Nonprofit 411: How to Prepare for Having Your 990 Prepared

Nonprofit 411 Jitasa-minBy Jeremy Cork, Jitasa

Whether you prepare your own Form 990 or outsource it, you can make the process less painful by following some simple steps and gathering certain information well-before prep begins. There are (2) variations of Form 990: Form 990 (12 pages) long form or Form 990-EZ (4 pages) short-form.  The gross receipts of your organization are usually what determines which Form 990 you are required to file.

If your fiscal year ends on December 31, your Form 990 is due by May 15.  You do have the option to file a 6-month extension giving you a new/final due date of November 15.  The month following your fiscal year end is usually very busy; preparing and filing employee W2s and contractor 1099’s, preparing various reports, etc. By the time you are finished with those tasks, you’re now a month closer (or more) to your Form 990 due date.  The Form 990 has as nearly as many additional schedules as there are letters in the alphabet.  Knowing ahead of time which schedules may be required can save time, effort and reduce stress.  To see a list of additional schedules and instructions, visit the IRS link here: https://www.irs.gov/forms-pubs/about-form-990-schedules.

Some of these steps can only be done after your fiscal year ends, however, by understanding each step and being proactive, your 990-filing experience can come and go with ease. This list is not all-inclusive as each organization is different, however, many steps are common for all organizations. So here they are!

Steps for making 990 Prep less complicated and less stressful:

  • BE PROACTIVE: discuss with your team ahead of time rather than just before the due date.
  • Financial Review or Audit: Review the audit requirements for your state.
  • IRS Extension: Consider ahead of time if you think you’ll need to file an extension.
  • Review Prior-year Form 990: This will provide insight into what will be required for the current year.
  • Close Books for Year-End:
    • Reconcile ALL bank/checking/savings/investment accounts, etc…
    • Record any journal entries necessary; accruals, AR, AP, prepaids, depreciation, etc…
    • Perform year-end Book Review: Review all activity for all accounts.
  • Gather Financial Information:
    • Financial Reports.
    • Copies of W2’s and 1099’s.
    • Review list of Form 990 Schedules – compare to prior-year Form 990.
  • Non-financial Information:
    • Organization details; Name, Address, Phone #, Board of Directors.
    • Review Parts IV – VII on the 990 to determine which other information may be required.
    • Who will review and sign your 990 internally before the deadline?
    • May need to consider additional as well.
    • Timing: Provide ample time for Board Review and any comments or changes before the filing deadline. A board review is not required but is strongly encouraged.

It may seem like it takes more time to gather information than to prepare the 990, but the extra time spent before prep will pay-off in the end.  Whether your file a Form 990 long form or Form 990-EZ short-form, prep time can be drastically reduced by following the steps outlined above.  Understanding that preparing and filing Form 990 is extremely important to your organization and should not be an after-thought. Your mission, and the cause it supports, is much too important not to consider the importance of your Form 990.

Member Spotlight: Parenting Journey

Member Spotlight Parenting Journey-minCollaboration between nonprofits can be a powerful force for change in a community, and can address needs that could not have been solved as effectively by any one organization.

MNN member Parenting Journey (PJ) uses collaboration in working towards the day when every family has what they need to thrive and succeed. Rooted in the belief that all parents know what is best for their children, PJ recognizes that some parents cannot reach their full potential because of systemic injustices that disproportionately impact communities of color, low-income families, and immigrants. In response to intergenerational trauma caused by racism and poverty, PJ uses an interdisciplinary approach to effect change in family systems, institutional systems, and governmental systems to uplift families.

PJ recognizes that collaboration and collective impact are essential to disrupting intergenerational poverty and trauma through a continuum of wrap-around services that meet the needs of individuals and families. PJ launched a two-generation service delivery model in partnership with nonprofits in the Greater Boston area who work with families at different life stages and in different capacities.

One of PJ’s partnerships provides a glimpse into the power of nonprofit collaboration. PJ partners with the Epiphany School to provide its Parenting Journey I program to parents at the Epiphany School Early Learning Center (ELC) in Dorchester, MA. So far, a total of 28 young, low-income parents who have children enrolled at the Early Learning Center have participated in the 12-session curriculum. The weekly two-hour sessions are co-facilitated by Delores Reyes of Parenting Journey and Emily Bautista, the director of student support at Epiphany School.

During the sessions, parents explore their relationships with their own parents and past experiences that impact how they parent. The sessions provide parents with the opportunity for self-reflection and realization. Parents reported multiple positive changes as a result of their participation, including decreased stress and increased parenting strengths.

“Since Parenting Journey, I have a different perspective in life. I take time to listen to my children before making a decision,” said a participant of Parenting Journey 1 at Epiphany. These types of changes have previously been shown to improve parent-child engagement and the ability of parents to buffer their children from stress, promoting optimal child social-emotional development.

In addition to providing the parent program, PJ trained 13 Epiphany staff in PJ Community. The 1.5-day training program brings staff together to develop strong working relationships, examine their work through a strengths-based lens, and improve engagement internally and within their community.

Epiphany offers many different types of support to children and families, including school, daycare, and home visits. Incorporating PJ into these wraparound services boosts the strengthening effects of those other supports, giving parents a dedicated space for building empathy and resilience.

Collaboration is powerful. By enhancing programs, practices, and policies across sectors, partnerships like the ones established by PJ and its nonprofit partners can address the complexity of families’ lives and can create a collective environment that acknowledges parents’ inherent strengths, power, and expertise.

MNN CEO on Drop in Charitable Giving: Bad News – And a Warning Signal

The report, “Giving USA 2019: The Annual Report on Philanthropy for the Year 2018” issued today by Giving USA, found that charitable giving decreased by 1.7% and that individual giving decreased by $10.4 billion nationwide in 2018. The Massachusetts Nonprofit Network (MNN) released the following statement from CEO Jim Klocke:

“This is bad news for the people served by nonprofits–and a warning signal about the end of 2019.

When the economy grows, giving should increase, and it usually does. But not in 2018.

As MNN’s Commonwealth Insights reports have outlined, the 2017 federal tax bill raised the cost of giving by 28% for tens of millions of people across the country. When the cost of something goes up by 28%, there will be an impact. Today’s Giving USA report documents the impact–a drop in individual contributions of over $10 billion nationwide in 2018. That drop will have real effects for the people served by nonprofits and the communities they live in, including here in Massachusetts.

Today’s news is a warning signal because not everyone affected by the federal tax bill realized it when they made their 2018 contributions. They do now: many learned that they lost the giving deduction this past spring. The question is now what happens to 2019 individual contributions. There is a real risk that they will drop again, and by even more than $10 billion.

What should we do? First, we should restore the charitable contributions tax deduction for the millions who lost it in 2018. Second, we must make it available to everyone. We should also encourage donors to increase their giving this year, so that the 2018 drop becomes an aberration. MNN is committed to pursuing these strategies that will support the strength, viability, and sustainability of the nonprofit sector.

The people served by nonprofits, and the communities they live in, deserve no less.”

Previous editions of MNN’s Commonwealth Insights reports have explored the potential impact of the 2017 federal tax bill on Massachusetts nonprofits. Click here to download, “From Challenges to Opportunities: How Nonprofits Can Make Sense of the New Tax Law” (2018). Click here to download, “Tax Reform: Up to $513 Million of Massachusetts Donations at Risk” (2017).

MNN Welcomes New and Returning Board Members

Board Members-min

MNN is pleased to announce that eight individuals have been elected by its nonprofit membership to the MNN Board of Directors.

Three new board members have been elected to the Board:

  • Dennis P. Carman, President and Executive Director, United Way of Plymouth County, Southeast Regional Seat
  • Amanda Holm Hartigan, Assistant Director of Programs Data & Insight, The Boston Foundation, At-Large Seat
  • Celina Miranda, Executive Director, Hyde Square Task Force, Greater Boston Regional Seat

In addition, five board members have been re-elected to a second term on the Board:

  • Jacquie Anderson, Senior Director of Grantmaking, Blue Cross Blue Shield of Massachusetts Foundation, At-Large Seat
  • Elizabeth Cannon, Executive Director, Lowell Association for the Blind, Northeast Regional Seat
  • Charmane Higgins, Human Rights Seat
  • Eric Masi, Executive Director, Wayside Youth and Family Support Network, Human Services Seat
  • Liana Toscanini, Founder and Executive Director, Nonprofit Center of the Berkshires, Berkshires Regional Seat

“On behalf of MNN’s Board, I am pleased to welcome our new and returning board members,” said Jim Ayres, Chair of the MNN Board and Vice President for Programs and Strategy at the Community Foundation of Western Massachusetts. “They are pillars of the state’s nonprofit sector, and bring invaluable perspectives and experiences to the organization.”

“We’re fortunate to have these eight distinguished professionals on the MNN Board. Each is a great advocate for nonprofits across the Commonwealth,” said Jim Klocke, CEO of MNN.

The board members were elected at MNN’s Annual Meeting, which was held during the Nonprofit Awareness Day ceremony on June 3, 2019 at the Massachusetts State House. Nonprofit members of MNN voted on the slate of candidates via voice vote at the ceremony, or by proxy ballot.

The MNN Board of Directors includes representatives from all eight nonprofit sub-sectors and all regions of Massachusetts, plus at-large members to ensure that the organization is representative of the entire nonprofit sector.

Nonprofit 411: How Does the New Transportation Benefits Tax Impact Nonprofits?

Nonprofit 411 HemBar-minBy Brad Bedingfield, Hemenway & Barnes LLP

To the dismay of charities across the country, costs incurred in providing certain commuting and parking benefits to employees now result in a tax payable by the charity (or other tax-exempt organization).  This odd tax (for expenses incurred after December 31, 2017) can be found in section 512(a)(7) of the Internal Revenue Code.  The tax is framed as a deemed “unrelated business income tax” (or “UBIT”), and the costs that trigger this tax are treated as deemed “unrelated business taxable income” (or “UBTI”).  Treatment of these costs as deemed UBTI affects how the taxes are calculated, and what options an organization may have for avoiding or minimizing the tax.

What costs are taxable? 

For purposes of determining the amount subject to tax, we must focus on costs to the employer, not benefits to the employee.  Costs to provide commuter rail or subway passes, and for certain kinds of bus or van transportation, generally count as deemed UBTI only up to $265 per month (in 2019), whether those costs are incurred directly or by way of pre-compensation reduction arrangements.  Commuter parking benefits provided by way of payments to third-party parking vendors generally work the same way, with a similar effective $265 per employee per month cap in many cases.

However, things get much more complicated when a tax-exempt employer owns and operates its own parking lot or garage.  Countable costs may include a range of things, including employee costs, maintenance, snow and leaf removal, cleanup, insurance, real estate taxes, and so forth (although depreciation on the parking facility does not count as a cost for this purpose).  Once the aggregate costs for parking are tallied, the employer has to find a reasonable way to allocate those costs to employee use.  IRS Notice 2018-99 provides one method of doing that, but each organization should consult with its tax advisors to determine a reasonable method for that organization.

Does Massachusetts impose UBIT?

Massachusetts imposes its own UBIT as well.  Because of the way the Massachusetts tax code references the federal UBIT provisions, it appears that this deemed UBTI for the cost of commuting and parking benefits will be subject to Massachusetts tax for employers in corporate form, but not for employers in trust form.  Like the federal government, Massachusetts requires quarterly estimated payments in advance, although the schedules for payment are not identical.  Other states may have a separate UBIT as well, which may or may not incorporate this new 512(a)(7) tax.

Can the tax be avoided or minimized?

One way to avoid or minimize the tax would be to stop providing commuting or parking benefits (perhaps instead increasing compensation), but that may not be practical.  An organization that has certain kinds of losses attributable to unrelated businesses may be able to use those losses to offset this deemed UBTI, although other changes in the rules have made that more difficult, especially with regard to new (post 2017) losses.  Charitable contributions may be an elegant way to avoid or limit this tax.  Charities in corporate form can generally deduct up to 10 percent of their UBTI for charitable contributions, and those in trust form can generally deduct up to 50 percent.  However, for certain very limited kinds of disaster relief, Congress (by special legislation) allows deductions of up to 100 percent of UBTI.  The organization will still have to file the federal Form 990-T to report the deemed UBTI and claim any deduction, but this can be a handy way to turn a tax into a mission-furthering grant.

Possible repeal of the tax?

Given its bipartisan unpopularity, this tax may be repealed at some point.  For now, however, nonprofits need to be tracking and paying taxes on costs to provide their employees with commuting and parking benefits.

For an in-depth review of the new transportation benefits tax on nonprofits, MNN members can watch my April 19th webinar, “New Transportation Benefits Tax on Nonprofits,” in MNN’s Webinar Archives.

Brad Bedingfield is Co-Chair of the Nonprofit Group at Hemenway & Barnes LLP. Brad assists private foundations and public charities with navigating complex tax regulations and procedures, including receipt and disposition of complex charitable gifts and participation in innovative forms of impactful philanthropy.

Member Spotlight: Bow Seat Ocean Awareness Programs

Bow Seat Ocean Awareness Programs is a Massachusetts-based nonprofit whose mission is to activate the next wave of ocean leaders through the arts, science, and advocacy. Bow Seat provides a space for teens to connect, create, and communicate for our blue planet through innovative programming that works at the intersection of science and arts education, with a focus on amplifying youth voices to advance dialogue and participation in ocean conservation.

Bow Seat, in partnership with Conservation Law Foundation, launched the 2019 Healthy Whale, Healthy Ocean Challenge to engage local youth in using their creative voices to highlight the plight of the critically endangered North Atlantic right whales and the need for conservation of marine ecosystems and resources. The Challenge invited K-12 students from the New England region to create visual art, poetry, and short films that celebrate this iconic species and drive action for its protection.

Bow Seat received more than 130 imaginative and inspiring submissions, including entries from Massachusetts students from Boston to Deerfield and Andover to Pocasset. The Challenge winners and participants were recognized on Sunday, May 5, at an awards ceremony during the Right Whale Festival at the New England Aquarium. This community event featured a student art exhibit, film screenings, presentations by youth conservation leaders, and a panel discussion moderated by National Geographic photojournalist Brian Skerry, who served as a judge for the Challenge. The participants’ pieces will be an important part of an ongoing campaign to inspire awareness, care, and action for right whales and the ocean, which will include future events and art exhibitions.

“I created what I did to inspire people to be mindful of their impact on the ocean. By making this piece, I learned more than I was expecting to; I learned that the whales need our help, that they are beautiful, and that we need to act soon,” said Eliza Goodwin, a Challenge participant.

The Healthy Whale, Healthy Ocean Challenge was presented with the Secretary’s Award for Excellence in Energy and Environmental Education by the Executive Office of Energy and Environmental Affairs at a ceremony at the Massachusetts State House on May 6, 2019. This award recognizes outstanding efforts to improve energy and environmental literacy in the Commonwealth.

House Speaker DeLeo, Senate President Spilka, Secretary Kennealy Celebrate Nonprofit Awareness Day

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Yesterday, House Speaker Robert DeLeo, Senate President Karen Spilka, and Secretary of Housing and Economic Development Mike Kennealy joined hundreds at the State House to celebrate Nonprofit Awareness Day: A Celebration of Nonprofit Excellence, an awareness event honoring the contributions of nonprofits in Massachusetts. The celebration was hosted by the Massachusetts Nonprofit Network (MNN) and presented by Citizens Bank.

“Over 33,000 nonprofits are making a difference in every corner of the Commonwealth, adding significant contributions to the health and vitality of our communities,” said Jim Klocke, CEO of MNN. “Yesterday, we recognized 27 nonprofits that typify the excellence of the state’s nonprofit sector. We are also grateful for Citizens Bank for their continued support of the Nonprofit Awareness Day Celebration.

“Yesterday we celebrated the 33,000 nonprofit organizations that are the cornerstone of our communities,” said Jerry Sargent, President of Citizens Bank, Massachusetts. “At Citizens Bank, we are honored to partner with the Massachusetts Nonprofit Network and celebrate the remarkable work of over half a million employees providing valuable resources for our fellow citizens day in and day out.”

Nonprofit Excellence Awards were presented to four organizations and two professionals that exemplified the innovative and effective work of nonprofits across Massachusetts. The winners were nominated by peers and community members and were selected by an independent panel of nonprofit and business leaders. This year, the independent panel selected 27 finalists for the Nonprofit Excellence Awards from almost 100 nominations.

The Nonprofit Excellence Award winners were:

In the month leading up to Nonprofit Awareness Day, MNN’s #MAkingadifference social media campaign engaged hundreds of nonprofit and business leaders on social media to communicate the positive impact of nonprofits across the state. Participants in the social media campaign shared thousands of pictures, stories, and statistics that illustrated the depth and breadth of the state’s nonprofit sector.

Policy Alert: Encourage Your State Senator to Support the Complete Count Grant Program

Last Thursday, Senator Sal DiDomenico filed a $5 million budget amendment (FY2020-SE-14) to the State Senate’s version of the budget to support the Complete Count Grant Fund. The Fund would support direct outreach by community-based nonprofits during the 2020 Census. MNN encourages nonprofits to reach out to their state senators to ask them to support this amendment. Nonprofits are trusted messengers and will play a key role in reaching hard-to-count communities during the 2020 Census. The participation of these communities is critical to making sure Massachusetts receives adequate federal funding and political representation in the next decade.

 

Click this link to find and contact your state senators. Click here for additional resources for nonprofits to participate in the 2020 Census.

U.S. Department of Labor Seeking Public Comments on New Overtime Rule

The U.S. Department of Labor (DOL)’s proposed new overtime rule was published in the Federal Register. The new rule would:

 

  • Raise the salary minimum for exemption as an executive, administrative, or professional employee from $455 per week ($23,660 per year) to $679 per week ($35,308 per year).
  • Allow employers to satisfy up to 10% of the salary minimum through non-discretionary bonuses, incentives, and/or commissions that are paid annually or more frequently.
  • Raise the threshold for exemption as a “highly compensated employee” to $147,414 in total annual compensation.
Members of the public can submit written comments on the proposed rule here until May 21, 2019.

Nonprofit 411: Improving Board Performance

Nonprofit 411 Clark-minby Sarah Lange, Clark University School of Professional Studies

Executive directors and directors of development often cite under-performing boards as one of the top challenges they face. In addition, board members cite meetings, paperwork and minutia as the things they enjoy least. But change is possible. An engaged board of directors can help nonprofits fulfill their mission in new and surprising ways. Good boards don’t materialize out of thin air: they are the result of strategic, thoughtful work, and a year-round investment in recruitment and education.

However, most of the methods, processes, and structures that some nonprofits use are outdated. Given this, it’s no wonder that boards sometimes fail to fulfill their duties and not realize their potential.

Recruitment/Nomination

An active, engaged board results from proper recruitment. Create a Board Development Committee (BDC) comprised of 3-4 people willing to take charge of the development of your board. Next, collect a list of 25-100 names of potential board members: be sure to consider diversity in all its forms. A diverse board provides you with access to multiple perspectives, skills, attitudes, and cultures. Channeled properly, this will lead to more creativity and innovation.

Be strategic when selecting board members. The #1 selection criteria for any new board member should be a passion for your organization’s mission, because they’ll go the extra mile. Look at where the organization is in terms of its stage of development. You’ll need a different type of board for each stage: Start-up, Stabilization, and Continued Growth. Regardless of the stage, it’s important to have board members and/or staff with the opposite personality type that stage requires, as these people will help nudge you to the next stage of development.

Orientation/Activation/Engagement

Orientation and activation are the job of the Board Development Committee. At the very least, orientation should consist of a tour of the organization and a review of the board manual. Ensure that the expectations, duties and responsibilities are clear to everyone involved. People perform better when they have a clear understanding of what it is they’re supposed to do. Engage new members immediately by assigning them to a committee. The BDC should check in with new members before and after each meeting to get their feedback about their experience and offer guidance or support as needed.

Evaluation/Renewal

Investing in the growth and development of board members is essential to improving board performance. The best way to identify the strengths and growing edges of a board is to conduct an assessment, and then develop a plan for addressing identified needs. It’s also a good idea to conduct a skills and interest inventory so you know which gifts board members are bringing to the party. Ongoing education should be a regular part of board meetings.

And don’t forget to celebrate. Be sure to integrate fun and celebration into the life of the board. Sharing updates and accomplishments at the beginning of each meeting can set the tone and be uplifting to the overall attitude and moral of the members.

These are just a few tips to help you improve board performance. Remember: board members want to help, but it’s our job to show them how to support the work of the organization.