Impact of IRS 990 Rule Change for Donated Goods and Services

Effective with  the 2013 instructions, discounts on services or use of goods  can no longer be claimed as contributions,  according to the 990EZ instructions, p11, Section B2:

"B2. Donations of services or use of property Do not include the value of services donated to the organization (such as the value of donated advertising space, broadcast air time (including donated public service announcements), or discounts on services), or of the free use of property (materials, equipment, or facilities) as contributions on line 1."

As in all things relative to the Internal Revenue Service, consult your tax professional for guidance.

What it means to you.

Since many nonprofits routinely record items such as the donated use of office space, discounts on equipment and charitable discounts for services as part of their public support, this may impact their ability to meet the 33-1/3% of public support necessary to qualify as a publicly supported organization.

More importantly, the rule change could lessen participation by donors in these relationships. While most donors say that the deductibility of their donations is secondary to their desire to support a nonprofit, very few are willing to state unequivocally that deductibility is not a consideration in their business strategy. If you can't count it as a contribution, they can't count it as a donation.

In the case of large corporations that may donate excess goods such as software or electronic equipment, these donations provide a way to offset income. While the amounts may be insignificant relative to their revenues, every little bit helps. If the donor is a small business, they may not be able to absorb the cost without any offset to income.

At the very least, you should anticipate the effect on your organization resulting from this rule change. What happens if your office space suddenly becomes unavailable, or the brochures your local printing company has been doing for free suddenly have to be paid for? Can the donor just write a check back to you for the amount of the invoice as a cash donation without the transaction being suspect?

Every business in the U.S. spends a lot of time and money trying to interpret and comply with IRS regulations. Because of their tax exempt status, nonprofits are always under scrutiny by the IRS. Ignoring the impact of this rule change could be a very costly mistake. 

Beware of visiting board members!

No, not the ones from other nonprofits or businesses. I'm talking about your board members.

Some nonprofits tend to attract board members that don't participate in the nonprofit. Some may  technically show up often enough to fulfill the attendance policies, but they aren't really there other than physically. Others show up once or twice a year, but aren't true participants.  This can even result in having to postpone voting due to lack of a quorum.

A visiting board member isn't fully engaged in planning and implementing the success of your nonprofit. If you seem to have one or more members that show up so sporadically that they have to be briefed on months of history during the meeting, you have a visitor problem. If so, how do you fix it?

 Develop attendance policies

It goes almost without saying that you should have an attendance policy for board members. After all, it's hardly fair to vote them out for nonattendance if they have never been told how often they have to attend board meetings. Once you have that policy however, you must enforce it. Like standard employee attendance policies, it should include some sort of warning or review before taking  final action (perhaps there is a valid reason for the absence), but  noncompliance after that should result in removal.

The less often the board meets, the more important attendance becomes. Missing one or even two out of twelve meetings a year might not be an impediment to the organization. Missing even one semiannual or quarterly meeting definitely could be a problem unless there is a valid reason, such as a health issue.

Qualify new members

There will always be a certain number of people that join boards for all the wrong reasons. Some seem to see it as a social club, while others may find they are not comfortable with the legal aspects of being a board member. They may find that they aren't really compatible with the organization or the management, but don't know how to exit gracefully. Some people are serial joiners. They want to contribute but their time is so over-committed that they aren't able to attend meetings.

You should have a process for inviting and qualifying new members that includes some sort of review of their previous board participation. If they have recently served or are serving on many boards, that could be a red flag. If you have or develop that process and follow it faithfully, you can eliminate a lot of candidates that will be visitors.

Involve and develop all members

Even good board members can turn into visitors if they feel irrelevant. If possible, they should have a defined responsibility. Perhaps they can sit on a committee or attend functions as an official organization representative. At the very least, they should be encouraged to participate in the meeting. You presumably recruited them because they have a strength to offer your organization, so give them a chance to contribute.

Have a board development plan. No one is born knowing how to be a good board member. There are even grants available for just that purpose. Part of moving your organization forward is strengthening your board's ability to function cohesively and effectively as an asset to your nonprofit.

©2014 Rebecca L. Baisch

 

Need help?  Drop me a line and tell me how I can help.   granthelp@ida.net       

To keep your donors, think like a store.

If I asked you why you shop at your favorite store what would you say? Would your answer sound like any of these?

•         It is conveniently located.
•          The people are friendly.
•          They carry the brands I like.
•          The checkout lines are short.
•          They always thank me for shopping with them.
•          They give coupons for shopping there.

If you are nodding your head to any or all of these, you are reacting to your "customer experience". Something about your favorite store keeps you coming back as a paying customer.

That is the key to donor retention. The basic things most people want from a store are value for their dollar, appreciation for their patronage , and consideration of their time. They don't buy from a store because the store needs to pay its electric bill. They buy because the store fulfills their needs or wants.

Donors want the same feeling when they donate. They want to know that 

• Your mission fulfills their needs, i.e. they feel  their money helps achieve the outcomes they are expecting.
• They want to know that you truly appreciate them for supporting you.
•  They want the donation process to be easy.

Notice the italicized words above. This is often a hard concept for newer nonprofits to grasp. They get so focused on their mission, they forget that donors may have needs and expectations as well.  According to a 2012 report by Giving USA, nearly 9 out of 10 support dollars comes from individuals rather than from grants or sponsorships, so donor motivation is something you need to understand.

Every donor is looking for a reason to support you and your mission. Something about what you are doing needs to resonate with them. They usually know generally what type of cause they want to support. It's your job to let them know why your organization does that best, not to tell them that you are so broke you will be having a going-out-of-business-sale soon.

For stores the process is easy. They just monitor inventory. If a pink and orange starfish print shirt isn't selling, all they have to do is look at how many are left over at the end of the day, and they know it wasn't what customers wanted.

You can create an inventory for your donor appeals as well. Which ones bring in the most support over the shortest period of time?  Do some appeals work better at one time of year than another? What presentation works best, i.e. all text, lots of pictures, personal stories, community events, donor appreciation days,  video, short social media posts, interactive blogs, or private newsletters just for donors? Analyzing your fundraising results will keep you from repeating approaches that don't work.

Not every donor is going to donate every time, any more than every retail customer buys something every time they see an ad. What you want to do is keep donors connected to your organization. You can't force or guilt them into donating. Serial generic appeals usually wind up in the trash at some point.

When they do have the inclination and ability to donate, keep the checkout times short. A three or four step process online  is like standing in a fifteen person checkout line.

Offer them a chance to stay connected, but not at checkout. One NPO used a cliffhanger strategy. They presented most of a story about an animal rescue, but left the outcome hanging. If you wanted to know what happened you could sign up for their email newsletter. They had about a 70% positive response.

Always thank your donors. You should have a process to capture their contact information. Send them a short thank you note addressed specifically to them. A generic popup window when they finish checking out isn't going to provide the same feeling of connection as a personal note addressed just to them.

The nonprofit version of a coupon might be something as easy as a personal invitation to an event,  a badge, or a refrigerator magnet or other inexpensive merchandise item with your name and a short message telling them why their contribution matters.

Not all donor contact has to be or even should be online.  A food pantry serving a very local area sends a personalized small notepad as their "thank you" with the phrase  " Mary, each one of your dollars provides one sack lunch. Thank you from all our kids"  and their organization name.  If you depend on local support an all-online approach may  seem too detached to keep donors engaged.

Stores succeed because they understand where their money comes from and how to capture it.  The next time you think about fundraising, try thinking like a store. 

Community Outreach - Marketing your Nonprofit

Vocabularies vary from culture to culture.  A word that is perfectly acceptable in one area may be absolutely taboo in another. Maybe that's why when I ask a nonprofit to explain their marketing strategy, I get comments like "Well, we aren't selling anything, so we don't have a marketing strategy".

OK, OK I get it.  "Marketing" brings up all sorts of negative "business" connotations.  But dismissing the underlying concept is like saying "We don't care about client or donor participation."

No matter what word you use to describe it, you have to have a strategy that lets people know that you exist and explain why they should care if you do. You are "selling" your organization and its mission. 

One example is the lady that contacted me to ask if I would write a grant for her small animal rescue. On paper she had all the things she needed. The determination letter, a pretty good-looking audited set of financial statements, a fantastic facility, etc. But she didn't have a lot of outcomes to report on, because she really hadn't rescued many animals.

When I commented on that she said "Well, we have trouble finding the animals soon enough to have good outcomes".  She had capacity for over 100 animals on site, was rescuing less than 50 a year and re-homing only a handful.

   

A little investigative work revealed that she had done virtually nothing to let the community know she existed, so I asked her if receiving some funding for management or marketing mentoring would help her. She was initially quite miffed that I would suggest such a thing. She wanted funding for a second van so they could cruise the streets looking for strays.

.

To make a long story short, she eventually realized that she didn't need to go find the strays. There were hundreds of concerned citizens who were more than happy to either bring animals to her or at least tell her specifically where to find the animals.

After showing her how to make the community aware of her presence and mission and outlining a donor development program for her, she has all the animals and more that she could wish to help, a great adoption program and is placing over 100 animals a year. She recently received a substantial grant that will pay for food for 50 animals for a full year.  Her new blog on animal health and training has over 1500 page views a month, donations have substantially increased, and she now has great outcome reports to add to grant proposals.

Whether you call it outreach, development, public relations, marketing or branding, the goal is the same. Connecting to people that need your services and people willing to invest in and use those services is a necessity.

If you need a hand with outreach give me a shout at granthelp@ida.net. I can review your existing plan or help you with a new one.