Nonprofit Blog

General observations and commentary derived from Antonio "Tony" Arocho's law practice representing non-profits and tax-exempt organizations, as well as news, events, and ideas related to the nonprofit sector.

IRS Increases Mileage Rate
July 22, 2011


The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes. The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.

IRS posts more FAQs on How Eligible Nonproftis can Claim the Health Care Tax Credit 

October 29, 2010

The IRS has posted additional FAQs on how eligible exempt organizations can claim the Small Business Health Care Tax Credit. 

A tax-exempt employer described in Code section 501(c) that is exempt from tax under Code section 501(a) claims the refundable credit by filing a Form 990-T with an attached Form 8941 showing the calculation of the claimed credit. A tax-exempt employer is not eligible to claim the credit unless it is an organization described in Code section 501(c) that is exempt from tax under Code section 501(a).

For more information on the Small Business Health Care Credit and FAQs visit IRS.gov.

Filing Rellief for Small Tax-Exempt NPOs in Federally Declared Disaster Areas!

October 29, 2010

Source: IRS

For most small tax-exempt organizations, the one-time filing relief program for those that failed to file for three consecutive years expired on October 15.  However, eligible small organizations that are located in a Presidentially declared disaster area have additional time to participate in the one-time filing relief program and avoid revocation. 

The IRS frequently postpones filing deadlines for individuals, tax-exempt organizations and other entities in declared disaster areas. For example, the IRS has postponed the due dates for numerous filings by organizations and individuals in designated counties in North Carolina affected by the September 27, 2010 storms and flooding until November 26, 2010.  This postponement of the due date also applies to Forms 990-N and 990-EZ filings made under the one-time relief program.

Go to http://www.irs.gov/newsroom/article/0,,id=224599,00.html for information on the latest disaster declarations and the ending date of the postponement period for each.

Fiscal Sponsorship as a tool for nonprofit groups

October 24, 2010

 Starting a nonprofit corporation and getting 501(c)(3) tax exemption takes money, time and energy. As an alternative, some people with nonprofit ideas or projects who do not have the money, time or energy turn to a Fiscal Sponsor to get their nonprofit idea or project off the ground. A Fiscal Sponsor is a non-profit organization with 501(c)(3) tax exempt status from the Internal Revenue Service that acts as a guardian of grants and donations for a nonprofit idea or project that does not have 501(c)(3) designation. In other words, the Fiscal Sponsors gives the unincorporated group whose project and mission is aligned with their own a tax-exempt home.

For a nonprofit project lacking tax exempt status another good reason to seek a Fiscal Sponsor is that funders rarely make donations or grants to a group that lacks 501(c)(3) tax exempt status. Foundations, governments and other donors do not give grants to nonprofit ideas and projects that lack 501(c)(3) status. Without 501(c)(3) status no grant or donation that is made to a nonprofit group can be deducted as a charitable donation.

Seeking a Fiscal Sponsor can be a great idea for groups or projects that lack support staff, projects that are short term or temporary that want to avoid the time and expense of applying for a 501(c)(3), pilot or test nonprofit projects, or nonprofit organizations that are awaiting for their own 501(c)(3) status.

A Fiscal Sponsor manages specific grants or donations made to a nonprofit project that lacks tax exempt status. In addition, some Fiscal Sponsors provide the project some back room services such as human resources management, accounting, administrative services, or fundraising development. However, all funds that are received by the Fiscal Sponsor on behalf of the nonprofit project must be used for specific charitable projects that further the Fiscal Sponsor's own tax exempt purpose. The Fiscal Sponsor retains discretion and control as to the use of the funds. As part of these responsibilities the Fiscal Sponsor is required to maintain records that establish that the funds allocated to the nonprofit project were used for 501(c)(3) purposes.

The Fiscal Sponsorship relationship can be a great opportunity for both the nonprofit project and the Fiscal Sponsor. An attorney can draft a Fiscal Sponsorship Agreement that spells out the terms and condition of the relationship for both parties to fully understand. The sponsoring organization (Fiscal Sponsor) has an opportunity to further its charitable purpose while helping the project leaders gain the skills and experience they need to maintain a viable nonprofit down the road.

However, it should be noted that a Fiscal Sponsor and the sponsored nonprofit project are not completely independent. The project is legally part of the Fiscal Sponsor’s organization. The Fiscal Sponsor must have complete discretion and control over funds received by on behalf of the nonprofit project. This means the Sponsor must be legally responsible for the funds to ensure that payment of funds to the sponsored project are made to further the sponsor's own tax-exempt purposes. However, the project does enjoy some autonomy from the Fiscal Sponsor as can be outlined in the Fiscal Sponsorship Agreement drafted by the parties. The Fiscal Sponsor is legally responsible for all of the activities of the project they house. Therefore, the Fiscal Sponsor should do its due diligence in screening the project and the project’s leadership carefully.

Furthermore, the Fiscal Sponsor services are not free. Fiscal Sponsors charge nonprofit projects for their services. It may charge the nonprofit project for any administrative fees incurred on behalf of the project. The fees may be a flat fee or a percentage of the project’s revenues. The amount of the fee should be in writing and included in the terms of the Fiscal Sponsorship Agreement that is signed by both parties.

CDFI Funding Opportunity!

Thursday, October 21, 2010

The U.S. Department of the Treasury just recently released a Notice of Funding Availability (NOFA) for the FY 2011 Community Development Financial Institutions (CDFI) Fund. The CDFI Fund is intended to expand the capacity of financial institutions to provide credit, capital and financial services to underserved populations and communities across the U.S. The CDFI Fund will also provide grants for the Healthy Food Financing Initiative (HFFI), the Federal government’s first coordinated step to eliminate food deserts by promoting a wide range of interventions that expand the supply of and demand for nutritious foods.

The CDFI Fund is providing up to $135 million for two types of awards:

Financial Assistance Awards: Under the Financial Assistance component of the CDFI Program, a CDFI may use the award for financial capital, loan loss reserves, capital reserves or operations. In FY 2011, the CDFI Fund will also make $25 million in Financial Assistance awards under the HFFI to certified CDFIs.

Technical Assistance Awards: Under the Technical Assistance component of the CDFI Program, certified CDFIs and established entities seeking to become certified may build their capacity to provide affordable financial products and services to low-income communities and families.

The application deadline for these awards is November 19, 2010 at 12:00 midnight Eastern Time. For more information, please click on the following links:

The Notice of Funding Availability:
http://www.cdfifund.gov/docs/2011/cdfi/FY_2011_CDFI_Program_NOFA.pdf

More general information about the CFDI Program:
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=7

Other important dates for conference calls and workshops:
http://www.cdfifund.gov/news_events/CDFI-2010-41-CDFI-Fund-Announces-Opening-of-FY2011-CDFI-Program.asp

"When Local Charities Lose, Everybody Loses"

October 2, 2010

Just a reminder that small nonprofit organizations at risk of losing their tax-exempt status because they failed to file the required returns for 2007-2009 now have until this October 15th under this one-time relief program to satisfy annual filing requirements.

The IRS has posted on a special page of IRS.gov the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance. The organizations on the list have return due dates between May 17 and Oct. 15, 2010, but the IRS has no record that they filed the required returns for any of the past three years. http://www.irs.gov/charities/article/0,,id=225705,00.html

Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard), and a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

Small organizations required to file Form 990-N simply need to go to the IRS website, supply the eight information items called for on the form, and electronically file it by this October 15th. That will bring them back into compliance.

For further information visit: http://www.irs.gov/charities/article/0,,id=225705,00.html

Certificates of Insurance: Guest Post by Michael J. Holland, CIC, CRM, Senior Vice President at Elite Group

September 7, 2010

Most non-profits have received requests for insurance certificates. These requests typically come from banks, mortgage companies, landlords, government funders, special event venues and other parties with whom an organization has a contractual relationship. And while the requests are typically received as straightforward, innocuous documentation requests, many times they are much more than this and should be reviewed carefully by your insurance broker. Often, the broker will respond with a series of questions about the reason and specifics about the interest of the requesting party.

The importance of appropriate analysis of insurance certificates cannot be overstated. Some requests are for a certificate with no other obligation on the part of the issuer, essentially a request only for “Proof of Insurance”. This conveys no coverage for the recipient and is only a source of information. However, most certificate requests include the recognition of the requestor as a “Loss Payee” and/or “Additional Insured”. These provisions actually extend your insurance coverage to the recipient.

Michael J. Holland, CIC, CRM, is Senior Vice President at Elite Group (www.elitegrp.com).

WHAT IS A CDC (Community Development Corporation)?

August 19, 2010

There are many different definitions of a CDC, however, all would agree that a community development corporation (CDC) is a non-profit organization that is created to revitalize a low- or moderate-income community. Many CDCs are grassroot organizations created by people with a stake in the community itself. As a matter of fact some of the founders of a CDC may include residents of the target area, churches or other religious institutions, and sometimes, small business owners. The CDC model is a great example of self-help because persons from the target area form their own organization to address their own needs. The CDC is not the creation of people from outside the community!

What do CDCs do in their communities?

Many of the CDCs are involved in the development of affordable housing for community residents - rental housing or homeownership. Other CDCs provide housing counseling programs and some develop housing for people with special needs, such as the elderly, ill, and disabled. Even other CDCs provide or are involved in social service programs, small business creation and revitalization, micro-business development, job development, education and training, commercial development and lending programs.

How Do I Start a CDC??

Starting a CDC is the same legal process as starting any other type of non-profit organization. Legally a CDC is the same as any other non-profit organization. The term CDC describes the types of activities that engaged by the non-profit. CDCs are not certified as a CDC by any federal or national organization. You should consult an attorney that focuses on serving nonprofits for assistance in forming a CDC. The attorney will help you with the legal process to create your CDC and can provide you with legal assistance once your CDC is up and running.

GUIDESTAR -- The Effect of the Economy on the Nonprofit Sector

 August 17, 2010

Today Guidestar released "The Effect of the Economy on the Nonprofit Sector: A June 2010" that reveals that non profits continue to struggle with declining donations and increased demand on services. According to the survey public charities and private foundations continued to be hurt by the great recession during the first five months of 2010.

Here are some of the results from the Guidestar Survey :

• Eight percent of respondents indicated that their organizations was in imminent danger of shutting down.

• In order to balance budgets, 17% of respondents reduced the program services offered, and 11% laid off employees.

• More than 60% of participants reporting decreased donations and attributed the drop to a decline in both the number of individual donors and the size of their donations.

• Among organizations that use volunteers, 17% used one or more in what had formerly been paid positions.

• About a third (32%) of organizations increased their reliance on volunteers, whereas 9% experienced a decline.

The findings of the survey indicate that nonprofits must retool themselves. The process should include revising the business plan and conducting a legal audit. Nonprofits may want to seek legal counsel during these hard economic times to avoid greater legal problems in the long run.

IRS Grants Grace Period for Small Tax Exempt Organizations

July 27, 2010

Yesterday morning the Internal Revenue Service announced that the many small tax-exempt nonprofit organizations at risk of losing their tax-exempt status have until October 15, 2010 to file returns. These organizations are at risk because they failed to file required returns for 2007, 2008, and 2009. Now these groups can preserve their exempt status by filing returns by October 15, 2010. The IRS also posted a list of the organizations at risk of automatic revocation of their tax-exempt status at http://www.irs.gov/charities/article/0,,id=225889,00.html.

The two types of relief that are available for small tax-exempt organizations are: a filing extension for the smallest organizations that are required to file Form 990-N, Electronic Notice (e-Postcard), and a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

In order to bring them into compliance, small organizations that are required to file Form 990-N simply need to go to the IRS website (http://www.irs.gov/charities/article/0,,id=152728,00.html), provide the information requested for on the form, and electronically file it by October 15, 2010.

Pursuant the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by October 15, 2010 and pay a compliance fee. Details about the VCP are at http://www.irs.gov/charities/article/0,,id=225704,00.html.

The relief announced today is not available to larger tax-exempt organizations that are required to file the Form 990 or to private foundations that file the Form 990-PF.

A tax-exempt organization that loses its exemption status will have to reapply with the IRS to regain its tax-exempt status. Also any income received between the tax-exemption revocation date and renewed exemption may be taxable.

All this is necessary because the Pension Protection Act of 2006 required all tax-exempt organizations, other than churches and church-related organizations, to file an annual return with the IRS beginning in 2007. The law also required that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.

Name Squatting on Social Media Sites

July 26, 2010

Nonprofits, Museums, etc. may want to check social media sites like Twitter, Facebook, and other such sites to see if a social media account user has registered an account name that was identical to your federally registered trademark. Such a phenomenon appears to be growing. Twitter has a specialized “Name Squatting” page on which instructions exist on how to report a name squatting incident to Twitter – http://help.twitter.com/forums/26257/entries/18370-name-squatting. Some vigilance is required on the part of nonprofits, museums, associations, churches, and clubs to protect a person from using a Twitter or Facebook name and using the name for less than commendable purposes.

Things to think about before choosing a name for your nonprofit.

July 25, 2010

Before you create a name for a new nonprofit it is important to do a name search and check public records.

You should pick a name that describes your nonprofit’s mission, that the public is likely to remember, and one that is not already being used by another business or group as a trademark or a domain name.

In this internet age you can save yourself trouble by also doing some research to find if a website uses a particular name (domain). See if the name you plan to use is available as a website domain name. Use search engines like Google and Yahoo! to see how your chosen name is used.

Look in you local phone books to see if the name or any variation of the name is being used. Visit a library and look at association and nonprofit directories and trade publications.

Take a look at the federal trademark database of the U.S. Patent and Trademark Office. Keep in mind that not all registered names are on that list.

Check your state or territorial trademark registry for the use of your proposed name or similar names.

Also do not forget to check the fictitious name databases (d/b/a or doing business as databases) at your local county, state or territorial office to see if a business or nonprofit is using your proposed name as a fictitious business name.

Not only must your name reflect your brand and be memorable, there are also a host of legal issues to consider. An attorney can aid you in the process of selecting a name for your nonprofit.

Antitrust and Nonprofit Organizations: Guest Post by Douglas C. Dobson, President, Competition Analysis, LLC

July 22, 2010

Twelve Steps to Make Your Board of Directors Effective Partners: Guest Post by Sara Meléndez, EdD & Brigitte Savage, CFRE

Eleven Steps for Working With the News Media for Better Coverage of Your Organization: Guest Post by Sara Meléndez, EdD & Brigitte Savage, CFRE

Ten Steps to Demonstrating Your Organization’s Trustworthiness: Guest Post by Sara Meléndez, EdD & Brigitte Savage, CFRE

Ten Steps for Developing a Strategic Plan You Can Actually Use: Guest Post by Sara Meléndez, EdD & Brigitte Savage, CFRE

Ten Easy Steps to Creating A Fabulous Proposal: Guest Post by Sara Meléndez, EdD & Brigitte Savage, CFRE

Things to think about before choosing a name for your nonprofit.

April 25, 2010

Before you create a name for a new nonprofit it is important to do a name search and check public records. You should pick a name that describes your nonprofit’s mission, that the general public is likely to remember, and one that is not already being used by another business or group as a trademark or a domain name.

In this internet age you can save yourself trouble by also doing some research to find if a website uses a particular name (domain). See if the name you plan to use is available as a website domain name. Use search engines like Google and Yahoo! to see how your chosen name is used. Look in you local phone books to see if the name or any variation of the name is being used. Visit a library and look at association and nonprofit directories and trade publications. Take a look at the federal trademark database (http://tess2.uspto.gov/bin/gate.exe?f=tess&state=4002:om68it.1.1) of the U.S. Patent and Trademark Office. Keep in mind that not all registered names are on that list. Check your state or territorial trademark registry for the use of your proposed name or similar names.

Also do not forget to check the fictitious name databases (d/b/a or doing business as databases) at your local county, state or territorial office to see if a business or nonprofit is using your proposed name as a fictitious business name.

Arocho Law Office can aid you in the process of selecting a name for your nonprofit. Not only must your name reflect your brand and be memorable, there are also a host of legal issues to consider. 

AROCHO LAW OFFICE NONPROFIT ALERT: 2010 HIRE ACT

March 30, 2010

Nonprofits and the 2010 Hiring Incentives to Restore Employment Act

The 2010 Hiring Incentives to Restore Employment (HIRE) Act was signed into law by President Obama on March 18, 2010. To encourage employers to hire new employees, this Act exempts qualified employers, including nonprofits, from paying the employer’s share of the social security employment taxes (6.2 percent of the first $106,800 of wages) for wages paid in 2010 for any new employee hired after February 3, 2010, and before January 1, 2011. The exemption is for the nonprofit’s share of Social Security taxes on wages paid to these workers after March 18, 2010. However, the new employee must have been (1) previously unemployed and (2) does not replace another employee of the employer. The new employee cannot be a family member or other relatives of fiduciaries of the nonprofit.

This reduced tax withholding does not effect the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes and income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

Furthermore, the new law requires that the nonprofit employer get a statement from each eligible new hire certifying that he/she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS has issued the W-11 form that employees can use to make the required statement and this form can be found at: http://www.irs.gov/pub/irs-pdf/fw11.pdf.

IRS, IR-2010-33: http://www.irs.gov/newsroom/article/0,,id=220326,00.html

IRS Q&A: http://www.irs.gov/businesses/small/article/0,,id=220745,00.html
For more information regarding the 2010 HIRE Act, please contact Arocho Law Office at info@arocholaw.com.

Group exemption of a nonprofit:

Tuesday, May 25, 2010

Your nonprofit is an excellent candidate for group exemption from the IRS if your nonprofit is national or regional in nature and has chapters. As a result the nonprofit is allowed to file for tax exemption as a group. The group exemption letter can be used by any members of the group in the same manner an individual exemption letter would, thus saving group members time and money. The central organization and all subordinates must still get a separate Employer Identification Number (EIN) and file form 990 if required by law.

Antonio "Tony" Arocho is admitted to practice law in the District of Columbia and U.S. Virgin Islands.

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