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Thank you for reading the 25 Days of Giving series! In the spirit of the holiday season I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.

I came across an article in Forbes about two tax court cases where families claimed large charitable contributions on their federal income tax and, given that they were fraudulent claims, failed to have the substantiation to back it up. As the article stated, “the IRS is NOT messing around when it comes to holding taxpayers to the substantiation requirements for charitable contributions.” The substantiation is required in exchange for the federal income charitable deduction.

Note there is, of course, a limit to the charitable deduction on your taxes. Mind this when considering maxing out your charitable deduction.

Substantiation requirements

First and foremost, the donations must be made to a qualified charitable organization. You must then be able to substantiate your contribution to said qualified charitable organization. The record keeping required by the IRS depends on the amount of your contribution. At their most basic, the IRS substantiation rules for the charitable deduction are as follows:

  • Gifts of less than $250 per donee — you need a cancelled check or receipt
  • $250 or more per donee — you need a timely written acknowledgement from the donee
  • Total deductions for all property exceeds $500 — you need to file IRS Form 8283
  • Deductions exceeding $5,000 per item — you need a qualified appraisal completed by a qualified appraiser

Gifts of $250 or more per donee

Let’s focus for today on gifts of $250 or more per donee. Specifically, the income tax charitable deduction is not allowed for a separate contribution of $250 or more unless the donor has written substantiation from the donee of the contribution in the form of a contemporaneous written acknowledgement.

The $250 threshold

Note this $250 threshold is applied to each contribution separately. So, if a donor makes multiple contributions to the same charity totaling $250 or more in a single year, but each gift is less than $250, written acknowledgment is not required. [Unless the smaller gifts are related and made to avoid the substantiation requirements].

Written acknowledgment

The written acknowledgement must indicate:

  1. the name and address of the donee;
  2. the date of the contribution;
  3. the amount of cash contributed;
  4. a description of any property contributed;
  5. whether the donee provided the donor any goods or services in exchange for the contribution; and, if so;
  6. a description, and a good faith estimate, of the value of the good or services provided or, if the only goods or services provided were intangible religious benefits, a statement to that effect.

Contemporaneous acknowledgement

The IRS definition of contemporaneous is that the acknowledgment must be obtained by the donor on or before the earlier of:

a. the date the donor files the original return for the year the donation was made; or

b. the return’s extended due date.

A donor cannot amend a return to include contributions for which an acknowledgment is obtained after the original return was filed.

Responsibility lies with the donor

Interestingly, the responsibility for obtaining this documentation lies with the donor. The donee (the charity) is not required to record or report this information to the IRS on behalf of the donor.

If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.

heart in pages of book

Welcome to the newest post in the 25 Days of Giving series. Have questions or a topic  related to charitable giving you want covered as a part of the series? Contact us!

You want your favorite charity to be wildly successful. Whether you’re working for the nonprofit as staff, serving on the board of directors, or assisting as a donor or volunteer, you want your nonprofit to have every chance to reach its goals and objectives. 

The Internal Revenue Service (IRS) strongly encourages nonprofits to adopt specific governance policies to limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities. The IRS also audits nonprofits, just as it audits companies and individuals, and having these policies in place can only help you should you be audited. Finally, and perhaps most importantly, having solid policies and procedures in place will provide foundation for soliciting, accepting, and facilitating charitable donations. 

Each nonprofit is unique, and accordingly policies and procedures needed will vary for each. For instance, a non-operating private foundation will likely need a different set of documents than a public charity. However, most nonprofits will want, at the very least, to consider having the following policies in place. 

Articles of Incorporation

Articles of incorporation are necessary to even form a nonprofit corporation; the document is filed with the state and accompanied by a filing fee. This policy can be known by other monikers as “certificate of incorporation,” “articles of organization,” or “charter document.” Think of this as the constitution of the organization. While it can be fairly short, there are some necessary elements in the articles that are required for federal tax-exempt status. Those elements include a statement of purpose, legal address, emphasis on not-for-profit activities, duration, names and address of director(s), and a dissolution clause, among others. You may want to check out the IRS’ sample charter.

Board Roles and Responsibilities

Nonprofit board members are generally tasked with two major responsibilities of support and governance. A board’s rules and responsibilities document should outline the requirements and responsibilities of board members. Some examples of basic components include fundraising participation, determining the organization’s mission and direction, selecting and regularly evaluating the nonprofit director/CEO, and protection of public interest. A policy regarding board roles and responsibilities should encourage nothing short of ethical and legal integrity within board members.

boardroom chairs

Bylaws

If you’ve ever been part of any board or committee, you’ve definitely heard reference to the bylaws and received a copy upon joining the organization. Nonprofit bylaws serve as the internal operating methods and rules that specify things like the election process of directors, employee roles within the nonprofit, and operational manners of meetings. Specific language in the bylaws is not required by federal tax law, but some states may require nonprofits to have written bylaws to be considered tax exempt. This document can most often be used to resolve uncertainty between board members and takes the guesswork out of operations.

Code of Ethics

Just as it sounds, a code of ethics document puts in place a set of guiding principles for behavior, decisions making, and activities of those involved in the nonprofit, including board members, employees, and volunteers. While principles innate to your organization such as honesty, equity, integrity, and transparency may be understood by all involved, this formal adoption allows those involved to make a formal commitment to ethical actions and decisions. Sometimes this document is known as a “statement of values,” or “code of conduct.” Many organizations post their code on their website to demonstrate accountability and transparency.

Compensation Policy

Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy which explains to current and potential employees and board members how compensation supports the organization’s mission can be included in the compensation policy.

Confidentiality

A nonprofit’s board members have a duty of confidentiality due to their fiduciary obligation to the organization. This duty is there regardless of any written policy or not, but it’s certainly a best practice to clarify and explain why and how confidentiality is important to the specific organization. A confidentiality policy can include elements such as the following:

  • definitions of what matters are considered confidential
  • determination to whom the policy applies
  • statement that board members do not make any public statements to the press without authorization
  • a process by which confidential material may be authorized for disclosure

secret mouth

Conflict of Interest

This is arguably one of the more essential policies a nonprofit board should adopt. A conflict of interest policy should do two important things:

  • require board members with a conflict (or a potential conflict) to disclose it, and
  • exclude individual board members from voting on matters in which there is a conflict.

Note the IRS Form 990 asks whether the nonprofit has such a policy as well as how the organization manages and determines board members who have a conflict of interest. This policy is all too important as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.

Document Retention

A document retention policy doesn’t mean that EVERY piece of paper and digital report should be kept for a specific duration. But, consider if a document is unknowingly tossed by a nonprofit employee and is later needed in a legal matter. That can cause irrevocable damage. So, ensure all board members, staffers, and volunteers are trained and have a copy of the document retention policy, which should clarify what types of documents should be retained, how they should be filed, and for what duration. This policy should also outline proper deletion/destruction techniques.

Employee Handbook

An employee handbook is another one of the more common nonprofit documents. A quality handbook should clearly communicate employment policies and enforce at-will provisions to all employees. Employment laws are complicated and complex. An employee handbook written/reviewed by a licensed attorney is a good legal step toward avoiding employment disputes. (Yes, just as you need a lawyer to write your estate plan, you’ll need a lawyer to craft/review your employee handbook.) Review your employee handbook regularly, as an out-of-date or poorly written handbook can leave the organization open to employment ambiguity and conflicts.

Financial Policies and Procedures

This document specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place.

Endowment

This resolution concerns funds (and the interest from these funds) that are kept long term. It  generally aids the organization’s overall operations. An endowment policy should consider the purpose of the endowment, how the endowment will benefit the mission of the nonprofit, management practices of the endowment, disbursement policies, and investment strategy. (This blog post from GuideStar offers five steps to starting an endowment.)

Gift Acceptance

Gift acceptance is yet another policy the IRS considers to be a best practice for any tax-exempt nonprofit, and the gift acceptance policy can help set acceptance policies for both donors and the board/staffers. There is no federal legal requirement, but this policy does allow you to check “Yes” on Form 990. If well-written and applied across the organization, the policy can help the organization to kindly reject a non-cash gift that can carry extraneous liabilities and obligations the organization is not readily able to manage.

Outstretched hand

Investments

One way a Board of Directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary. Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.

Whistleblower

Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers. Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:

“A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)

Policies = Powerful

While these documents may sound like a lot of work, the time and energy you place into ensuring your nonprofit is set up for success will pay off in the long run by saving you legal and IRS fees, internal conflict, violations, and compliance issues. Plus, you can enlist a qualified nonprofit attorney to do the leg work for you! 

You may say, “My organization already has a great set of policies in place!” Which is great. But, you should continuously update them as needed/wanted. A policy from 2002 may have been perfect at the time, but could be in dire need of updates.

I’d advise making policies the main subject of a board meeting to review what policies have been adopted, which policies need revisions, and which policies you’re missing altogether. If you’re not sure where to start, or how policies should be drafted, read, or enacted, I would be happy to offer you a free one-hour consultation. You can also take me up on my 10 for 990 policy special.

I’m here to assist in drafting or revising your set of nonprofit policies, so don’t hesitate to contact me via email or phone (515-371-6077). We’ll schedule your free one-hour consultation and make a plan to set your organization up for success!

(Note this article is provided for general information only and not intended as legal advice for your specific nonprofit organization. Again, please contact me to discuss your organization’s unique needs.)

compass journal near macbook

To get the ball rolling in forming a tax-exempt charitable organization there are just two main documents to put in place. Seriously, just two–articles of incorporation and bylaws. Let’s start with exploring the components of what should be in your nonprofit’s articles of incorporation. (We’ll dig into bylaws in another post!)

Articles of Incorporation

Think of articles of incorporation as the constitution of your nonprofit. While articles of incorporation can be fairly short, there are some necessary elements required under both Iowa and federal law to gain and retain that golden tax-exempt status.

woman holding red heart

Legal Requirements in Iowa for a Nonprofit’s Articles of Incorporation

Under Iowa law, articles of incorporation for a nonprofit must contain the following:

A corporate name which satisfies two requirements.

First, the corporate name must be distinguishable from any other nonprofit or business authorized to do business in Iowa. In other words, the name must be different and unique from all other names – even if it’s different by just a single letter. For example, no one could incorporate using the name, “Gordon Fischer Law Firm.” But if there were another lawyer with my name, he could legally incorporate simply by naming his business, “Gordon R. Fischer Law Firm,” or “The Gordon Fischer Law Firm.”

The second requirement is that the name does not contain language stating or implying that the corporation is organized for an unlawful purpose. To take an extreme example, “The Nonprofit Association of Heroin Dealers” would not be a proper name (in addition to many other legal issues!).

The address of the corporation’s initial registered office and the name of its initial registered agent at that office.

The “registered agent” is a legal name for “contact person”–the person who will be mailed if there’s any sort of problem or issue with the corporation. The “initial registered office” is simply that person’s (the registered agent’s) physical address, like a home address. It cannot be a PO Box; it must be a street address.

Be certain that the registered agent is responsible and involved. There can be obvious, profoundly negative consequences if the Iowa Secretary of State, or a taxing and/or regulatory agency (like the IRS) were to mail to the registered agent, and the registered agent doesn’t see the mail, and/or doesn’t provide the mail to the organization.

The name and address of each incorporator.

The “incorporator” is a legal term meaning the founder(s); the person(s) responsible for starting the nonprofit.

Whether or not the nonprofit will have members.

Unlike a regular corporation, a nonprofit does not have stockholders. (Of course, this is because nonprofits do not issue stock.) Instead, nonprofit can choose to have “members.” A formal “membership” structure often grants members certain basic rights, such as the power to vote for directors and approve a sale or merger. Most nonprofits (especially smaller ones) do not have members, due to the additional paperwork and required formalities. Instead, most nonprofits instead rely on their board of directors. In any case, a nonprofit must formally declare in their articles whether or not it will have members.

Provisions not inconsistent with law regarding the distribution of assets on dissolution.

When a nonprofit dissolves (i.e., terminates), any remaining assets must be distributed to another nonprofit (or government entity for a public purpose). No individual or group can be unduly enriched when a nonprofit ends. And, if you think about it, that makes a lot of sense. Folks contribute to a nonprofit to support its tax-exempt purposes, they wouldn’t want their funds to end up supporting non-charitable purposes.

An incorporator must sign and file the articles of incorporation.

The articles of incorporation must be filed with the Iowa Secretary of State’s office (and the ISOS will check that all the requirements above are met before filing is allowed). Currently, the filing fee is $20.00.

Federal Legal Requirements for a Nonprofit’s Articles of Incorporation

Of course, like all organizations, a nonprofit is governed by both state and federal law. Simplifying a bit, the IRS has two major requirements for a nonprofit’s initial governing documents.

  1. The articles of incorporation must limit the nonprofit’s purposes to exempt purposes set forth in Internal Revenue Code Section 501(c)(3). The exempt purposes set forth in section 501(c)(3) are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” An explicit reference or citation to 501(c)(3) and one or more exempt purposes is sufficient to meet this requirement.
  2. In addition, an organization’s assets must be permanently dedicated to an exempt purpose. This means that if an organization dissolves, its assets must be distributed for an exempt purpose pursuant to 501(c)(3), or to the federal or state government or a local government entity, for a public purpose.

Amended and Restated Articles of Incorporation

No doubt some of you are thinking, hey, we already have articles of incorporation! Sure, we may need better articles, or improved articles, but we do have them.

In such cases, when a nonprofit wants to update or revise current articles, the organization files with the Iowa Secretary of State what is known as “amended and restated articles of incorporation.” These amended and restated articles completely supplant the earlier articles.

If filing amended and restated articles, Iowa law requires a statement in the document to the affect that all the amendments, changes, revisions, etc. are reflected in this new, single document. To meet this requirement, I use this statement:

“I [the incorporator] hereby certify that these Amended and Restated Articles of Incorporation consolidate all amendments into this single document.”

So, How Do I Go About Getting Articles of Incorporation

Each organization is unique and it’s smart to enlist someone (like an attorney well-versed in nonprofit law!) to draft a quality, comprehensive set of articles personalized for your nonprofit’s needs, mission, and goals.

Questions? Want to learn more about turning your dream of an organization that makes a significant impact or positive change? Grab my complimentary Nonprofit Formation Guide and then contact GFLF for a free consult!

Holding lights

Since 1968, every Section 501(c)(3) organization is classified by the IRS as either a private foundation or a public charity. This classification is crucial for at least two reasons to anyone considering forming a nonprofit or anyone considering making a significant donation to a nonprofit.

First, private foundations are subject to much stricter regulations than public charities. Second, public charities receive more favorable tax treatment than private foundations. Let’s explore each classification a little deeper.

Public Charities

heart ceramics bowls

Public charities must attract broad donor support. Some organizations—churches, schools, and hospitals for instance—are by their very nature considered “publicly supported.” Other organizations must pass mathematical public support tests to qualify as a public charity. These tests require charities to obtain funding from numerous sources, rather than one singular source, or a small group of related funders.

When a charity passes one of the public support tests, it is demonstrating to the IRS that the general public (non-insiders) evaluated the charity’s performance and found it worthy of financial support. As a result, such charities are treated as having a sort of stamp of approval of the general public, lessening the need for the stricter IRS scrutiny applied to private foundations.

Private Foundations

Do something great in neon

Private foundations are funded by an individual, a family, a company, or a small group. Two prominent examples would include the Ford Foundation and Bill & Melinda Gates Foundation.

Private foundations are subject to a more strict regulatory scheme than public charities. There are penalties for self-dealing transactions, failure to distribute sufficient income for charitable purposes, holding concentrated interests in business enterprises, and making risky investments. The IRS recognizes two types of private foundations: private non-operating foundations and private operating foundations. The main difference between the two? How each distributes its income:

  • Private nonoperating foundations grant money to other charitable organizations.
  • Private operating foundations distribute funds to their own programs that exist for charitable purposes.

In general, private foundations can accept donations, but many do not and instead have endowments, as well as invest their principle funding. The income from the investments is then distributed for charitable activities/operations.

Deduction limits

Contributions made to public charities and private foundations may be deducted from the donor’s federal income tax. The amount of the deduction is subject to certain limits under federal tax law.

Money and receipts

Gifts to public charities receive more favorable tax treatment than gifts to private foundations—this includes donor limits. For example, a charitable cash donation to a public charity would be deductible at up to 50 percent of the taxpayer’s adjusted gross income (AGI), but the same gift to a private foundation is deductible at a rate of only 30 percent of AGI.

A word on the word “foundation”

Don’t assume that an organization with “foundation” in its title/name is indeed a private foundation and not a public charity. Of course, it could be, but many types of nonprofit organizations have adopted “foundation” as part of their name to help project a mission and/or identity. (Examples include Friends of Animal Center Foundation and the Iowa City Public Library Friends Foundation.) If you’re entirely unsure if a nonprofit you’re considering donating to is a private foundation or public charity, simply ask one of the nonprofit’s executives or appropriate contact.

If you’re wanting to make a complex gift or include nonprofits as beneficiaries in your estate plan it’s wise to work with an attorney experienced in those areas. Of course, I would be happy to help.


Have any questions? Want to discuss your charitable donation or formation of your dream nonprofit? Contact me by email or phone (515-371-6077) .

paper and phone on desk

Tax-exempt organizations need to have specific guidelines in place to be compliant and in order to meet the IRS’ expectations. It’s never too late (or early!) to invest in comprehensive internal and external policies and procedures. That’s why I’m offering the Nonprofit Policy: 10 for 990 special. You don’t have to feel overwhelmed or burdened at the thought of trying to draft legally correct and comprehensive policies. I’m offering a special deal for 10 important policies (read on for an overview of each) at the rate of $990. This also includes a comprehensive consultation and one full review round.

If you’re a nonprofit founder, executive, board member, or even an active volunteer, this is an excellent way to ensure the organization you’re deeply invested in is meeting (and exceeding!) the gold standard for tax-exempt organizations.

team members holding speech bubbles

I don’t know anyone who loves paperwork more than the Internal Revenue Service (IRS). But, if you’re operating a nonprofit, you’re going to have to learn how to embrace paperwork as well. Why? The IRS requires certain information from your organization be submitted annually via Form 990 “Return of Organization Exempt From Income Tax.” This 12-page document (not including schedules) serves as a check to make certain nonprofit organizations are still qualified for that coveted tax-exempt status. To that point, the 990 asks nonprofits about policies and procedures that help ensure the nonprofit is conducting business in a transparent way that’s consistent with their exempt purposes. Specific governance policies encouraged by the IRS limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities.

Major Benefits & Reasons for Policies for Compliance

If governance policies are not technically required, why do them?

write ideas

The existence of a policy doesn’t mean compliance is assured, of course, but having policies in place provides a framework and the expectations for an organization’s executives, employees, volunteers, and board members. Such policies can also be referenced if/when issues arise.

One of the major reasons to invest in strongly written, organization-specific policies is because the IRS audits tax-exempt organizations, just as it audits companies and individuals. (Having certain policies in place will only serve to benefit the organization should it happen to be audited.)

Another major reason to have proper policies and procedures in place is because they provide a foundation for soliciting, accepting, and facilitating charitable donations. Last, but not least, the 990 is made accessible to the public, meaning it can be used as a public relations tool if filled out diligently. Major donors can and often do review a charity’s 990 to ensure the charity is compliant, putting charitable donations to good use, and continues to operate in alignment with the overall mission.

Form 990 also serves the greater nonprofit sector as the data collected allows for the monitoring of growth and trends, tracking the types of needs/issues being addressed by nonprofits, and identifying specific adopted practices.

What Policies are We Talking About?

One thing’s for certain, articles of incorporation and bylaws are just the beginning when it comes to foundational documents.

The IRS made a major revision to Form 990 in 2008. The old version focused largely on financial data. Now, Form 990 reports extensive information on operations such as board governance, fundraising, international programs, non-cash receipts, joint ventures, use of subsidiaries, and more. Let’s cover all the policies the IRS asks tax-exempt nonprofits to report on:

Conflict of Interest

Found on Form 990: Part VI, Line 12 a-c

A conflict of interest policy should do two important things:

  1. require board members with a conflict (or a potential conflict) to disclose it, and
  2. exclude individual board members from voting on matters in which there is a conflict.

The Form 990 glossary defines a “conflict of interest policy” as follows:

A policy that defines conflict of interest, identifies the classes of individuals within the organization covered by the policy, facilitates disclosure of information that may help identify conflicts of interest, and specifies procedures to be followed in managing conflicts of interest. A conflict of interest arises when a person in a position of authority over an organization, such as an officer, director, or manager, may benefit financially from a decision he or she could make in such capacity, including indirect benefits such as to family members or businesses with which the person is closely associated. For this purpose, a conflict of interest does not include questions involving a person’s competing or respective duties to the organization and to another organization, such as by serving on the boards of both organizations, that do not involve a material financial interest of, or benefit to, such person.

Form 990 asks whether the nonprofit has a conflict of interest policy, as well as how the organization determines and manages board members who have an actual or perceived conflict of interest. This policy is all too important, as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.

If consistently adhered to, this policy can inspire internal and external stakeholder confidence in the organization as well as prevent potential violations of federal and state laws.

Document Retention and Destruction

Found on Form 990: Part VI, Line 14

This policy should clarify what types of documents should be retained, how they should be filed, and for what duration. It should also outline proper deletion and or destruction techniques.

The document retention and destruction policy (DRD policy) is useful for a number of reasons. The principle rational as to why any organization would want to adopt such a policy is that it ensures important documents—financial information, employment records, contracts, information relating to asset ownership, etc.—are stored for a period of time for tax, business, and other regulatory purposes. No doubt document retention could be important for proof in litigation or a governmental investigation.

You may have heard of the federal law, the Sarbanes-Oxley Act of 2002. It reaffirms the importance of a DRD policy. Sarbanes-Oxley reads:

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

While the Sarbanes-Oxley legislation generally does not pertain to tax-exempt organizations, it does impose criminal liability on tax-exempt organizations for the destruction of records with the intent to obstruct a federal investigation.

Another reason a DRD policy is an excellent idea, is it forces an organization to save space and money associated with both hard copy and digital file storage, by determining what is no longer needed and when…it’s like sanctioned spring cleaning!

Whistleblower

Found on Form 990: Part VI, Question 13 

Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers.

Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:

A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)

The Sarbanes-Oxley Act (referenced under the document retention and destruction policy above) also applies here. If found in violation of Sarbanes-Oxley, both an organization and any individuals responsible for the retaliatory action could face civil and criminal sanctions and repercussions including prison time.

Compensation

Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Data related to compensation is reported in three different sections on Form 990: “Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees;” “Statement of Functional Expenses,” lines 5, 7, 8, and 9; and Schedule J;” and “Compensation Information for Certain Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.”

Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management, is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy, which explains to current and potential employees and board members how compensation supports the organization’s mission, can be included in the compensation policy.

Generally, this policy provides the benefits of:

  • Enhanced confidence of donors and supporters
  • Consistent framework for decision making on compensation
  • Increased compliance with federal and state employment laws
  • Reduced risk to the organization and its management and governing board

Fundraising

The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, three places in Part IV, Part VIII, Part IX, and Schedules G and M. Almost every nonprofit needs a fundraising policy, as almost all engage in some sort of charitable fundraising. This policy should include provisions for compliance with local, state, and federal laws, as well as the ethical norms the organization chooses to abide by in fundraising efforts. Remember that fundraising doesn’t just include solicitation of donations, but also receipt of donations.

Gift Acceptance

Found on Form 990: Schedule M, Part I, line 31

While related to the fundraising policy, the gift acceptance policy relates to charitable contributions. There are no legal requirements for a gift acceptance policy, however this policy provides written protocols for nonprofit board members and staff to evaluate proposed non-cash donations. The policy can also grant some much-needed guidance in how to kindly reject donations that can carry extraneous liabilities and obligations the organization is not readily able to manage.

rubix cube on desk

Investment

One way a board of directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary.

Beyond the specifics of investments, this policy can also govern financial management decisions regarding situations like accepting charitable gifts of securities.

The policy should be written to give the nonprofit’s management personnel the authority to make investment decisions, as well as preserve the board’s oversight ability.

Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.

Form 990 does not ask if an organization has a specific investment policy, but it does refer to investments in multiple places throughout the form, hence the obvious need. 

Financial Policies and Procedures

Different than the aforementioned investment policy, the financial policies and procedures policy specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place. Similar to the investment policy, Form 990 does not make a specific ask about an organization’s financial policies, but this type of policy will serve as an indispensable guide to organizing, collecting, and reporting financial data.

Form 990 Review

Found on Form 990: Part VI, Section B, Line 11

Form 990 asks the following questions:

  • Has the organization provided a copy of this Form 990 to all members of its governing body before filing the form?
  • Describe in Schedule O the process, if any, used by the organization to review this Form 990.

In asking these questions, the IRS is indicating that distribution of the form prior to filing is optimal. (This is also one of those gold standard governing practices that is beneficial when using the form as a public relations material.) There are no federal tax laws requiring Form 990 review, and Form 990 does not mandate a written policy. However, a written policy is incredibly useful in clarifying a specific process for distribution and procedure review by the governing body (such as the board of directors). It also formalizes a review process and acts as a reminder to nonprofit leaders to distribute accordingly.

paper and pen on desk

Public Disclosure

Found on Form 990: Part VI, Section C, Lines 18 – 20

Public charities exist to serve the public in some way or another, and some organizational documents must be made available to the public upon request. Other documents can be kept entirely internal. This policy should overview (1) what documents must the organization disclose, and (2) to what extent does it want to make other non-required documents and information available to the public.

Form 990 specifically asks the filing organization to report if certain documents are made available to the public, such as governing documents (like the bylaws), conflict of interest policy, and financial statements. Additionally, the form asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the organization.

Where Do I Start?

man writing on paper

The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa, and to that point I want to help every Iowa nonprofit be legally compliant.

The 10 policies part of this promotion will save you time, resources, and you can feel good about having a set of high quality policies to guide internal operations, present to the public (if appropriate), and fulfill form 990 requirements.

If you already have some (or all) of the above listed policies in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.

Interested? It’s always a good day to contact Gordon Fischer Law Firm via email Gordon@gordonfischerlawfirm.com or by phone (515-371-6077).

#SelectionSunday

As we basketball fans get ready for #SelectionSunday, is your team on the bubble? Lots of reporting (like here and here and here) features teams that are oh-so-close to being in the NCAA Tournament, but perhaps not quite so.

Which reminds me to ask, how is your nonprofit team doing? In terms of compliance, is your favorite nonprofit safely “in” the compliance zone and ready to play to win, or are you hoping that the team can be just compliant enough to slide in?

Who do YOU cheer for?

person shooting on basketball court

When I say favorite nonprofit, think of it like the team you have slated to go all the way and win the final round! Perhaps your fave nonprofit is arts-oriented, like Revival Theatre Company in Cedar Rapids. Maybe your top pick is a local human services organization, like The Crisis Center in Johnson County. You could cheer the most for an animal welfare organization, like Friends of the Animal Center Foundation in Iowa City. You may be a tried and true support for a nonprofit that works for the benefit of developing countries, like Self-Help International based in Waverly, Iowa.

In any case, the nonprofit topping your list will likely need to submit an annual filing with the IRS to be “in” the compliance zone. The majority of nonprofit organizations must file some version of IRS Form 990, which asks about a number of policies and procedures.

Go for the win!

Just like the game of basketball is played within an established set of rules, tax-exempt organizations must also “play” within specific guidelines. Doing so means having specific policies and procedures in place to be compliant and in order to meet the IRS’ expectations. When a nonprofit invests in comprehensive internal and external policies and procedures it’s like investing in the right training and resources to maximize the sport team’s strengths.

To continue the analogy, consider me the coach for these policies and procedures and I want to help all Iowa nonprofits teams play their best. This is why I’m offering the 10 for 990 nonprofit policy special now through March 15. Leave the legal drafting to someone else while you continue to maximize your mission. Note that the $990 rate for the 10 important policies asked about on Form 990 also includes a comprehensive consultation and one full review round.

Help your team!

If you’re a nonprofit founder, executive, board member, or even an active volunteer, this is an excellent way to ensure the organization you’re deeply invested in is meeting (and exceeding!) the standard for tax-exempt organizations.

The 10 policies a part of this promotion will save your tax-exempt organization time, resources, and you can feel good about having a set of high quality policies to guide internal operations, present to the public (if appropriate), and fulfill Form 990 requirements.

Don’t wait for a last second shot!

As the game changes your team needs to adapt. If you already have some (or all) of the policies your team needs in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.

After you’re done filling out your March Madness bracket, commit to helping your own nonprofit team be a champion. Contact GFLF before the policy promotion is up (March 15) via email (Gordon@gordonfischerlawfirm.com) or by phone (515-371-6077) to get started.

shaking hands across table

In the age of the Internet there’s a free template, instructional, and how-to video for just about everything under the sun. And, for many things, from great recipes, to exercise guides, to Ikea furniture blueprints (why is there always one extra piece left over?!), this is fantastic. Sometimes it’s even hard to remember what life was like before we had access to information on just about everything at our fingertips.

There are still some things that, despite being free and appearing easy to do, are better done by a trained professional. For instance, let’s say I wanted to redo my bathroom, but have extremely limited working knowledge of how to reconfigure the plumbing to make sure it’s functional within the new design of the room. I could certainly click through step-by-step instructions on Reddit or watch a smattering of YouTube videos, but I’m still not an expert. If I tried to DIY the plumbing in my new bathroom, it would certainly take me much longer than an expert and without a doubt the finished product would be of a lesser quality. There’s also a good chance I would invest all this time and energy in the project, and still mess up, and end up having to hire a professional contractor to fix my mistakes.

Some things are just better left to the professionals. In regard to your nonprofit’s policies and procedures, this is where an experienced attorney comes in.

As a nonprofit leader, you’ve specialized in a multitude of different aspects while working toward achieving your organization’s mission. But, when it comes the super important policies and procedures, you need to have in place for top of the line legal compliance, it’s best to outsource to a legal expert. You could try the DIY way by finding free templates online and trying to muddle through the process. But, if legal issues arise and your policies are called into question you’re then going to have to call in the specialized professional to help keep the bathroom from flooding (metaphorical reference to my hypothetical plumbing mishap). If written poorly, policies could provide little to no guidance because they were too vague, not applicable to your organization, or contrasting with federal/state/local laws. An attorney can help you put all the pieces of the compliance puzzle together into an image that’s valuable.

puzzle pieces

Avoid the time, energy, and monetary costs of DIY, and opt for quality policies and procedures that are written specifically for your nonprofit by an experienced attorney in nonprofit law. Need a little more information to convince the board, the boss, or yourself? Here are three practical reasons why you should work with a professional to draft your tax-exempt organization’s policies and procedures:

Save Time

Time is a common thread amongst the majority of nonprofits I’m lucky enough to work with. There’s never enough time. When it comes to initiatives like writing a full set of beneficial policies and procedures unique to your organization, it costs time! And that is time away from all the other change-making that could be happening. Without a doubt, most nonprofits are also short on administrative help. When you hire an attorney well-versed in nonprofit law it’s a double win when it comes to time—your time isn’t wasted or misused and you get to reap the benefits of a subject matter expert’s time.

https://www.gordonfischerlawfirm.com/nonprofits-form-990-due-date/

Save Money

My 10 for 990 special for nonprofits includes 10 policies asked about of Form 990 for a flat rate of $990. Sure, it’s an investment. But, less than $1,000 is worthwhile in exchange for policies that limit potential abuse, protect against vulnerabilities, and prevent activities that go beyond permitted nonprofit activities. Adopting internal and external policies can only help in the case that your tax-exempt organization is ever audited by the IRS.

Receive Dedicated Attention & Advice

Just like I tell my estate planning clients, there is no one-size-fits-all when it comes to the important documents that will be the blueprint to your legacy. The same goes for nonprofits.

Each nonprofit is unique and accordingly your internal and external guidelines will want to reflect this. For instance, a non-operating private foundation will likely need a different set of documents than a public charity. With a dedicated nonprofit attorney working on your policies, you get unparalleled and individualized service. This type of dedicated service and attention to detail will further save you from wasting resources on forms and other legal documents that aren’t useful or beneficial to the organization. Ultimately, working with a nonprofit attorney will mean counsel that sets your nonprofit up for success, unhampered by compliance issues.

The benefits of investing in a qualified attorney to craft your important policies are numerous; the right attorney will put your organization’s best interests first, saving you resources in the long run.

Given my experience, mission, and passion for helping Iowa nonprofits, I would love the chance to fill the role of topical expert for your organization. Learn more about the 10 For 990 policy special and don’t hesitate to contact me via email (Gordon@gordonfischerlawfirm.com) or on my cell (515-371-6077).

business papers

I write a lot about individuals conducting charitable giving and the various options to do so while living as well as through estate planning means. But, what if you own or run a business and want to make charitable gifts on behalf of the business?

Donations on behalf of a business can be an excellent way to build goodwill, trust, and foster positive public relations. Plus, donations of assets like cash and property can also mean substantial benefits when it comes to filing business taxes.

The good news from the IRS (how often do you hear that?!) is that any business can make contributions to qualified charitable organizations. The caveat is that there are limits on these deductions, and the contributions may only be deductible to the individual owners, not to the business. How the business is categorized is what determines how charitable contributions are deducted and which tax return they are deducted from.

Corporations vs. Sole Proprietorship

Corporation

corporation skyscraper building

Some types of businesses, such as corporations, can deduct allowable charitable contributions directly on their business tax returns. This makes more sense when you consider that the corporation is a separate entity from the owners.

A corporation which files its own tax return can deduct charitable gifts up to 10 percent of its taxable income and is entitled to carryover unused deductions for up to five years.

For a corporation, taxable income for this purpose is calculated without the following:

  • The deduction for charitable contributions.
  • The dividends-received deduction.
  • The deduction allowed under Internal Revenue Code Section 249 [relating to deduction of bond premium on repurchase].
  • The domestic production activities deduction.
  • Any net operating loss carryback to the tax year.
  • Any capital loss carryback to the tax year.

Sole Proprietorship

man standing on street

If you are a sole proprietor, charitable donations can also be tax-savvy, but there are differences from filing as a corporation. Your business taxes are filed on Schedule C of your personal Form 1040 and because of this set-up, your business cannot make separate charitable contributions because the only way individuals can deduct these contributions is on Schedule A. Additionally, you must itemize deductions to take them.

This advice also rings true for a single-member limited liability company (LLC), since this category of business files taxes as a sole proprietor.

What qualifies as a donation?

The IRS specifies that both cash and non-cash contributions from businesses are deductible, as well as expenses related to volunteering.

Cash is self-explanatory, and non-cash donations could be property, goods, and inventory. In terms of volunteering, the time and lost wages are not deductible, but volunteer-related expenses for a qualifying charity event or service project are. This includes the travel costs (like gas and mileage) along with any donated supplies.

What does not qualify as a donation?

Say you run Corporation Smile and your employees are given time off to volunteer with the causes of their choice. Could this time volunteered be considered a charitable contribution? In short, no. As stated above, the value of time volunteered on the ground or, say, on a nonprofit’s board of directors does not qualify. Additionally, many times business-based donations are committed in exchange for something of value. Be it a product or service, the tax-deductible amount is the donation’s value minus the value of the good/service exchanged. (Read my primer on the term “quid pro quo” for more on this concept.)

Qualifying Organizations

In order to claim the charitable donation deduction, the donee organization must be recognized by the IRS as 501(c)(3) nonprofit. This important distinction is what enables these organizations to receive tax-exempt donations. Beware that gifts and donations to political candidates, parties, or associated organizations are not recognized by the IRS as tax-deductible. The same goes for donations to a specific individual. Be smart and practice due diligence in determining which organizations are qualified by asking to see a charity’s IRS determination letter and/or search for qualifying organizations by using the IRS’ Exempt Organizations Select Check tool.

two men talking in booth

Record Keeping for the Win

If you own or manage a business you know all too well how important bookkeeping is, especially come tax time. Record retention for charitable contributions is no different. What documentation required depends upon the amount and type of contributions. (Although, my general advice is to keep more paperwork than needed in regard to contributions.)

  • Donations valued at less than $250– Retain a receipt issued by the accepting charity. If for some reason you don’t have this, a credit card, bank record, or canceled check will suffice.
  • Donations valued at more than $250– Obtain an official gift receipt from the accepting nonprofit.
  • Non-cash donations valued at $250 or less– Taxpayers must receive and keep a letter or other type of written communication in the form of a gift receipt from the charitable organization showing: organization’s name, date and location of the contribution, and a reasonably detailed description of the property donated. The gift receipt for a non-cash donation may or may not include a cash value. If not, the donor will need to see that it is appropriately assessed for fair value.
  • Non-cash donations valued at greater than $250– The gift acknowledgment from the nonprofit must meet the same requirements for contributions of property valued at less than $250, but must also meet several additional requirements. The written acknowledgment must state whether the qualified organization gave any goods or services in exchange for contribution, and include a description and good-faith estimate of the value of any goods and services given.

So, to summarize, the following details should be retained:

  • Name and address of the donee organization;
  • Date and location of the contribution;
  • Reasonably detailed description of the property;
  • Fair market value (FMV) of the property at the time of the contribution and FMV was determined (if the property was appraised, the taxpayer should keep a copy of the signed appraisal);
  • Cost or basis of the property, if the taxpayer must reduce its FMV by appreciation—these records should include the amount of the reduction and how it was calculated;
  • Total amount the taxpayer is claiming as a deduction for the tax year as a result of the contribution; and
  • Terms and/or conditions attached to the contribution.
  • Non-cash donation valued at more than $500 and less than $5,000– Taxpayers must fill out IRS Form 8283 when filing taxes. Taxpayers must have the acknowledgment and written records described above, as well as additional information needed including: how the property was acquired (purchase, gift, inheritance, etc.) and the date the property was obtained by the taxpayer.
  • Non-cash donation worth more than $5,000– In addition to the requirements listed for the smaller donation amounts, you also must obtain a qualified appraisal of the goods and have the qualified appraiser sign Section B of Form 8283. (Qualified appraisal and qualified appraiser are both vague terms with specific meanings to the IRS. Read more about the specifics of these definitions here.)

woman walking against blue window

The charitable deduction for business can result in significant tax savings, just be certain you do so in the right way to maximize the savings. The nuances of corporate/business giving can be complicated and confusing and every business has a unique situation, so be sure to contact the appropriate professional advisors for specific advice. Questions? Comments? I’d love to discuss further; contact me via email or by phone (515-371-6077).

church pews

I worry about all the folks going to church this morning. (I use “church” as a term that could be easily replaced with other houses of worship: synagogue, mosque, etc.) Here’s my specific concern: when the collection plate comes around, do folks give cash? Probably. And if so, are they documenting their charitable gift? Probably not. For most people, it’s a $20 here and a $10 there, but over the course of many Sundays that can add up quickly. The total figure of such donations to a tax-exempt organization, like your church, could be claimed as a federal income tax charitable deduction. But, without substantiation, you cannot claim the beneficial charitable deduction.

The IRS requires you to have records and documents backing up your claims of charitable donations. The greater the amount of the deduction you seek, the more records that are required. Let’s start with a basic category: gifts of cash less than $250.

Substantiation requirements for monetary gifts less than $250

wallet with cash money on top

A federal income tax deduction for a charitable contribution in the form of cash, check, or other monetary gift is not allowed unless the donor substantiates the deduction with a bank record or a written communication from the donee showing the name of the donee, the date of the contribution, and the amount of the contribution.

Meaning of “monetary gift”

For this purpose, the term “monetary gift” includes, of course, gifts of cash or by check. But monetary gift also includes gifts by use of:

  • credit card;
  • electronic fund transfer;
  • online payment service;
  • payroll deduction; or
  • transfer of a gift card redeemable for cash.

Meaning of “bank record”

Again, to claim the charitable deduction for any monetary gift, you need a bank record or written communication from the donee. The term “bank record” includes a statement from a financial institution, an electronic fund transfer receipt, a cancelled check, a scanned image of both sides of a cancelled check obtained from a bank website, or a credit card statement.

Meaning of “written communication”

The term “written communication” includes email. Presumably it also includes text messages. But, again, the written communication, whether paper or electronic, it must show the name of the donee, the date of the contribution, and the amount of the contribution.

I must repeat. A federal income tax deduction for a charitable contribution in the form of cash, check, or other monetary gift is not allowed unless the donor substantiates the deduction with a bank record or a written communication from the donee showing the name of the donee, the date of the contribution, and the amount of the contribution.

How about monetary gifts [as defined above] which are $250 or more? As to cash contributions of at least $250, an extra set of substantiation rules apply. Click here to read more.

pulling dollar out of wallet

Responsibility lies with the donor

Interestingly, the responsibility for obtaining this documentation lies with the donor. The donee (the charity) is not required to record or report this information to the IRS on behalf of the donor.

If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.

Blue journal on desk

Estate planning can be a huge relief for you and your loved ones. A quality estate plan means a sense of security that your family and other important people in your life will be provided for at the time of your death.

You’ve worked hard for what you have, but the saying is all too true: you cannot take it with you when you die. So, you may as well pass along your assets through an airtight estate plan to people you care about, as opposed to the government.

To that point, there are important, not-so-obvious benefits of an estate plan, such as avoidance of specific taxes and fees.

 

Person holding phone at table

Here are several ways to get the best benefits out of your estate planning:

Federal estate tax 

The federal estate tax applies to high net worth individuals; for 2018 the estate tax exemption is $11.2 million/individual (up from $5.49 million in 2017 due to the new tax law). What does that mean exactly? It means that any one individual could leave up to that amount to heirs and pay no federal estate tax. For married couples, the limit is $22.4 million. These are important rates to know because estate taxes can be as high as 40 percent. (Which is pretty harsh!) The good news is that smart estate planning strategies exist to legally avoid the federal estate tax.

Customized estate planning

Without a customized estate plan, you and your estate may end up paying more in the long run in professional fees, court costs, and taxes. A customized estate plan is essentially a thorough plan that takes these potential future charges into consideration. It includes elements such as a managed distributions, which can help alleviate much of the tax burden on your beneficiaries.

A customized, smart, up-to-date estate plan can mean your estate avoids court costs almost entirely. Optimally you want to avoid the worst case scenario (aka litigation) with certain estate planning provisions.

 

Professional fees can include costs for services provided by accountants and lawyers. Using a flat rate with an attorney will be much more straightforward and to your long-term economic advantage. Why? Paying someone on the front end means less work and hassle down the road when your family is coping with your passing.

Allocating charitable contributions 

This is my favorite strategy for avoiding a large brunt of taxes and fees. Mutually beneficial for both nonprofit organizations and estate beneficiaries, charitable contributions are a way to secure a lasting legacy, make a tangible community difference on the way out, and secure helpful tax deductions.

There is no one-size-fits-all approach to estate planning, and a legal professional can help you identify financial advantages and benefits. (Yet another reason why you need a reputable attorney to craft your estate plan.)

Have questions? Need more information?

Click here to download my free, no-obligation Estate Plan Questionnaire or feel free to reach out any time. You can contact me by email at Gordon@gordonfischerlawfirm.com or give me a call at 515-371-6077.