News Flash! Decision of the IRS to revoke the tax exempt status of 275,000 tax exempt organizations. Yikes! That sounds like a lot of organizations. The reality is that the number is really not surprising. Many Not-For-Profit (NPO) Tax-Exempt organizations are created by heart and soul people who have a vested interest to do some good in the world but simply fail to recognize how challenging if not daunting it is to (1) raise donations and (2) keep up with the regulatory requirements of running an NPO.
The old IRS law allowed NPO’s to not file a return if their gross receipts fell bellow a certain level. In 2006, the IRS changed the law and now all NPO’s must file a return, with the simplest form of return (990-N) being a very basic information return that essentially says, I am here, I am alive. Of the 275,000 I suspect a few couldn’t manage that simple reporting as the IRS had given an extension of 5 months to accomplish the task and at that time 50,000 somehow managed to file a return.
There is an NPO for just about every imaginable and conceivable purpose. From saving trees or whales to helping the elderly and children to creating cultural diversity and sustaining art forms. In 2010 the IRS showed 1.8 million NPO’s. Of these roughly 66% were religious organizations. I once heard that in Miami Dade and Broward counties there were some 8,000 NPO’s. All competing for donated funds and grants from other NPO’s and local, state and federal governments. Without question the work NPO’s perform enrich our lives in every conceivable way. This is because many NPO’s are very cost effective. One of the primary jobs of an NPO is to create administrative capacity through the work of community volunteers. These volunteers help run the organizations and are in fact the people that raise money, run the back office and even provide the programs and services NPO’s bring forward. If you think it’s hard to compete with third world wage levels try free labor!
NPO’s fill the gaps where government can not accomplish the task and puts money to work to serve the disadvantaged, to create a sense of community, to advance democracy through business leagues, social and recreation clubs. It supports education, the arts, healthcare and the homeless, just to name a few of the missions they carry out. NPO’s are priceless organizations that form the fabric of the United States goodwill and span the globe.
Managing an NPO is a bit tricky. In fact it’s harder to run an NPO than it is a typical small or even medium sized business. There are a number of key considerations in simply forming an NPO. In addition the management of any NPO organization is best accomplished not just by someone who has run a business before but, someone who specifically has experience with NPO’s. Firstly, there are a number of types of NPO’s, each with a distinct set of operating rules and even allowable deduction rules for those that donate funds. The accounting is more complex, and the tax returns are just as complex.
If you run an NPO, or are thinking of starting one. Get a qualified CPA or tax attorney that knows about NPO’s to advise you. If your heart and soul is tied to that NPO it’s not only to your advantage to do it right, but it also protects the credibility of every NPO that has an important mission to carry out.
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