Public Charity (501(c)(3)) Projects

Comprehensive Organizational Policy Review for Medium Size Public Charity:

A nonprofit that had gone through accelerated growth over a five year period, and now had several full time staff persons, a larger board, and a significant support base, asked for assistance evaluating its internal policies. We helped the organization collect its policies, which had not been maintained in one place, organize them by topic, and evaluate them. With input from an ad hoc committee established for the task, we thereafter prepared revisions to some policies and established a number of others. Policies covered many IRS “hot spots,” including a policy and protocol for evaluating and fully documenting the reasonableness (e.g., not excessive) staff salaries. Although the organization had a conflicts policy, as most organizations do these days, we made sure it was a policy that actually would get used and be remembered by the board.

After completing these documents in committee, they were evaluated by the full board and thereafter adopted. But, importantly, the organization took us up on our recommendation to hold an evening orientation meeting where we talked through each of the policies so that all board members had an understanding of how these worked and how and when to apply them. To make the evening more interesting, we presented potential real life examples to the board and asked them how they would answer. This provided a lively debate and a better understanding of the policies and the underlying IRS rules. The board found the process so rewarding that they made a pledge to have a similar orientation meeting every year.

Defining the Best Tax Exempt Status at Inception of Organization:

We were asked to assist with the creation of a new organization and assist it in obtaining an IRS determination as a “public charity.” Our initial research showed that significant assets would be coming from one private donor during the first several years. We thereafter provided calculations to the organization showing that it would be impossible for it to meet the “public support test” (an IRS rule that limits funding from a limited number of private sources). Our initial research also determined that the private individual’s gifts would not meet the “unusual grant exception” (an IRS rule that permits some exceptions where the public support test will not be met due to an occasional large private donation). We ultimately concluded that the organization could take advantage of a different tax exempt status identified as a “supporting organization” (a status that requires identification of an existing public charity that has some oversight over the supporting organization’s board).  This would permit the organization to carry out the same work it had intended to conduct as a public charity, be entitled to essentially the same benefits as a public charity, including the ability to receive tax deductible gifts from donors, and assured its tax exempt status would not be defeated by the large private gifts given during the initial years. Identification of this potential problem before filing for tax exempt status saved the organization and its donor from potentially massive problems.

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