Guest Blog Spot: Kelvin L. Spragley, Ph.D., M.Ed., B.S., A.A.
I get a lot of questions about non-profit businesses. So, I decided to turn to an expert. I’ve known Dr. Spragley for several years and he’s my go-to guy when it comes to questions about non-profits, education, programs, and advocacy groups. I’ve asked, and he generously agreed, to provide some thoughts on the topic of starting a non-profit. Enjoy!
So you want to start a “Non-Profit” business?
During the 15 years I have been involved with managing and/or providing services to non-profit organizations, there have been numerous encounters with individuals who have voiced an interest in establishing a non-profit. While there is great work to be done in the United States in areas such as eradicating poverty, tutoring at-risk, ending cancer, and a variety of other well-intentioned endeavors, there are a few items that non-profit entrepreneurs should keep in mind.
The first step in pursuing non-profit status is the task associated with completing the appropriate paperwork. While each state has its respective documents to complete, in order to achieve federal 501 (c) (3), non-profit status, individuals will need to complete IRS Form 1023. The application is approximately 30 pages in length and requires one to create bylaws, list board members, and outline program activities (amongst numerous other requirements). A major problem that many applicants experience is not making clear potential conflicts-of-interests between the organization, board members, program recipients, and vendors. In order to insure that no business or individual is benefiting unfairly, applicants should strongly consider that an attorney review the document prior to submitting it to the IRS.
Consider also the rules surrounding how a non-profit accrues revenue and the guidelines that dictate proper expenditures. As an example, individuals who operate a non-profit organization must make clear to the IRS if funds are being raised by a separate business or if gaming (Bingo, etc.) is a method of increasing revenue that will be used by the company. Note also that non-profit owners cannot spend funds on items that do not help them in meeting their organization’s objective. I have seen too many applications that do not make clear these distinctions. Consulting with an attorney and accountant, during and after the non-profit set-up process, is the best way to make sure an organization’s internal processes meet IRS regulation standards for revenue and expenditures.
Arguably, the most important issue owners of non-profits must be mindful of is the act of reporting. At the conclusion of each fiscal (financial) year, managers of non-profit organizations must submit a financial report outlining their revenue, expenditures, program/policy changes, or any change impacting the operation of the organization as reported to the IRS in the previous 12 months. Failure to submit this report can have severe consequences, from making it difficult to receive funds from donors or losing non-profit status completely. In 2011, the IRS noted that more than 300,000 non-profits lost their 501 (c) (3) status as a result of failing to file a report over a 3 year period.
To conclude, I would recommend anyone seeking to setup a non-profit business to consult with an attorney or someone with experience in the 501 (c) (3) arena. This will save you time (and heartache) in the long run.
Dr. Spragley and his associates can be contacted at The Spragley Group at http://www.spragleygroup.com
- Former IRS Director on Shadowy NonProfits: Investigate and Prosecute Them (crooksandliars.com)
- To Profit or Not to Profit? (coffeewithkath.wordpress.com)
- Group Challenges Different Treatment By IRS of Religious and Non-Religious Groups (jonathanturley.org)
- TurboTax – Charitable Contributions You Think You Can Claim but Can’t (turbotax.intuit.com)
- Non-Profit or For-Profit: The Social Entrepreneurs Dilemma (triplepundit.com)