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

A few weeks ago, Blue Avocado published a great post about the value of Dashboard reports:

Imagine getting a dashboard like this at every board meeting. With a glance, board members could see how the organization is doing and start asking the important questions. The board would also be able to discuss what indicators should be added to the dashboard and which might not be necessary…

It’s hard to imagine driving a car without quick, ongoing access to a speedometer, fuel gauge, or gear position. An organizational Dashboard can be the same, fast way to check in on basics . . . so you can pay more attention to where you’re going.

It was a timely article, because we had just revamped our own dashboards.  We wanted to make sure we were giving the board and staff the most useful metrics about our finances, programs, and other work.  The end result is more useful dashboard for board and staff, but just was useful was a by-product of the process.  It forced all of us to take a step back and consider what information we’re sharing and why.

As the Blue Avocado article states, it doesn’t tell us where we’re going, but it provides critical information that allows us to focus on our work and the road ahead.  A tool that helps you cut through the noise and focus is a great asset.

For more on dashboards, read What Gauges Belong on Your Dashboard? or Seth Godin’s post, Dashboards.

Overhead

There is an interesting debate swirling about nonprofit overhead expenses.  Are they an investment in infrastructure,  money that could be better spent on programs, or something in between? Do donors care?  Should they?  This is Kate’s take:

Here’s my soapbox

I agree that it’s wise to “Do the same due diligence on your donations that you would your investments or your business.” But when I review an investment opportunity, I review based on the expected criteria for a successful business – profitability, market share, and returns. I don’t review their overhead and management costs. So why would overhead be the criteria for a charity?

…Do some due diligence on charities before you donate, just as you would for an investment or business opportunity. Pay especially close attention to how successful the nonprofit has been at achieving its mission. Do they provide information about how effective their programs are and what impact they have on the people and communities that they serve? Do they have a way to measure and communicate progress and/or success?

Join the conversation at Balancing the Mission Checkbook, facebook, or follow the example of Rich Cowles from Charities Review Council and blog about your position.

Late July Harvest

Mergers

• Joining Forces in the Back Office – Lodestar Foundation Resources
• Nonprofit mergers: Putting the best foot forward

IRS Updates

• IRS Releases Final Regulations for Returns of Small Groups
• IRS Training Materials – Governance

Other Resources

• Workshop Resources, Questions and Answers
• Nonprofit Leadership 601: New to Running a Nonprofit: Here’s an Overabundance of Resources
• Turning Crisis Into Opportunity: A Conversation With Two Nonprofit Sector Leaders

Crowdsourcing: What’s Working, What’s Not

A few weeks ago, Kate issued a call for “stories of change and transformation” and in the comments we talked a little bit about how we could leverage the power of our online community and crowd source this. I’ve had a few conversations about tools and tags, but before we jump into tactics, I wanted to ask:

• Is this happening elsewhere?
• Is anyone interested is collaborating on this kind of project?

Let me know in the comments.

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

The first topic was Financing Options, which included information about loans, PRIs, and other financing options.  Coincidentally, at the same time we were hosting a Social Enterprise Network on capital sources and touched on many of the same topics.

This week’s post gathers definitions and resources shared by participants of both discussions. For more details, I suggest you read the transcript at the Chronicle of Philanthropy’s website or Not-For Profit Accounting’s summary.

Program Related Investments (PRIs)

A PRI is a tool foundations can use to provide capital to nonprofit organizations.  It is more like a loan than a grant because it must be repaid or otherwise provide a return for the foundation.  In their PRI Primer, the PRI Makers Network lays out the benefits of these investments:

PRIs give charitable organizations or commercial ventures access to needed capital, typically at favorable terms. In return, the funder benefits in several ways:

• It is often able to recycle PRI payments for subsequent charitable investments.
• The foundation is generally able to count PRIs toward its minimum five percent payout of net assets.
• PRIs allow foundations of every type and size to have greater programmatic impact.

Resources

• The Hidden Gems of Foundation Funds from Balancing the Mission Checkbook

• What is a Program Related Investment? from the Foundation Center

• PRI Makers Network

• Program-Related Investing guide from Grantcraft

• Calvert Foundation

Community Development Financial Institutions (CDFIs)

Community Development Financial Institutions are vehicles to foster economic growth and ensure access to capital in urban and rural low-income communities.  Many CDFI’s focus on affordable housing and economic development activities.  Others, like Nonprofits Assistance Fund and Nonprofit Finance Fund, specialize in providing credit and financial training to nonprofit organizations that serve low-income and underserved populations.

• Learn more about the CDFI Fund

• To find a nearby CDFI, use the Member Locator on Opportunity Finance Network’s website

Loans and Lines of Credit

Clara Miller issues an important reminder that “loans are never a substitute for revenue” and makes an excellent case for when credit makes sense for your organization. For more information you can also read our Borrowing Guide.

Download our Cash Flow Template to help assess whether or not credit can help your organization bridge a gap caused by grant timing, delays in government reimbursements, or other accounts receivable.

Nonprofit Harvest

• Now What?

• Nonprofits Buying Into Franchises from The Nonprofit Times

• State And Local Governments Consider Fees on Nonprofit Groups

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

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)