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Sustainability and Growth at GuideStar

 

One of my greatest frustrations in trying to build a sustainable nonprofit organization has been the difficulty in finding capital. GuideStar has been blessed with a consortium of foundations that have generously invested tens of millions of dollars in our early years. But as we have grown and reached mid-life in our maturation, foundation dollars for operations have been harder to raise. Several years ago we took on over $2 million in PRI’s as a way to bring in stable and reliable dollars that we could invest in product development, sales and marketing in order to continue our growth at a fast pace. We’re pleased to say that we ended 2010 with 90 percent of our operations covered by sales of products and services and we’re now to a point that increasingly we are relying on foundations for special projects and opportunities, but not support for direct operations. In general we’re now starting to see some attention given to the lack of nonprofit capital and there are a number of interesting developments going on in the nonprofit sector (a subject of another blog). I’ve often thought, though, that with easier access to capital, GuideStar could have grown much faster.


Here in Washington DC the federal budget news gets crazier every day

 

It’s time for executives of high performing organizations to begin thinking about what the new economic normal will mean for them. Too many nonprofits are operating off of business models created in the 1960’s. Those models had several components that are no longer sustainable. For starters, after non-stop growth in total donations, the nonprofit sector experienced a significant dip in 2009 (Giving USA) and I wouldn’t be surprised if we saw a further decline in 2010. At the very least, growth will be much slower in the years ahead than it has been in previous decades. At the same time, investment income has declined to historically low levels affecting foundation endowments and organizational endowments alike. Finally, there is the nonprofit sector’s traditional dependence on government grants and contracts, for nearly a third of total revenue. This is a source already in decline and likely to plummet before it stabilizes.


The world seems to have more black swans these days.

 

That was the observation from a speech I heard this week by Dr. Sherry Cooper, Executive Vice-President and Chief Economist, BMO Financial Group.


How to respond to the Japanese disaster is complicated for American donors.

 

It is heart-wrenching to watch the scenes of utter disaster on television. It is a personal crisis on an epic scale and clearly there is a need for housing, food and clothing assistance. And many of us want to do something, but what? Most reports I’ve read say the Japanese government nor Japanese NGOs are asking for help. And Japan is probably one of the best organized and well prepared countries in the world – in fact they have always been very generous in supplying assistance to other natural disasters in other countries.


GuideStar announces the acquisition of two innovative startups

 

I’m excited to report about GuideStar’s acquisition of two innovative nonprofit organizations. Read more about the acquisition here in our press release that was published today.


Fundraising's Worst Mistake

Excerpt from How to Connect with Donors and Double the Money You Raise


The power of social media

 

We’ve learned a lot over the last month about the power of social media to bring down tyrants and corrupt governments in Tunisia and Egypt and mobilize people in Yemen, Libya, Bahrain, Iraq, Algeria, Morocco, Jordan and Oman. It’s been thrilling to watch how Facebook and Twitter, in particular, have helped to encourage thousands of people to take action.


Disaster Relief

 

We are on a regular basis updating information on our web site about giving to the Japanese earthquake relief effort . Thousands have died, thousands more are missing, and the death toll continues to rise. The race to find survivors is accompanied by the urgent need to prevent meltdown at nuclear power plants damaged by the natural disasters.


Are You Putting Your Organization at Risk When You Verify Charities?

We're proud of GuideStar Premium and all that it can do. We've learned, however, that some subscribers are using GuideStar Premium to verify charitable status before making grants or distributions.

Danger, Will Grantmaker! Using GuideStar Premium to verify charitable status does not meet IRS requirements for grantmaking due diligence! (Jump ahead to find out what does)

What the IRS Requires for Verifying Charitable Status

Who Needs to Be Concerned

  • Private foundations
  • Sponsors of donor-advised funds, including community foundations

IRS Revenue Procedure 82-39 specifies that grantmakers must use IRS Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, to verify a grantee's charitable status. In addition to listing charitable organizations, Publication 78 gives each one's foundation classification. A nonprofit's foundation classification identifies any deductibility limitations and whether private foundations making grants to the organization must exercise expenditure responsibility. (Expenditure responsibility essentially means ensuring that a grant is used for charitable purposes.)

Publication 78 is issued quarterly and updated weekly in the Internal Revenue Bulletin. The bulletin, however, addresses a range of matters, not just updates to Publication 78. Some weeks it contains no Publication 78 updates at all.

Although a nonprofit's GuideStar Premium report lists the organization's IRS subsection code—501(c)(3), 501(c)(4), and so forth—we obtain that information from the IRS Exempt Organizations Master Listing (also known as the IRS Business Master File or BMF), not Publication 78. GuideStar Premium also doesn't list a nonprofit's foundation classification. Therefore:

Researching a nonprofit's charitable status by using GuideStar Premium to identify its subsection code does not meet IRS requirements for verifying charitable status.

Another Reason You Don't Want to Use GuideStar Premium for Grantmaking Due Diligence

The Pension Protection Act of 2006 requires private foundations and organizations that sponsor donor-advised funds to determine if a grantee is a supporting organization before making a payout. A supporting organization is a 501(c)(3) public charity that supports another 501(c)(3) public charity. There are three types of supporting organizations; the Pension Protection Act restricts distributions to some of them and requires grantmakers to exercise expenditure responsibility over grants made to specific types of supporting organizations.

IRS Revenue Procedure 2009-32 defines three sources a grantmaker can use to research whether a grantee is a supporting organization:

  1. the grantee's current letter of determination;
  2. information from the BMF; or
  3. a third-party source of BMF data that meets specific conditions.

Although GuideStar Premium includes BMF data, it does not identify whether or not a charity is a supporting organization, and it does not contain all of the other information required for a third-party source of BMF information. Therefore:

GuideStar Premium does not meet IRS criteria for identifying supporting organizations.

Consequences of Not Performing Due Diligence or Using the Wrong Sources for It

If the IRS disallows a charitable distribution and it turns out that the grantmaker used the wrong sources for due diligence, did incomplete due diligence, or performed no due diligence at all, the grantmaking organization will be subject to excise taxes. In other words, failing to follow IRS procedures could cost your organization money.

A Simple Solution for a Complicated Process 

GuideStar Charity Check does this research for you. With just a couple of clicks, you'll get a report that:

  • verifies charitable status in IRS Publication 78;
  • uses BMF data to identify supporting organizations;
  • identifies parent-subordinate relationships between Publication 78 and BMF data and displays group exemption number, where applicable;
  • is date- and time-stamped; and
  • can be printed or saved in PDF to document your due diligence.

Others Who Can Benefit from GuideStar Charity Check

  • Corporate giving programs
  • Companies that give a high volume of nonprofit discounts
  • Wealth advisors

GuideStar Charity Check is 100 percent compliant with IRS requirements for verifying charitable status and identifying supporting organizations. In addition, Charity Check confirms whether a grantee has been named on the OFAC list (the list of entities that may be associated with terrorism published by the Office of Foreign Assets Control at the U.S. Department of the Treasury). Charity Check will also flag nonprofits that have lost tax-exempt status for failure to file an annual return when that information becomes available.

GuideStar Charity Check lets you protect your organization from excise taxes while streamlining your due diligence. It's a win-win. What are you waiting for?
Learn more about GuideStar Charity Check

Suzanne E. Coffman, March 2011
© 2011, GuideStar USA, Inc.

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


How Automatic Revocation of Tax-Exempt Status Could Affect You as a GuideStar Customer

The IRS is preparing to release the first Nonfiler Revocation List, a compilation of organizations whose tax exemptions have been revoked because they were required to file an annual information return (Form 990, 990-N, 990-EZ, or 990-PF) but failed to do so for three consecutive years. The revocations are automatic and mandatory under the Pension Protection Act of 2006.


Should Nonprofits Model Themselves after Starfish?

 

I went back and re-read the book The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom this week. It’s a great read for anyone who runs an organization, particularly a membership organization, or works primarily in the internet world. Since the book was written, social networks have soared in popularity, helping to topple dictatorships and transforming politics.


GuideStar-Kimbia Contest Winner

 

We’re thrilled to announce that nonprofit organization Office of Letters and Light is the winner of the prestigious GuideStar-Kimbia Nonprofit Giveaway Contest. As contest winner, Office of Letters and Light (OLL) will receive a $5,000 donation, provided by KIMBIA, which provides nonprofits and other organizations with the most powerful and flexible online fundraising and event management tools. The contest winner was determined by the total number of new reviews submitted on the GuideStar and GreatNonprofits websites during the month of February.


Nonfiler Revocation List Coming Soon

On February 24, 2011, the IRS announced the impending publication of the Nonfiler Revocation List. The list will identify nonprofits whose tax-exempt status has been revoked because they were required to file an annual information return (Form 990, 990-N, 990-EZ, or 990-PF) but failed to do so for three consecutive years. Revocation for failure to file is mandatory under the Pension Protection Act of 2006; the list that will soon be published represents the first time this provision of the law has been implemented.


GuideStar-KIMBIA Winter Giveaway Winner

Charities tweeted. They e-mailed. They issued news releases.


Experience and the Future of Fundraising

It seems that over the past several years, not a month has gone by without a new tool introduced to assist nonprofits' fundraising efforts. From online fundraising portals and text messaging to streaming video and social media, the number of tools is literally growing faster than our ability to leverage them. In addition to "traditional" development tools such as direct mail, in-person asks, and mass market media, a whole set of apparatus that was barely known even 15 years ago—e-mail, Web sites, and customer-relationship management platforms—has become not only accepted but required aspects of the development portfolio.