Reflections on the IRS "Scandal"

Turns out the big IRS "scandal" was another one of those sound-bites that dominated the news despite the fact the media (along with our elected representatives) had failed to do their homework.

Here's a list of keywords the IRS actually used to identify applicants seeking tax-exempt status that might require extra scrutiny: Tea Party, patriots, progressive, occupy, medical marijuana, foreclosure assistance, Affordable Care Act, disputed territories in the Middle Easts, Israel, and open-source software. Notice how these words span the political spectrum from right - to left.

It is in fact the job of the IRS to determine whether an organization is truly eligible for tax-exempt status. According to IRS Code section 501(c)(4), "an organization must not be organized for profit and must be operated exclusively to promote social welfare. To be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community."

Direct or indirect intervention or participation in political campaigns supporting or opposing a candidate for public office is explicitly defined as not promoting social welfare. A 501(c)(3) nonprofit is completely prohibited from political activity of this kind; a 501(c)(4) is allowed to do so provided this is not the organization's primary activity. Here's the rub: up until a few days ago, nothing in the IRS code has defined the word "primary."

One of the best results of this whole brouhaha is that the IRS has now announced a clearer and more streamlined application review process. Organizations can be awarded tax-exempt status within two weeks if they certify that political campaign intervention will involve 40% or less of their spending and time. I must admit I'm skeptical the IRS will actually be able to manage the proposed timeline. And I'm still waiting to see how the IRS plans to monitor political activity over time. But this is definitely a step in the right direction.

Here's my favorite quote from all the articles I have read about the controversy, from Los Angeles Times columnist Michael Hiltzik: "The biggest laugh line uttered in this affair is that the IRS is somehow 'harassing' these public-spirited organizations by asking them to justify their status. Here's a good rule of thumb: You don't want to get harassed by the IRS? Then don't claim a tax exemption you may not deserve."

Every one of these organizations - and the people involved with them - has a First Amendment right to freely support or oppose any political candidate of their choice. They just don't have a concomitant constitutional right to not pay taxes while doing so.

To Policy or Not to Policy

I know: nonprofit policy is not exactly a sexy subject. But every organization, small or large, needs to have basic governing policies in place.

Why? Some policies are required by law, others strongly recommended by the IRS. Internal policies specific to your organization support consistent and ethical practices for your finances, governance procedures, programs, and facilities. And sometimes the fact that you can say "this is our written policy" can help you deal with challenging people and situations.

So - how can you evaluate your current policies and/or determine what new policies to have in place? Here is some important legal and tax information to guide you:

• Legal compliance: The Sarbanes-Oxley Act of 2002 has two provisions that are applicable to nonprofits: a prohibition against destruction of documents tied to a criminal investigation and a prohibition of retaliation against whistleblowers. This means you are required by law to have policies on document retention as well as treatment of whistleblowers.

• Tax compliance: IRS Form 990 (which is required of every California nonprofit, no matter what size) asks whether your organization has adopted a number of specific policies. These are not mandated - there is no law that gives the agency any oversight over corporate governance. However, here's what the IRS says: The absence of appropriate policies and procedures can lead to opportunities for excess benefit transactions, inurement, operation for non-exempt purposes, or other activities inconsistent with exempt status. So it is indeed prudent for your agency to consider having written policies in regard to conflict of interest, Executive Director compensation, gift acceptance, and documentation of Board meeting minutes.

And here are some important questions to ask when you create and/or review organizational policies specific to your nonprofit agency:

1. Is the policy in alignment with your mission?
2. Does the policy further the work of the organization?
3. Will the policy help support staff and volunteers in doing their work better?
4. Is the policy reflective of your unique organization culture?
5. Is the policy appropriate for your organization's size, budget, and developmental stage?
6. Will the policy ensure prudent fiscal and program management?
7. Does the policy reflect nonprofit best practices, and/or standard practices in your area of service?

Know that you don't have to create policy from scratch. Try googling - there are lots of resources online - or contacting other nonprofits in your network. Feel free to cut and paste. Know too that these policies are not fixed in stone. They are living documents that should be reviewed and revised annually. Lastly, be sure to create a comprehensive policy manual that your staff and board can access readily - there's no point in having policies if you don't use them.

The Latest Fundraising Tips & Trends

Good news! According to a recent study by the Nonprofit Research Collaborative, 2012 saw the largest increase in charitable donations since 2006 - and predictions are that 2013 will see continued improvement.

The survey data showed that these specific strategies worked in increasing fundraising success:

Saying thanks: Nonprofits that thanked their donors promptly (within two business days after receiving a gift) fared far better than those that didn't. Saying thanks in a timely fashion makes your donors feel appreciated and acknowledged - and encourages them to keep donating.

Personal contacts: Old-fashioned fundraising techniques still work. Handwritten thank you notes, phone calls, individual chats, invitations to participate in planning for the future or to be a part of a volunteer initiative - all of these really make a big difference in a donor's sense of involvement and commitment.

Online giving: Remember when we were all uncertain about paying for something using credit cards online? Well, that attitude is now a thing of the past. People in every age group - including seniors - are increasingly making their charitable contributions online. Younger folks don't even remember what a bank check is for. This means it is essential to make online donations easy for your donors by making that all-important donate button visible on every page of your website as well as on every newsletter.

Sharing information: Providing your supporters with easy-to-read and relevant information about your work is a great way to invite them to become more involved. You can do this by posting interesting infographics on Facebook, or providing free downloads of white papers through your website. 

Re-engaging lapsed donors: Your organization  probably lost some long-time donors when the recession hit in 2008. Now people have made adjustments, and the economy has seen some improvement. Acknowledge their past support, remind them of your good work, update them on any exciting new developments, and invite them to return to the fold.

The signs are looking positive for a better year for charitable donations! Now is a good time to assess your fundraising program, identify effective strategies (from the old-fashioned to the new-fangled), and raise more money for your good work.