Nonprofit

Helping Your Donors During A Life Transition
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             Making a Gift During a Life Transition   

Sometimes potential donors may want to be engaged and donate to your organization when experiencing a life transition.  When there is a major change within a person’s life such as illness, death of a loved one, or even sending their last child off to college, this life changing event may become an impetus to make a planned gift as a means to feel whole again.  They may welcome the opportunity to sit down with a professional gift advisor to plan out the best way in which they can provide financial support.  It is up to you and your gift development team to help people accomplish their charitable goals during moments of life transition.

You can be instrumental in the gift planning process by sharing with the potential donor the joy of making a difference through a planned sustainable gift. Be ready to illustrate for the potential donor how his/her financial support and involvement will be especially impactful. One way to accomplish this is by providing examples of donor impact at various giving levels.  Likewise, be sure to explore different gift options with your potential donor such as your endowment fund, which can be a good choice for those who want to create a memorial.

Provide a general overview of your planned gift options during your first meeting with the prospective donor. He or she should walk away with a firm awareness of the many rewarding opportunities for making a planned gift to your charity.  Right before the conclusion of your meeting, request that the prospective donor fill out a data card that requests information to help you analyze the donor’s charitable interests and giving readiness. Be certain to request and schedule a follow-up personal visit where you can discuss more concretely charitable proposals. Upon returning to your office, combine and analyze information gathered from your conversation with the prospective donor with the data collected from your data card.  If you collected good information during your first discussion, use it to create a proposal that matches the charitable motivations of your prospective donor.  Meet with your donor and his/her advisor and share how your planned gift proposal is a good fit and ask for a gift commitment.

Maximizing Use of Technology in Major Gift Fundraising
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Customize Your CRM To Meet Strategic Fundraising Objectives

The need to develop deeper personal connections with donors and potential donors is vital to any long-term giving strategy.  When people feel strongly connected to an organization, they absorb the organization as part of their personal unit, making it a locus of much of their social activity. In turn, they attend and promote events, recruit friends to volunteer, influence and engage others on social media, and provide increasing levels of financial support. This type of kinship network (cultivated by what we term the “absorption” process) is assisted through the development and use of data management, modeling and analytics.  Many nonprofits have complex social relationships. As such, there is an imperative need for nonprofits to customize their database infrastructure so that it is providing the analytical information needed to more easily comprehend and predict donor behavior. We cannot underscore this enough – to obtain useful analytical donor information, you have to know more about the people who support your nonprofit. This also enables the organization to better segment communications and gift proposals in order to maximize fundraising efficiency and achieve campaign effectiveness. Nonprofits should do more than just have a relationship management system – it is vital to customize the system to meet specific needs.

A big question you need to ask is whether you are getting your money’s worth from your present technology.  An effective CRM allows you to customize data fields, collect and track details with precision, and integrates with other data sources such as social media.  Most importantly, your CRM should make it easy to analyze data in order to visualize the bigger picture with respect to your donor base.  If your CRM has these functionalities, the next question is whether you are maximizing its use effectively.  Are you uncovering the right prospects most promising to your major gift or annual campaign? Are you using your data to discern which solicitation appeals best resonate with any given donor? Are you generating and analyzing reports that help you develop better fundraising strategies?  Again, making certain that you customize your technology infrastructure so that it is saving you time and strengthening your relationships is essential.

Finally, if you purchased a CRM, you also need to invest appropriate time customizing fields that effectively segment constituency. Again, the goal here is to build personal connections. Your data, when customized, will help you quickly provide more personal appreciation and recognition to supportive constituents.  In segmenting data, there is certain demographic data you obviously wish to maintain such as age, gender, income level, level of involvement, and generational designation (i.e. millennial, baby boomer). But, you also want to collect and store data that is customized to your strategic fundraising efforts. For instance, if you desire to build an effective legacy program, two key elements are donor trust and donor perception.  Legacy donors need to trust and have a good perception of your financial stability and stewardship.  Thus, you may find it beneficial to track constituent perceptions over time.  In this example, you may want to particularly track the effect sharing financial reporting communications has on donor perception.  In this case, you may need to integrate your CRM with a dashboard to measure and track this key performance indicator. The last take away is that you need to make sure that your technology is working hard for you, and to make that happen requires customizing your technology to your individualized needs.  For assistance with database customization and donor modeling techniques, contact us at info@scottpractice.com.

A Stronger Impact – Our New Video
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SP Consulting Helping You Problem Solve

Midsized and small nonprofits need sustainable funding to make a stronger impact, which can be achieved through well developed major gift strategies and proper grant compliance/management. Our latest video emphasizes the following key points regarding this issue: 1) small and midsized nonprofits cannot afford to do business as usual becuase the nonprofit climate is changing.  The Urban Institute reported that the number of nonprofit organizations rose twenty-five percent (25%) between 2001 and 2011, from 1,259,764 to 1,574,674.  There are more nonprofit organizations today than ever, which means there is stronger competition for limited funding; 2) Small and midsized nonprofits must diversify their funding mix to include sustainable and variable funding.  Variable funding is funding that is uncertain, whereas sustainable funding resulting from a well-executed planned giving program is predicable and stable.  Nonprofit organizations need both types of funding to be successful and grow;  3) By implementing the right funding strategies and engaging in proper grant management/compliance smaller nonprofit could make even a stronger impact.

Watch our new video and send us your comments at info@scottpractice.com.

What is Unrelated Business Income?

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A 501(c)(3) organization can lose its tax exempt status if earns excessive income from a regularly carried on trade or business that is not substantially related to its tax exempt purpose.   The controlling law for this is found under IRC Sections 511 through 515 and the applicable treasury regulations.  The treasury regulations provide good context regarding the primary objective of the applicable statutes and the definition of “trade or business”.

The primary objective of the unrelated business income tax is to eliminate a source of unfair competition by requiring the same tax basis as nonexempt businesses whenever a tax exempt entity engages in business activity defined under IRC Section 162. For purposes of IRC 513, the term “trade or business” has the same meaning it has in IRC 162.  “Trade or business” generally means any activity carried on for the production of income from (i) selling goods or (ii) performing services.

More simply, a tax exempt organization would be unfairly advantaged if it could engage in business activity and not be taxed in the same manner as a commercial business. Therefore a tax is imposed under IRC 513 when a nonprofit engages in commercial activity. There are also two IRS publications concerning the unrelated tax provisions.  Publication 598 discusses the applicable statutes on unrelated business tax and Publication 1018 provides guidance on how the unrelated business tax applies to churches and church organizations.

To determine whether a tax exempt organization is subject to the unrelated business income tax UBIT, a three part test is first applied.  Three conditions must be met before the tax exempt organization’s activity will be construed as unrelated business activity under IRC 513.

  • The activity must be a trade or business;
  • The trade or business must be regularly carried on; and
  • The trade or business must substantially unrelated to the entity’s tax exempt purpose.

If all three conditions are present, then under IRC 513(a) (1) we look to see an exception to the rule applies:

One exception involves volunteer labor. An unrelated trade or business does not include any trade or business where substantially all the work is performed for the organization by unpaid volunteers.  For example, in St. Joseph Farms of Indiana v. Commissioner, 85 T.C. 9 (1985), a religious organization operated a farm and sold the food commercially.  The farm was operated entirely by unpaid volunteers.  The court ruled that the farming operation was an unrelated trade or business, but because the farm was operated by persons who received no compensation for their farming services, there was no unrelated business tax liability.

Other exceptions to the rule include the “convenience exception” under IRC 513(a)(2) and Regs. 1.513-1(e)(2) which provides that any trade or business carried on by a 501(c)(3) organization for the convenience of its members is not an unrelated trade or business and donated merchandise that is sold by the tax exempt organization is another exception.

It is important that any organization that needs assistance on UBIT issues consult with a lawyer, accounting professional or tax advisor.  This information is not legal advice.  Please, contact our office at info@scottpractice.com if you request assistance.

Private Benefit and Nonprofit Executive Compensation

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We hope to have several segments which address Tax-Exempt Compliance with applicable IRS regulations and the Internal Revenue Code.

A 501(c )(3) public charity receives tax exempt status upon demonstrating that it is organized and operates for a public purpose under 501(c )(3) of the Internal Revenue Code.  To maintain tax exemption, tax-exempt organizations must follow all laws and regulations pertaining to tax-exempt organizations.  The law provides that engaging in certain activities will jeopardize a nonprofit organization’s tax exemption.  The focus of this article is on a salient issue concerning executive compensation.  Can a nonprofit organization lose its tax-exempt status due to unreasonable compensation?  The answer is yes.

Briefly, the law provides that no part of a tax-exempt organization’s net earnings may inure to the benefit of an insider. An insider is a person who has a personal or private interest in the activities of the organization such as an officer, director, or a key employee.  The key here is net earnings of the organization privately benefited a key employee of the nonprofit organization.  Authorizing key employees, such as an Executive Director, Chief Executive or other key officers, to receive unreasonable compensation put the nonprofit’s tax-exemption at risk.  In other words, if compensation is given to any officer, director or key employee it must be reasonable or it can be deemed to be a private inurement jeopardizing the organizations 501(c )(3) status.  What is reasonable compensation depends of the totality of the circumstances.  Comparability data is one means of substantiating the reasonableness of executive compensation.  However, there are caveats with respect to its use, such as whether the data provides an accurate comparison.  The Exempt Organization section of the IRS has two useful articles on its Website on nonprofit compensation.  If you have difficulty finding them, you can e-mail us at info@scottpractice.com and will be happy to assist you.