Friday, August 28, 2009

Fewer Than Anticipated Nonprofit Mergers

An article on Chicago Business this week, "The Merger Wave That Never Broke," reports that, although forecasters predicted increased mergers of nonprofit organizations in difficult economic times, a March survey found that only 5% of the 986 organizations surveyed asked had actually merged or intended to merge. Many nonprofits are daunted by logistics and cost of the merger transaction itself. Even though funders may have an interest in tightening operations, apparently there isn’t foundation money available for mergers. I believe it is still very early to know what the long-term effects of the economic mess will be on nonprofits.

IRS Rejects Proposed Redesign of 990-PF (for now)

The Tax Payer Advocacy Panel (TAP) has released its 2008 Annual Report. The TAP is a national citizen advisory panel to the IRS. The panel makes recommendations to the IRS for improvements, and the IRS has the opportunity to explain why it agrees or disagrees with it. One of the 2008 TAP proposals asked the IRS to “Simplify Filing Requirements for Small Private Foundations.” Currently, all private foundations are required to file Form 990-PF, Return of Private Foundation, to report their exempt activities for the year. (A private foundation is a 501(c)(3) entity that receives all or most of its funding from one or a few sources, as opposed to a public charity which normally receives broad public support. ) Apparently the complexity of this form results in a 32% error rate, in addition to requiring professional tax support to meet the reporting requirements. The IRS, responding to the TAP proposal, indicated they were unable to implement the recommendation at this time, citing a lack of resources due to competing form re-design projects and a lack of authority regarding the filing of an electronic statement. The Service also indicated that since Form 990 was recently re-designed, they wanted to gauge the success of that project before re-designing similar, related forms. While the Service appears to have put the redesign of Form 990-PF on hold for now, given the external and internal pressure to update the form, it appears to only be a matter of time before the IRS gives it a major overhaul, like the Form 990.

Friday, August 7, 2009

Chinese NGOs with Foreign Funding

A story from the August 4, 2009 Christian Science Monitor describes recent government raids on two NGOs with foreign funding. Because of the difficulty of registering as nonprofits, many Chinese NGOs are listed as businesses. That potentially makes them liable for arbitrary tax demands, or face being shut down.

New Proposed Regulations for Church Audit Procedures

On August 5, 2009 the IRS issued proposed changes to the regulations relating to church tax inquiries and examinations. The proposed regulations replace references to positions that were abolished by the Internal Revenue Service Restructuring and Reform Act of 1998 with references that are consistent both with the statute and the IRS's current organizational structure. The proposed regulations follow upon recent litigation in which a federal judge held that the IRS did not comply with the church audit regulations requiring approval by an appropriate high-level Treasury official before commencing the church examination. The Internal Revenue Service halted its investigation of a Minnesota church whose pastor preached against presidential candidates during a sermon in May 2008, reported by the AP last week.

Drop in Spring Donations to Charities

Guidestar has published its latest report of The Effect of the Economy on the Nonprofit Sector: March – May 2009 based on a survey of over 2000 public charity and private foundation employees. Among its findings:

• More than half (52 percent) of the organizations have experienced a decrease in contributions.
• More than a third (36 percent) of grantmakers gave less money in grants over the three-month period.
• Of the organizations that have cut their budgets, the majority are making ends meet by cutting services (54 percent) and freezing staff salaries (44 percent).
• Eight percent of organizations reported that they are in imminent danger of closing their doors because of a lack of financial resources.

A copy of the report can be obtained by going to the Guidestar Publications website.