Every nonprofit organization must file an annual 990.

The change happened a few years ago, but may not have received adequate attention.  All nonprofits, not just organizations with revenues of $25,000 or more, must file a tax return. Any organization that does not file a 990 for three consecutive years will lose their tax exempt status. The federal law requiring this change was passed in 2006, and the first three-year window closes May 15th, 2010.

If you work for a nonprofit, hopefully you already know this and are aware of the upcoming May 15th deadline – the date when organizations with a December 31st year end must file their 990 with the IRS.

Although this change could negatively impact thousands of organizations, there is still time to meet your filing deadline.

(Update: The Star Tribune has published an excellent article on these changes.)

Steps to Staying Tax Exempt

Visit the IRS Website

• Find out your filing deadline – all you need to know is your fiscal year end
• Find out which form to file (this chart is taken directly from the IRS website)

• If you need to file an extension, these are the procedures for Form 990 or 990-EZ

Prepare Your Form

• Small organizations only need 8 pieces of information to file the 990-N (aka e-Postcard). If you file this form on time, your organization will remain tax exempt.
• The National Center for Charitable Statistics (NCCS) has a tool to help organizations e-file the 990 or 990-EZ. It is free for nonprofits with less than  $100,000 in annual revenue.

Not sure if your organization is at risk?

• Review this document, available from MCN.
• Use the NCCS database for a state-by-state list

Find Out More

• Stay Tax Exempt – a mini training site from the IRS
• Updates on Your Exempt Status and a Form 990 To-Do List from Nonprofit Accounting
• Information from Tech Soup, including links to discounted accounting software
• For more resources visit our previous blog post,  New Year, New You

Many nonprofit and social enterprise bloggers have the same idea.  My favorite was Nell Edgington’s ideas about Social Impact Finance:

It’s a new year and a new decade, and both hold tremendous promise for creating real social change.  And key to significant social change is a fundamental restructuring of how we finance that change.  I think (hope) that in the next decade we will see the emergence of a new Social Impact Finance.  And I imagine it will look something like this…

• Nonprofits Understand the Power of Finance. Nonprofit organizations understand and become successful at financing their overall operations, instead of fundraising for them.  And they begin to think bigger about their work, the overall outcomes they are trying to achieve and how finance fits into that (The GiveWell blog did a great series on the “Room for More Funding Question.”)

Another one of her predictions, Individual Donors Become a Powerhouse, echoes Kate’s post, The Year For “Right-Sized” Donations and the outpouring of support we have seen in response to the tragic earthquake in Haiti.

(For more on Haiti, I suggest visiting Philanthropy.com and PhilanTopic, which have done a great job covering this story from a nonprofit and philanthropic perspective.)

2010, The Year of the Board?

Is 2010 the year of the board?  Two blogs I read regularly are focusing on  governance to start the new year:

• Nonprofit Law Blog: 10 New Year’s Resolutions for Your Board
• January Risk Management Tip of the Month: Getting Your Board’s House in Order

Are you looking for ways to help your board of directors take their leadership to the next level? Check out our webinar Financial Clarity for Nonprofit Boards next Friday, January 29th at 2pm CT (3pm EST). This training is a great way to prepare boards to assess and pursue new financial strategies, as well as shore up their understanding of nonprofit financial reports, terminology, and responsibilities.

We offer a range of financial trainings throughout the year.  They are an easy and affordable way to enhance your nonprofit’s financial management. For more information you can visit our website or sign up to receive training updates.

New Year, New Rules

We know there’s a new 990. Since organizations operate with different fiscal years (our Fiscal New Year is also April Fool’s Day) how do you know which form to use? Not-For-Profit Accounting has a short explanation to help you:

When do we file the new 990? Read below or click here for a PDF of a general overview of the instructions.

Calendar year – Use the 2008 Form 990 to report on the 2008 calendar year accounting period. A calendar year accounting period begins on January 1 and ends on December 31.

Fiscal year – If the organization has established a fiscal year accounting period, use the 2008 Form 990 to report on the organization’s fiscal year that began in 2008 and ended 12 months later. A fiscal year accounting period should normally coincide with the natural operating cycle of the organization. Be certain to indicate in the heading of Form 990 the date the organization’s fiscal year began in 2008 and the date the fiscal year ended in 2009.

The Nitty Gritty

There have been many useful guides to the new 990. Here are some of my favorites:

• Not-For-Profit Accounting’s 990 To Do List
• From Guidestar: The Revised Form 990: A How-to Guide for Your Organization
• The Charities Review Council’s New IRS Form 990 Resources
• Eve Borenstein’s Form 990 Tips and Resources

In case you want to go directly to the source, these are updates and resources from the IRS:

• Form 990 Resources and Tools
• Form 990 Case Study – The New Form 990: Getting Started – Video Series Introduction – This series of videos, each between five and ten minutes long, are part of The New Form 990 Getting Started case study. Each video covers a key area of the Form 990, using facts from the case study.
• Form 990 Filing Tips archive
• Questions about Schedule A (Public Charity Status and Public Support) and Schedule L (Transactions with Interested Persons)
• IRS Stay Exempt Mini Course, including special features on how to file the new form and information about the revisions.

This is also a good time to review the Top 5 Compliance Problems for 501(c)(3) Organizations.

For folks interested in taking their analysis to the next level, check out The Door Has Opened: New Form 990 Creates Strategic Opportunities and Risks for Nonprofit Organizations.

Nonprofit Harvest

• What Does Grantmakers’ 2010 Funding Outlook Mean for Minnesota Nonprofits?
• Nonprofit Fiscal Rules for the “New Normal”
• Tips : Third Sector Connector : Nonprofit and NGO Tips, News, Best Practices, Resources
• Nonprofit Managers Say Top Investment Priority Is Having Assets in Spendable Form
• NFF’s State of the Sector Survey

What Is Risk Management?

According to the Nonprofit Risk Management Center:

Risk management — A discipline for dealing with the possibility that the future may be surprisingly different from what we expect (see Strategic risk management).

Strategic risk management — A discipline that counters downside risks by reducing the likelihood, magnitude, and unpredictability of losses and financing recovery from these losses; and seizes upside risks by searching for opportunities to more fully, more certainly, and more efficiently achieve an organization’s nonprofit goals, and developing plans to act on these opportunities when the future presents them.

So, how does this impact nonprofits?  Writing globally, Seth commented:

When things get interesting is when the apparently risky is demonstrably [less safe] than the actually risky. That’s when we sometimes become uncomfortable enough with our reliance on the apparent to focus on the actual.

In other words, sometimes it is safer to take a risk.

And the Risk Management Center agrees.  Check out their Hallmarks of a Risk-Aware Nonprofit – best practices for strategic risk management (not strategic risk avoidance).  The very first hallmark is Takes More Risks than It Avoids:

A nonprofit cannot go about its daily work of mission fulfillment without taking risks. Risk-taking may lead an organization into uncharted territory when it expands its services to a new category of beneficiaries, or brings its programs to foreign countries, or adds an on-line “donate here!” button to its web site.

Avoiding risk, while not child’s play, is much easier than knowing which risks are imperative for the nonprofit to take. It is hard work to evaluate whether to take a risk or avoid it. Nevertheless, for nonprofits that take more risks than they avoid, the work of evaluating risks pays off. An excellent risk management program will enable the nonprofit to achieve a proper balance between prudent risk taking and the paralysis of trying to avoid all or most risks (and in the process, necessarily avoiding some, or even all opportunities.)

Peter Drucker said, “People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.” A nonprofit that takes more risks than it avoids can innovate and explore uncharted paths to accomplish its mission, while remaining alert to emerging threats that must be avoided in order to protect critical assets.

These are uncertain times.  The safe things, the tested things, may not help your organization deliver services in a sustainable way.

Help your nonprofit do something risky. Check out these risk taking tools or read more from the Risk Management Center.

Go ahead, embrace the possible.

Nonprofit Harvest

Update on the Minnesota Economy

• State’s October Economic Update says the recession is over, but times are still tough
• Minnesota’s economic outlook appears bleak for foreseeable future

GiveMN

• Editorial: An online boost for charitable giving
• You say you want a revolution? GiveMN promises to change the way you donate, for good.
• GiveMN Webinar

990 Updates

• Form 990 Case Study – The New Form 990: Getting Started – Video Series Introduction
• IRS Offers Online Video Program to Explain the Form 990

Other Resources

• Cost Allocation
• Nonprofit and Charity Law Jargon Buster – Non-profit vs. Tax-exempt 
• IRS clarifies grant restrictions

Dealing with Uncertainty

McKinsey Quarterly’s article, How managers should approach a fragile economy cautioned business managers that the economic uncertainty is far from over. Uncertainly is something that nonprofit financial managers are well acquainted with. McKinsey continued with some suggestions for managing in this environment:

What else must companies do these days to survive and thrive? First, they must drop the pretense that they can predict the future. Second, they must continue adapting their management processes and capabilities with an eye to making better decisions under uncertainty—for example, by abandoning the fixed calendar and planning schedules typical of annual budgeting and operating processes. This change will require a shift to monitoring macroeconomic indicators in real time, something akin to “just in time” manufacturing approaches applied to decision making. It also means building greater flexibility into strategic activity by putting a greater focus on acquiring options, contingency planning, and the use of stage-gating techniques for committing resources.

If you want to employ some of these suggestions at your nonprofit, we have resources that can help.

Cash Flow

• Cash flow template
• Projecting and Managing Cash Flow Webinar

Scenario Planning

• Scenario Planning Example
• Scenario Planning Worksheet: A blank template for you to use

Additional Resources

• For more on scenario planning, check out Contingency and Scenario Planning – What’s the Difference and How Do Nonprofits Get Started? from PhilanTopic.
• To learn more about adapting your budget for greater flexibility, read Blue Avocado’s article, Focus on the Destination, Not the Route (Budget)!

Nonprofits are Awesome

The Harvard Business Review’s The Awesomeness Manifesto questions the constant calls for innovation.  Instead of innovating, it suggests that businesses should focus on what is awesome about their product or service:

Love. You know what’s funny about walking into an Apple Store? The people working there care. They don’t just “work at the Apple store” — they love Apple…the goal of Apple Store employees is simply to show off their awesomeness, and let you share it [rather than sell a product]. Love for what we do is the basis of all real value creation.

Reading this, I was struck by how much love exists in the nonprofit sector. We are here because of the mission.  How can we better tap into this love, the awesomeness of what we do?

Some more food for thought at the Nonprofit Quarterly’s article, Nonprofits: We Must Start Beating the Drum and the v3 campaign’s efforts to raise the profile of our sector.

Nonprofit Harvest – Updates on the 990

• IRS Releases Tips for Attachments to the Form 990 Tax Return
• IRS and 990 Resources from Not-For Profit Accounting
• Sample Policies:
  • Board Operations from the Community Foundation of Sarasota’s Nonprofit Resource Center
  • Model Documents and Policies from the Charities Review Council

Recently there’s been a lot of chatter about nonprofit wages in the blogosphere and beyond. Debating these questions is important, but in this age of tight budgets, are there any steps an organization can take to improve employee compensation right now? Especially for lower wage employees who are critical to an organization’s success, but are sometimes left out of this conversation.

Blue Avocado gets to the heart of the matter in the article Low-Wage Workers and Nonprofits:

While raising salaries would be, by far, the best way to support these important staff, doing so isn’t possible for most nonprofits: certainly not in the short term, and often impossible for the long term given business models and funding constraints…

Although the challenge of providing adequate compensation to low-wage employees may seem overwhelming, especially during a financial crisis, the fact is that nonprofits, consultants and funders can consider a number of helpful options without torpedoing the budget.

The article offers a range of options, which fall into three main categories:

• Steps to take relatively quickly at little or no cost
• Intermediate steps
• More far-reaching steps

These ideas are not intended to replace a real conversation about wages, especially one that goes beyond executive compensation.  But they are a place to start. Add your thoughts and suggestions here or leave a comment at Blue Avocado.

Related HR Resources

Not-For-Profit Accounting shares some information from the intersection of HR and accounting.  This post unpacks the sometimes woolly world of employee classifications — exempt vs. nonexempt, independent contractor vs. employee — and provides information on payroll systems.

If you have specific questions about nonprofit account, I suggest submitting them to Alan.  His regular Q&A feature is a great resource for financial managers.

New Resource Collection

Blue Avocado has compiled all of their articles about nonprofits and the economy. Visit this archive for information on financial management, HR, and more.

Harvest

• IRS Form 990 Filing Tips: Part VI, Governance 
• Nonprofit Policy News | May 2009
  • Federal Legislative and Regulatory Developments
  • IRS makes public its 2009- 2013 strategic plan
• Free Foundation Center Widgets
• Charities Loosening Strings on Arts Grants

On Thursday, May 7th the Obama Administration presented their 2010 federal budget.  Here are a few resources to help you understand how these budget decisions may impact your organization.

• The Chronicle of Philanthropy has a good overview, Nonprofit Groups Receive Mixed Results in Obama’s Budget.

• Minnesota Budget Bites participated in the telephone budget briefings that highlighted key aspects on the budget.  Read their takeaways here.

• Learn more about what this budget means for your state with the OMB’s state by state fact sheets.
  • Minnesota

• If you’re on Twitter, follow the conversation under the #budgetnp hashtag

2009 Giving Forecast

This week the Minnesota Council of Foundations issued an update on how Minnesota’s foundation are responding to the economic crisis.  I suggest carefully reviewing the information to see if your funders giving priorities or guidelines have changed.

For organizations outside of Minnesota, the Foundation Center is doing a great job of gathering information and analysis on the philanthropic community, including a similar giving forecast for national funders.

Foundation Updates

• Despite Decline in Assets, Foundations Are Responding to Those Affected by Recession

• Responding to Economic Turmoil in the Arts

This Week’s Harvest

• Filing the E-Postcard?  The deadline is next Friday, May 15th.

• Nonprofit News Roundup: Laws and Money from Not-For Profit Accounting

• What’s the Point of a Nonprofit Board, Anyway? from Blue Avocado

• The Chronicle of Philanthropy and the Nonprofit Finance Fund are offering a special series of live discussions on Financial Management in Tough Times.
  • Thursday, May 14: Financing options
  • Thursday May28: New ways for arts organizations to finance their operations
  • Thursday June 11: The changing role of foundations
  • Thursday June 25: Making capital campaigns work in the recession

The American Recovery and Reinvestment Act (ARRA, commonly called the Stimulus), includes significant funding for nonprofit organizations.  However, assessing whether or not you should apply, and how to do so, can be a daunting task.  Especially given the timetable for submissions and reporting.

Before you apply for any federal funding, I encourage you to read these words of caution and consider whether or not your organization has the infrastructure and administrative capacity for a federal grant.

Jim Schowalter, Minnesota’s state budget director, also offers a few important caveats about the available funds, according to MCF’s Philanthropy Potluck blog:

The amount of stimulus money flowing to Minnesota is equal to 8.2 percent of our state budget; however, our state is facing a 15 percent budget deficit.  This stimulus funding provides a one- or two-year bump to hopefully get us through the recession, but it is not enough to resolve our budget deficit.

While the dollars involved are many, they are not significant enough to create new areas of funding or expand programming, and may not even be enough to stave off cuts to balance our state’s budget.  Much of the money will be distributed using existing infrastructure and pipelines and will go to backfill gaps created by budget shortfalls.

General Resources

• Bulletin on How Nonprofits Can Apply for Stimulus Package Funding from Giving USA and the Center on Philanthropy at Indiana University
• What Do Nonprofits Need to Know About the American Recovery and Reinvestment Act? 
• National Council of Nonprofits Special Reports on Economic Stimulus & Recovery

Minnesota Resources

• Best ARRA Funding Resources – Minnesota from the Foundation Center
• Overview of the Recovery Act from the Minnesota Management & Budget Agency
  
• 2009 Recovery Act Resources for Nonprofits from MCN

New 990 Resources

The IRS has an excellent Resource Library to help nonprofits maintain their tax exempt status, file reports, and meet other requirements.  They recently produced a new mini course to help nonprofits file the 990.

As a reminder, MCN has video training that helps organizations understand the changes to the 990 and Not-For-Profit Accounting can help answer your questions.

This Week’s Harvest

• Surveys: Few NP Mergers And Ready Credit
• Nonprofit Groups in 19 States Report Late Government Payments
• The Funder is Not the Program
• More Than a Third of Family Foundations Are Either Uncertain About Lifespan or Expect to Spend Down

Form 990 Videos: Understanding the Changes

MCN has uploaded videos from 990s Do Matter, a training designed and conducted by Eve Borenstein.  Nearly 3 hours of video is available on their website, Form 990 Videos: Understanding the Changes:

You’ll want to download the presentation slides (3.06 MB, PDF) and the sample form (2.12 MB, PDF) used during the training prior to viewing. We’ve tried to make each section roughly 10 minutes or less to allow you to learn at your own pace.

Additional Resources

• Not-For-Profit Accounting
• Online mini courses from StayExempt.org (IRS)
  
• What’s New from the IRS: The 2009 Work Plan for the Nonprofit Sector (GuideStar)
• Six Things Every Board Member Should Know About the NEW 990 (Blue Avocado)
• New 990 To Do List

This Week’s Harvest

• Nonprofit News Update from Not-For-Not-For-Profit AccountingProfit Accounting
  
  • Video: Ten Basic Responsibilities of Nonprofit Boards (BoardSource)

• Philantopic’s Nonprofit Strategies for Tough Times: Economic Stimulus Act FAQ, including:
  
  • How do I find out which types of programs are eligible to receive funding?
  • Where do the decision-making powers lie?
  • Where can I turn for assistance and counsel?
  • Related resources

• Transcript from Managing in Hard Times: How Nonprofit Leaders Can Make the Right Decisions

• Media Matters for America launches Financial Media Matters

• Foundations comment on the State Budget
  • Foundation group throws out big ideas to shake up state budget talks (MinnPost)
  • Improve Public Services and Spend Less: Foundations Speak (Philanthropy Potluck)