and be the catalyst for even more public scrutiny of nonprofits. It also raises many thought-provoking questions:

• How can nonprofits assure ethical decision-making? Numerous official statements from Komen invoked the word "mission," with the emphasis on breast cancer research alone. Here's the actual mission statement: The mission of the Susan G. Komen Breast Cancer Foundation is to eradicate breast cancer as a life-threatening disease by advanced research, education, screening, and treatment. Ethical decision-making starts with meticulous attention to mission. According to Mollie Williams, a Komen official who resigned in protest, "I believe it would be a mistake for any organization to bow to political pressure and compromise its mission." I agree wholeheartedly.

• What is the role of the board in policy making?  It is the board's legal responsibility to further the work of a nonprofit as stated in its mission, provide prudent management for long-term sustainability, represent their constituency effectively, and supervise the work of the executive staff. Board members from Komen with personal anti-abortion stances - or driven by fears that Komen would lose support of key anti-abortion donors - not only ignored their mission and failed to oversee staff properly; they chose to give priority to their own political opinions over the welfare and needs of their clients.

• How can charitable organizations communicate effectively when things go wrong? Komen officials hemmed, hawed, dodged questions - and effectively lied about what happened. But, particularly in this age of intense public scrutiny through social media, this just won't work. The very best thing to do when mistakes are made is to immediately acknowledge your errors, apologize, and present a plan to move forward in a positive manner.

Here's my favorite take on the situation (with a shout-out to Jesse Taylor, who posted it on the Huff Post): "From now on, going on a two-day bender and then trying to make it up to everyone after will be called pulling a Komen." And the moral of this story is - know your mission and be true to it, maintain prudent board oversight of policy and staff, and don't pull a Komen.