Do All Charities Need 501(c)(3) Status?

CloudLancer Writing Services is approached almost on a daily basis with inquiries regarding whether a charitable organization has to have 501(c)(3) status. The answer depends on your goals for your charitable activities.

Technically, the answer is "No" for some organizations. The Internal Revenue Service, in the Instructions for Form 1023, defines organizations that do not have to obtain 501(c)(3) status. This includes churches (including synagogues, temples and mosques) and integrated auxiliaries of same; and organizations receiving less than $5,000 in gross receipts annually.(Italics added by author)  However, and also noted in that publication,  if your organization accepts donations and the donors want to claim them on their taxes, you would need to be defined as a 501(c)(3) even if your organization is otherwise exempt from the requirement, to allow them to claim that deduction.

In reality, few organizations can achieve their charitable goals with receipts less than $5000
annually. In addition, IRS rules prohibit foundations and most donors from receiving public money obtained on a tax-exempt basis and then disbursing it as a grant to a non-qualified charity.  Thus, at the point you need more than $5,000 annually to stay in operation, you are looking at applying for tax-exempt status.  

My general advice to any charity seeking grant support or increasing their annual receipts above $5K, is that you DO need to go through the process and expense of obtaining your tax-exempt status.

The cost will vary according to the business form under which you elect to operate (corporation, LLC, association, etc) since filing and registration fees vary by state.  If you plan to solicit funds in more than one state, you may have to register in each state as a fundraising organization to do so. Most states have a fee for that as well. The fee to file the 1023 application has just been increased to $400 for organizations with gross receipts under $10,000 annually over a 4-year period, and $850 for organizations above that amount annually over a 4-year period.  There may also be preparer fees, if you choose to use a contracted preparer, as well as possibly legal fees if you have an attorney review your by-laws for compliance with state and Federal requirements.

The 1023 also now includes a requirement for a projection or reporting of income.  In the past, many non-profits simply stated that their gross receipts would not exceed $5,000 annually.  Now, you must actually provide data to support that claim. If you have been operating for less than five years you can use accepted financial information (tax returns,  financial statements or other acceptable records) covering the most recent three years, or four years of financial information if you have completed one tax year. You can also provide an estimate (a pro forma statement) of your anticipated income.  (See IRS Notice 1382, Changes for Form 1023 for the full text). Note that if your mission vs. income is not believable, the IRS is going to make the observation that your income estimate may be too low to achieve the stated goals, and request more accurate information before granting your 501(c)(3) letter of determination.

Pardon Me, I Thought You Were Hiring a Grant Writer

At least once a week, I receive an inquiry from a nonprofit seeking a grant writer that requests the strangest qualifications.   

From the last month:

“We are seeking a grant writer and researcher. Must have a Master’s in Social Work or be in the process of obtaining same.  Salary, 30 to 33K annually.”    Well, that’s one way to get an inexpensive MSW.

“Local museum needs a grants person.  Must have a Bachelor’s or Master’s in creative writing to apply.”

Are you going to have the person write the next Top 10 Fiction best-seller, and use the profits to fund your organization? Or, do they need to write creatively to give your program value?

We are a local nonprofit zoo looking for a grant writer. You have been recommended to us. Please reply only if you have at least a four-year degree in one of the following: Zoology, wildlife management, biology.

Let’s see, am I going to be designing your next biological science program, or finding funding for you?

Don’t confuse education in your particular core disciplines with effective grant writing.  While there is certainly nothing wrong with having a degree in any of these foregoing illustrations, the talents and experience needed to write grants that receive funding has almost nothing to do with the number or type of degrees your grant writer does or does not have.  A background in nonprofit management is helpful, mastery of the English language and the ability to read and interpret grant guidelines is essential, and analytical capabilities are a necessary strength.  Knowing which phylum, class and order describes an elephant - not so much.

Most grant writers have specialties.  Some may focus on the environment, others on technolgy transfer, or they may target specific areas, such as animal abuse, domestic violence or hunger.  If they have good references, can provide a list of grants recently awarded, and they seem to have empathy with your cause, the specific field they chose to pursue at age 18 is probably not of paramount importance. Yes, you want them to be able to understand your needs and industry vocabulary, and that MAY require a specialized degree.  If not, then don't limit your possibilities for funding by limiting your grant writer qualifications to your own comfort zone.  

Stale Copy Will Kill Your Proposals

Many nonprofits have a portfolio of grant proposals that they simply update by changing the submission date and possibly the funder's name. After all, it's the same program, seeking to accomplish the same goals, so why not save time by using cut-and-paste proposals?

I see this often when dealing with clients who routinely approach the same funding sources year after year.  The problem with this is that while the framework of the program may not change, other things do.  Sometimes the actual RFP may be phrased differently, or the foundation's focus may have changed slightly.  Other times, the statistics from the nonprofit side differ from the previous year. 

It's rather embarrassing to receive a denial letter that notes that the foundation is no longer repeatedly funding the same organizations, or that the maximum award is now $5000, and you asked for the same $10,000 they have always funded for you.   

Even worse is providing out-of-date information. If you are still using last year's board list, but three members of the board have left and been replaced with new people, it looks like you don't know what's going on in your own organization.  Community foundations are often well aware of who sits on whose boards, and providing old information is a red flag that someone didn't take the RFP seriously.

When using statistics, keep them current.  If the population demographics you serve have changed, be sure that your proposal reflects the changes. If the grant requires specific information regarding demographics, using statistics from three years ago may not support your request, or the results you cite may not match the new demographics.

Make sure that your proposal matches information on your website. Many RFP's ask for your website address, and some review committees routinely check the website for discrepancies. 

Aside from these obvious problems, using the same tired copy over and over simply robs your proposal of impact.  Try to maintain a fresh and dynamic view of your programs, and let your enthusiasm show in the proposal.

Saying Thank You - Good Manners and Good Business

As children, we were taught to say "thank you" when someone does something nice for us.  In ten years of writing grants and working at nonprofits, one thing I often see is ineffective or insincere appreciation extended to donors.

Donors aren't just piggy banks, but many donors I know feel that way after they have provided funding to a nonprofit.  Some donor organizations don't want recognition publicly, but everyone likes to hear that they made a difference.

Sure, you may have filled out the interim and final reports, you may have posted the donor's name on your website, or even added their logo to vehicles or packaging (usually at their request, as part of the terms of the grant), but that can be impersonal. 

Someone in your organization needs to sit down and send a personal "thank you" to the organization.  It doesn't have to be a flowery speech, just a heartfelt expression of your gratitude.  Something as simple as "On behalf of the entire (organization name) I would like to express our gratitude for your assistance in providing (whatever the award was for) to our organization.  We have a fine mission, a clear vision of what we want to accomplish, and great results, as detailed in our final report.  But, none of it would be possible without the support of (name of organization).  We are able to make a difference because of you and we sincerely thank you for your contribution." 

Try to address it to a real person.  You should have a contact name within the organization, but even if you don't (and in todays wired world, that is a possibility), look up the ED's name, or a Board member on the grants committee, and try to address the thank you accordingly. Email it, snail mail it,  but send it. 

Every one likes to hear "thank you" so say it well, often, and sincerely. They could have picked another donee, but they chose you.  Let them know you appreciate it.