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October 6, 2010

Welcome to On Our Minds Twice a month we enjoy sharing what WolfBrown consultants are reading, thinking, and talking about -- what's On Our Minds. It's our way of staying in touch with valued friends and colleagues, and passing along some worthwhile ideas.

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Nonprofit Status Revocation - Deadline October 15!
by Jane Culbert

Most readers of this newsletter are probably well aware that the IRS has changed reporting requirements for nonprofit organizations, including new requirements for small organizations (budgets under $5,000) to file an annual 990-N report. I was startled when I read in a recent report by Guidestar that as of July 2010, over 355,000 nonprofits (over a quarter of those required to file) had failed to do so! The price of not filing? Revocation of nonprofit status. The implications of that revocation fall on donors, who would lose the ability to deduct their donations, and the organization itself, which would be required to pay income taxes.

Why do we care? Grassroots nonprofit organizations are doing important work in communities across the country. In volunteering for my community in the past, I have worked with small-budget parent-teacher organizations that had not filed annual reports with the state. It wasn't that the forms were difficult to complete- they simply were not aware of the requirement. The amount of money these organizations raise makes a difference to the schools they serve, and the fact that contributions are deductible matters to the folks contributing. Anyone who alerts his or her friends, neighbors, or community organizations of the new filing requirement could save the nonprofit status for a small organization doing important work.

Guidestar's report provides support, encouragement, and advice for those who have not yet filed. It also points to the added responsibility of donors to verify that nonprofits are in fact complying with these regulations. Additionally, the IRS provides a list of organizations (by state) that are delinquent and at risk of losing their nonprofit status, as well as information on what an organization can do to preserve its nonprofit status.

Please share this with any organization you may know that is at risk! The deadline for filing is October 15, 2010.


A New Frontier for Music Organizations
by Tom Wolf and Dennie Wolf

The recent news that Riccardo Muti, one of the world's greatest orchestra conductors, was performing at the Warrenville, Illinois all-girl juvenile prison might have been regarded by some as little more than a public relations photo-op. But those who follow the classical music world know this is part of an important trend. Orchestras, chamber music organizations, and music presenters have long seen "outreach" as important to their missions. But for the majority, non-concert-hall activity has focused on students in school settings. Today, some of the more important musical organizations view their missions more expansively, wanting to reach and have impact on the lives of people wherever they may be found. Prisons, homeless shelters, hospitals, and hospices are increasingly important venues for making these musical connections.

In a previous On Our Minds entry, we wrote about Carnegie Hall's Music Connections as an example of how new programs in community engagement help foster more "complete" musicians. Another benefit may be that these programs also enable arts organizations, including symphony orchestras, to expand their relevance and connection to underserved communities. Not only does this enrich the exchange between musicians and audiences, it extends the boundaries of typical arts appreciation and expands the nature of the relationship.

Diversified Revenue: Best Practice or Financial Myth?
by Laura Mandeles

In a recent blog post, "Shattering the Myth About Diversified Revenue," the Nonprofit Finance Fund's Clara Miller proposes that seeking a more diversified funding base is often more of a burden than a boon to non-profit leadership, and leads to staff and board burnout. Rather than a "best practice," she sees fund diversification as a "financial myth."

I must say, I plead guilty to having advised many nonprofit clients that they must look toward a more diverse funding base in order to enhance sustainability. Miller provides an example of an organization with very diverse revenue sources, including 15 percent of revenue from "the dinner dance, the golf outing" and other labor intensive strategies. Like all best practices, fund diversification should be applied differently in different organizations. I would agree, for example, that it may not be worthwhile to add events to the mix if they yield relatively little for the work involved. Indeed, my general advice about events is that they must have value as a means of building the donor base permanently, not as one-offs with no lasting impact.

But fund diversification is often a good idea. I have seen too many instances where over-reliance on a small number of funders has skewed programming decisions, adversely affected the balance of power on the board, and made the organization vulnerable to sudden changes in the priorities of the funders. I have also seen lack of funder diversity as an issue in founder transition- when the organization relies on revenue from a few sources with which the founder has built close relationships, it is that much harder to make the change in leadership. Whether or not funding diversity is fundamentally counterproductive, or a necessary financial strategy, it  works best when applied thoughtfully with a well-identified objective.
About WolfBrown WolfBrown helps funders, nonprofit institutions and public agencies understand their potential, set priorities and fulfill their promise. For more information, please visit http://wolfbrown.com.

 

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