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From the President's Office, June 2007

Dear Friend:

This Saturday, June 9, I will have the honor of participating in a panel at the 2007 Investigative Editors and Reporters Conference in Phoenix, Arizona. Two other panelists and I will help journalists learn more about reporting on and investigating nonprofits.

The fact that these reporters would schedule a whole session on nonprofits underscores the fact that as the sector gets bigger and more important, we will continue to attract more media attention. As a longtime journalist myself, I understand that one of the roles of the media is to try to condense complicated situations into a story that people can understand. On one level, the world of the nonprofit should be pretty simple: we ask for voluntary donations and tax benefits in order to provide badly needed public services. But often I find myself having to tell a reporter that making a judgment about a nonprofit depends on a few qualifiers. Consider these recent questions I've received:


Are You Ready to Launch a Bequest Program?


Excerpt from Raising Money through Bequests

We know what you're thinking.

You want to know if your organization, which isn't a brand name, can raise money through bequests.

Here's the answer, and we think you'll be pleased with it.

You can, and it'll be easier than you think, provided you can answer "Yes" to the following:

  • Is your organization a 501(c)(3) nonprofit tax-exempt organization? Donors will often ask to make sure and won't give to you if you aren't.
  • Is your organization mission driven? Do all of your programs and services meet the mission, and is that mission known in the community?
  • Are you established in the community? How long has your organization been in existence? Donors want assurance that the organizations they support will still be there tomorrow.
  • Do you have a recognized track record of success? In other words, are you not only succeeding in meeting your mission but also sharing the good news? If not, you may want to focus your efforts here first.
  • Do you have the necessary staff and volunteer support? Initially, the responsibility for your bequest program may be tacked on to the duties of an existing staff member. But as your program grows, a new staff person may be required.
  • Do you have an existing donor base? Have you conducted an annual appeal? Was it successful? Donors rarely make their first gift to an organization in the form of a bequest; typically, they will have already supported your organization in other ways first.
  • Do you communicate with your donors on a regular basis? How often do you thank and recognize your current donors? When is the last time you visited a donor at her home or invited her to take a private tour of your organization?
  • Is your organizational leadership well respected? If you've just made a big change in leadership or their ability has been questioned, it's probably better to focus on public relations first.
  • Is your organization perceived as stable? Change is inevitable. But if you've just come under "new management" or were the recent focus of a nasty public relations snafu, now isn't the time to launch a bequest program.

Now's the Time

Often, when we first meet with the staff and volunteer leadership of an organization to discuss planned giving, we start by sharing some big numbers:
$260.30 billion
$199.07 billion
$  17.44 billion
$260.30 billion: That's the amount U.S. donors gave in 2005. Of that, $199.07 billion came from living individuals (not foundations, not corporations). Most important for our purposes here, $17.44 billion was given through bequests, representing 7 percent of total estimated giving.

And the sum is likely to grow, as we're in the middle of a transfer of wealth unlike any we've experienced before.

The Greatest Generation

Not long ago, A. Charles Schultz published an article entitled Four Golden Years. The title refers to the years between 2004 and 2007, when members of "The Greatest Generation" are in their 80s and 90s, many with sizable assets to bequeath. He describes three personal characteristics of this proud population.

They're optimistic. Having survived the Great Depression, they know they can surmount just about any obstacle.

They're civic-minded. Having helped to rebuild economies and nations in the wake of World War II as well as shape labor unions and enact legislation for the common good, they take their role as citizens seriously. They also understand the key role of philanthropy.

They're careful accumulators. The Great Depression saw an unprecedented 25 percent unemployment rate, teaching a difficult lesson of the importance of saving and investing.

Owing largely to this last characteristic, many of these "Depression babies" won't make large gifts during their lifetime. The majority of their six- and seven-figure gifts will come through planned gifts, including bequests.

This unprecedented transfer of wealth will affect charitable organizations now and for years to come. Together these two groups, the Greatest Generation and their Baby Boomer children, will pass on some $14 trillion by 2052. A sizable portion of it will go to charitable organizations (hopefully one of them will be yours).

The Real Reasons Donors Make Bequests

We've led off many a meeting and workshop with the following question: "What do you think are the top five reasons donors give to charitable organizations?"

Invariably, "tax purposes" is mentioned, often cited as key. But in reality the motivations for philanthropy run much deeper, and IRS concerns may not even figure in the top 10.

From our conversations with donors, here are the most common reasons they give to philanthropic causes.

  1. They believe in the mission.
    This is the number one reason why people give, and we find it holds true for bequest giving as well. Donors are inspired by the mission of the organization and its commitment to changing or saving lives in the community.

  2. They've seen the mission realized firsthand.
    One way donors can confirm the value of their giving is through firsthand experience. Maybe they've worked for your organization as volunteers. Perhaps they serve on the board and recently attended a meeting where a social worker talked about the difference your food bank is making in one family's life. Or it could be they attended a special event where an alumnus spoke eloquently about the education he received at your university.

  3. They know you'll use their gift wisely.
    Donors want their gifts stewarded and carefully spent. (It's pretty much the same with tax dollars. We get angry, for instance, at the Pentagon's squandering $600 for a simple hammer.) Organizations that are mindful of their disbursements and regularly report to donors on how their gift has changed the lives of others set the stage for bequest giving.

  4. Your organization has directly impacted their life or the life of a loved one.
    "You have cancer." Those were the first three words of a brochure we wrote for a cancer center campaign. This simple phrase forged an immediate connection between the prospective donor and the cancer center's mission. Who among us haven't heard these words in connection with a family member, friend, or co-worker? Few of us know just how many lives are touched by the organizations we serve. But those to whom we've really mattered won't soon forget us.

  5. They feel like they know you.
    At heart, successful fundraising is about building relationships. About staying in touch with donors, whether by phone, personal visit, e-mail, or birthday card. That's why, despite your pressing meeting with the invitation designer or that grant report due next week, making the time to reach out to your donors must always be the first order of business.

  6. It feels good to give.
    As good as it feels to receive a special gift, those of us who are philanthropic also know how good it feels to give. Jerold Panas, author of Mega Gifts and other classic books on fundraising, talks about "enlightened-givers"—generous women and men who love to give. "For enlightened-givers, there's a sense that they're only trustees of the money they've earned or inherited. They find it wonderful fun to give money to help those in need. They find making a gift to be a rollicking experience."

  7. They hold the staff and volunteer leadership in high regard.
    For donors, the face of your organization is often the person whose name is at the top of the organizational chart or a staff or board member who has had direct contact with them. How this individual is perceived—most notably, his or her unquestioned integrity—is often what dictates whether a donor will give a consequential gift.

  8. They appreciate and benefit from your organization's products and services.
    An enjoyable night at the theatre. A challenging Pilates class. A particularly moving Mass during the holidays. The attentiveness of a healthcare professional during a serious illness. Any of these may be incentive enough for an individual to take the next step and make a gift.

  9. It allows them to honor or memorialize a loved one.
    What we find in many situations is that people want to leave a lasting memorial to their loved one, especially when that loved one had a connection to your organization. A memorial gift provides a way to keep their memory—and spirit—alive.

  10. It serves the need to be accepted and to belong.
    While recognition isn't important to everyone, many of us want to be part of a special group. Families and friends meet this need for many. But so do charitable organizations. That in part explains why just over 50 percent of all 2005 contributions went to two types of organizations—education and religion—both of which forge strong feelings of belonging.

Closing Thought

John Kennedy loved to tell the story of the great French marshal Lyautey, who once asked his gardener to plant a tree. The gardener objected that the tree was slow growing and wouldn't mature for 100 years. The marshal replied, "In that case, there is no time to lose, plant it this afternoon."

Good advice with bequests. Best to get started now.

David Valinsky and Melanie Boyd
© 2007. Excerpted from Raising Money through Bequests. Excerpted with permission of Emerson & Church, publishers.

David Valinsky is president and Melanie Boyd is senior managing director of David Valinsky Associates, an independent fundraising consulting firm. DVA helps nonprofit institutions big and small anticipate, manage, and respond more effectively to the challenges of the philanthropic marketplace.

Plugged-In Learning: May Question of the Month Results


Staff training is often one of the first expenses to go when a nonprofit's belt needs tightening. No matter how necessary such cuts are in the short term, foregoing training can damage a nonprofit in the long run. The organization loses out on new ideas, networking opportunities, and possibly even staff if employees move to situations that offer professional development as well as mission-driven work.

Technology provides one answer to this dilemma. Nonprofits are offering—and taking advantage of—on-line learning. Some institutions provide lengthy courses for degree credit. Others present short Web-based seminars known as "Webinars."

To find out how prevalent on-line learning is in the sector, the May Question of the Month asked, "Have you ever participated in on-line learning offered by a nonprofit?"

What You Told Us

Although the majority (53 percent) of participants said that they had not participated in on-line learning and another 3 percent were not sure, an impressive 44 percent said that they had. The topics the latter group learned about on-line included animal welfare, low income housing tax credit compliance, literacy, indirect cost calculation, board development, and grant writing.

Respondents listed several benefits to on-line learning. One is cost effectiveness. Many on-line courses and Webinars are offered for free or for a relatively modest fee. Plus, as Marcia Kaye of Faith In Action of Adams County found, "I can do it from my office without the expense or time of travel and ... more individuals from our organization can participate."

Ellen Powley of FoBAS (Friends of Bloomfield Animal Shelter) cited the expanded access that Webinars provide: "These sessions are an excellent way to not only see and hear a topic lecture, but to have online, real time interaction with participants across the country and the presenter."

Rebecca E. Hunter has taught two on-line fundraising courses for the master's degree program at North Park University in Chicago. "I daresay that the students work harder in an online class because they must communicate their learning and demonstrate mastery completely electronically," she observed. The effort pays off, however: "Their final projects are so well done that they make presentations to the nonprofit they studied with recommendations gleaned from their learnings. The students end the course with real accomplishments that are immediately applicable to the third sector."

On-line learning can present challenges. Charlie Johnson of the Food Bank Coalition of San Luis Obispo County found the course he took "worthwhile and interesting" but noted that there "were some technical problems." An anonymous participant commented, "When I volunteer I like to learn the 'hands on' way. I don't think online would be as effective." Another anonymous respondent stated that it was "hard to verify if the information was correct. Tend to stick to the ones who are HONCode Certified."

Resources for On-line Learning

So where can you find on-line learning opportunities? One source is Charity University, sponsored by Charity Channel. Topics range from boards to fundraising to accounting, and classes can count toward CFRE certification or recertification. Click here for more information.

Other nonprofits also offer on-line courses or Webinars (the following is by no means a complete list, and inclusion in it does not constitute endorsement by GuideStar):

To find other on-line offerings, try an Internet search on "nonprofit webinars." Some of the hits will be for events that have already occurred, but if you find one that you wish you'd attended, see if the sponsor will be offering future learning opportunities.

Finally, a number of for-profits that provide services to nonprofits, such as Auctionpay and Convio, offer free or inexpensive Webinars. (Again, this list is—obviously—far from complete, and inclusion in it does not constitute endorsement by GuideStar.) Check their Web sites for more information.

Suzanne E. Coffman, June 2007
© 2007, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.

Charity Reform Update, June 2007: Senate Finance Committee Leaders Advocate Form 990 Revision


On May 25, 2007, Senate Finance Committee chairman Max Baucus and ranking member Chuck Grassley wrote to secretary of the Treasury Henry Paulson urging expedited revision of IRS Forms 990 and 990-PF. Grassley and Baucus have led Congressional charity-reform efforts in recent years and were instrumental in adding provisions governing charities and private foundations to the Pension Protection Act of 2006.

"It is clear," the senators stated in their letter to Paulson, "that transparency and openness are pillars in encouraging our nation's charities to be responsive to the needs of the community and to act in accordance with the principles and goals for which they were established and that they seek contributions from the public." Unfortunately, deficiencies in the Form 990, which the senators note is made publicly available on GuideStar, prevent adequate nonprofit reporting.

The two Finance Committee leaders noted that Form 990 does not capture enough information on complex nonprofits, especially hospitals and universities. They also suggested that a revised return would make it easier for the IRS to determine which charities require additional scrutiny and which do not. "In particular," they wrote, "we are concerned that the IRS have adequate information to review bond transactions and UBIT [unrelated business income tax] as well as other matters that impact on the tax gap."

Baucus and Grassley outlined several areas requiring better reporting and transparency:

  • Executive compensation–noting that some charity executives receive compensation from multiple sources and that "some charities are as creative as for-profit entities in providing compensation," the senators called for making "the source and amount of compensation of an executive of a charity ... crystal clear."

  • Endowments–details about charities' endowments must also be made clearer. Further, "the new Form 990 should allow the IRS and the public to easily identify how the commensurate test is being met," i.e., to compare a charity's activities to its financial resources.

  • Related organizations–all organizations related to a charity should be disclosed to enable the public to "understand the big picture of what is going on at a charity." Similar thinking, Baucus and Grassley continued, led to making Form 990-T a public document. ( about public disclosure of Form 990-T.)

  • Joint ventures–details about joint ventures, particularly those related to hospitals and universities, must also be revealed. The senators observed, "While there can be benefits to joint ventures, such activities also raise red flags, particularly of charitable assets being used for private benefit."

  • Governance–Form 990 should be used to focus a charity's board, management, and the public on governance issues.

  • Dollars raised v. dollars for charity–the IRS "should seek to make this information easily and clearly available for the public."

  • Hospitals–Baucus and Grassley suggested that the IRS look at the Catholic Health Association's reporting guidelines on charity care and community benefits. They also suggested that hospitals be required to outline their billing and debt collection procedures and to define clearly their charity care policies.
The two senators urged Paulson to make revising Form 990 a priority. "Sunshine," they stated, "can't do its work unless we open the blinds. The sooner we open those blinds the better." They also encouraged the IRS to examine ways to make the returns available to the public more quickly. "We are worried that ... extensions for filing are routinely extended and that it is often months after the end of the tax year before a Form 990 is even filed."

Baucus and Grassley closed by asking Paulson to report on IRS efforts to improve the accuracy of the 990s and "to provide any suggestions you may have for Congress in terms of improving accuracy of Form 990s." They requested a response to their letter within 30 days.

The Chronicle of Philanthropy reported on May 30 that the IRS has been working on revising Form 990 for four years and expected to release a draft version of the new return within two weeks.

Read the letter >

Suzanne E. Coffman, June 2007
© 2007, Philanthropic Research, Inc. (GuideStar)

IRS Updates, June 2007: Public Disclosure of IRS Form 990-T and Political Activities of Exempt Organizations


Note: The following discussion is provided for informational purposes only and is not intended to serve as legal or tax advice. For specific information about public disclosure of Form 990-T and political activities of exempt organizations, consult your attorney or tax adviser.
Last month, the IRS released interim guidance on public inspection of Form 990-T. Earlier this month, the service also published guidance on political activity by exempt organizations.

Public Disclosure of Form 990-T

Form 990-T, Exempt Organization Business Income Tax Return, is the form on which exempt organizations report and calculate the income tax owed on unrelated business income. The IRS defines unrelated business income as "income from a regularly-carried-on trade or business that is not substantially related to the organization's exempt purpose." See more information on unrelated business income >

Until last summer, Form 990-T was considered a tax return and was not open to public inspection. The Pension Protection Act of 2006, however, mandates that any IRS Form 990-T filed by a 501(c)(3) organization after August 17, 2006, is now a public document. The exception is a Form 990-T filed solely to request a refund of the telephone excise tax.

For 501(c)(3) organizations that filed Forms 990-T after August 17, 2006, these forms are now subject to the same disclosure requirements as annual information returns (Forms 990, 990-EZ, and 990-PF) and applications for exemption (Forms 1023 and 1024). Specifically, the return must be made available for inspection:

  • during regular business hours
  • by any individual
  • at a filing organization's principal office
  • and at any regional or district office having three or more employees
A nonprofit must respond immediately to in-person requests and to written requests within 30 days.

Form 990-T must be made available at no cost to the requestor, although an organization is allowed to charge a "reasonable fee" (currently $0.20 per page) for copying the return and to pass on mailing costs for sending it.

As is true with the 990 and applications for exemption, a nonprofit can comply with these requirements by posting its Form 990-T on its Web site, as long as the return is "in a format that exactly reproduces the image of the return as it was originally filed with the IRS after August 17, 2007, including all schedules, attachments, and supporting documents."

Churches that file Form 990-T are subject to these requirements, even if they do not file a Form 990 or 990-EZ. Some state colleges and universities must also comply with the new regulations; for more information, see pages 4-6 of the guidance >

The IRS has invited public comment on the implementation of these regulations. Comments must be submitted by June 30, 2007, and will be made available for public inspection and copying. Comments can be:

(1) mailed to:
Internal Revenue Service
CC:PA:LPD:PR (Notice 2007-45)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
(2) hand-delivered to the IRS between 8 a.m. and 4 p.m., Monday through Friday:
Courier's Desk
Internal Revenue Service
1111 Constitution Ave., N.W.
Washington, DC 20224
Attn: CC:PA:LPD:PR (Notice 2007-45)
or

(3) e-mailed to notice.comments@irscounsel.treas.gov. Be sure to include "Notice 2007-45" in the subject line.

Political Activities of Exempt Organizations

Charities cannot support or oppose candidates for public office. Violating this rule can result in loss of tax-exempt status.

Some activities, such as voter registration drives, political debates, and voter education forums, are permissible, as long as they are conducted in a non-partisan manner. When engaged in such activities, charities must take care to ensure that they do so in an unbiased manner.

To help nonprofits remain on the right side of the law, the IRS has issued guidance on charities and political activities. The guidance presents 21 situations and notes which are permissible and which are not. Topics addressed range from voter education, voter registration, and get out the vote drives to candidate appearances to issue advocacy. Any charity considering any type of political activity should consult this document. Additional information is available in the "Jeopardizing Tax-Exempt Status" section of the tutorial.

Suzanne E. Coffman, June 2007
© 2007, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.