I have a point of view.
This is my personal soapbox, my rants & my raves.
All focused on our often-beleaguered nonprofit sector (meaning I promise to restrain myself and focus).
See also Q&A, Downloads, and Current Developments pages.
Journalists & Form 990

The Fourth Estate and
the Third Sector
If there is any doubt in your mind that Form 990 is an increasingly public document, spend some time
poking around at
www.fets.tv/ which is about a program called The Fourth Estate and the Third Sector
(Fourth Estate = press, Third Sector = nonprofits).  It is an educational program now at the University
of Mississippi which teaches reporters how to understand nonprofits and how to read and analyze
Forms 990; however, I note that the site doesn't appear to have been updated since 2006, so I
wonder if it's still active.
Here's a great little Ethical test I picked up from the YMCA of the USA that talks to staff about ethical
issues.  It would be perfect published in tandem with a good whistle-blower policy:

QUICK TEST FOR ETHICAL BEHAVIOR                                                          
  • Is the action legal?
  • Does it comply with our values?
  • If you do it, will you feel bad?
  • How will it look in the newspaper?
  • If you know it’s wrong, don’t do it.
  • If you’re not sure, ask.
  • Keep asking until you get an answer.
Buffett & Gates
on Video!
The Bill and Melinda Gates Foundation has a video feed of the public session where Warren Buffett
announced he was pledging the lions' share of his wealth to the Foundation.  The session is full of
interesting material....almost 90 minutes and well worth it.  Not to denigrate Buffetts admirable
brilliance in doing this but have any of you tax experts noted that it might be a POF play by Gates Fdn?
Do not self-insure on
state unemployment !
Well, I just received my third consecutive (over a couple years) call from a group facing possible
bankruptcy.  The group is self-insured and if it lays off all its staff the unemployment insurance bill
could be staggering, precisely when the organization can least  afford it, so their question (which
answer apparently not clear), is whether the Board will be responsible personally for any shortfall in
funds vs. the unemployment claims.  The moral of the story is:  do NOT self-insure.  Just pay the state
your 3% or whatever and be happy.
Too Many Train Wrecks
in search of a savior
Guest rant:  On Financial Staffing                                                                       

I wrote casually to a colleague I have come to admire, who is largely self-taught and new to being a
finance director, in response to her shout-out for finance staff help for a local social service agency:  "I
have a sense that there's a true, bad, shortage of mid-scale nonprofit financial managers out there."

She writes:  
"It certainly seems to me that you are right about the lack of qualified people. I think that
so many of these places have other organizational problems and anyone who is any good learns to
steer clear of them and go somewhere where they get more respect and less aggravation. So often,
no one else gets the importance of the Finance function, treats it as a necessary evil and doesn't
want to hear about it.  Accountants also bear some responsibility for not always being able to
communicate well with program people."

That in turn reminds me of a list I recently ran across of twenty "Signs a Board May Be in Trouble,"
from "
Governance DO’S & DON’TS - Lessons from Case Studies On Twenty Canadian Non-profits,
Final Report
"  Mel Gill, April 23, 2001, available from a Canadian charity, The Institute on Governance,  
very cool site!).  In the excerpt I have posted here, I covered up his preamble which suggested that
one of the twenty would indicate potential trouble.  Unfortunately, the Boards I know who are in
trouble have
most of the twenty, um, attributes.
Cooking the Books to
Please the Press
Feeding the Hungry
Are we all sick of the obsession of the press with Program v. Overhead expenses as the sole
indicator of effectiveness of a given charity?

One of my biggest concerns is that there is too much focus on, and unrealistic expectations about,
the cost of Mgt&Gen+Fundraising as a percentage of total costs.  

I reckon 40% is a realistic number, but the public expectation, set unreasonably low by United Ways'
low-balling the number for so many years, is closer to 20%.  

It becomes a big game where everyone works to state their supporting costs as low as possible to
feed the beast of public opinion and in the meantime the number is actually higher.  

I don't know who is going to step forward first and say "hey, we think 40% is fair; it takes strong
administration and fundraising to do our work" but it's not going to be *my* clients.  

We need to educate the press, the self-appointed watchdogs, and the regulators, or this is going to
blow up into the major scandal of the sector.
Foundations Hobble
Groups with Restricted
Small and mid-size charities have a difficult time calculating:  the cost of their work on a given issue,
with a given constituency, or in a given region.

Foundations should pick effective groups, and make general support grants to them.
 The Foundation
should say “we were particularly drawn to you by your important work on Z, and when you report to us
at the end of the grant period, please highlight your continuing work on Z.”  
That will be heard loud
and clear by the recipient group, and, I would argue, better advance the Foundation’s agenda and
allow the group to build strength, all while making it clear that the Foundation wants to see work done
on Z.

How the World looks to a Foundation.  Foundations see a zillion problems, and have only so many
dollars; unbelievable though it may seem to a supplicant, they mostly feel constrained.  “So many
problems so few dollars.”  As a result, funders often prefer to fund special projects, particular projects
with a limited duration, projects that will become self-sustaining, and projects that might go on to
leverage government funds.  For this reason, they like to have policies against general support.  They
are trying to be strategic with limited funds.

Foundation Trustees have their Passions.  Your foundation says it wants to work on Marine issues;
Trustee X reads a Sunday NY Times Magazine article about problems in a given fishery that are of
global significance.  That Trustee will support proposals for work on that fishery, but possibly not
others.  Foundation staff, trying to move cash to the group, lean on the group to craft its proposal in a
way that will garner the support of Trustee X.  They are trying to help.

Temptation to Bejewel the Proposal.  The natural instinct for a fundraiser is to dress up a proposal
with all sorts of jewels that the funder will want, such as special conferences or publications that may
not be in the workplan and budget already.  These can become unfunded promises if they are used
to get a grant and are not 100% paid for by the grant, and are not already in the workplan and budget.  
Too often at that point, the funder goes for the bejeweled proposal, the money is taken in, spent, and
the jewels are not all delivered.  The resulting balance sheet shows a positive balance for temporarily
restricted net assets and a negative balance of unrestricted net assets:  ergo, Board has violated its
duty of care.

Three -Way Slicing.  It is difficult to do the cost allocations well.  Factor in the skill level of bookkeeping
talent that a group can 1) identify, and 2) afford to pay.  The job is excruciatingly difficult.  It requires
first a “slicing” of the program work according to the priorities or strategic plan of the group, and then,
secondarily, a “slicing” of the program by funding source.  (Note that now we are THREE “slices” in,
since we began with program-admin-fundraising…note also that the funder “slice” can conceivably
cross program “slices” supporting parts of two programs).  Want to see the spreadsheet?  Didn’t
think so.  Restricted grants can in fact hobble small groups.  Two “slices” is even harder than one, so
all too often, groups begin to define their work as a series of grants rather than a series of initiatives,
programs or projects conceived by the group based on its (presumably greater) understanding of the
issues it faces.  They can become permanently stuck in this “defined by grant” financial view of their
work.  At that point the Foundations are really in charge.  The group has lost its soul, its compass,
and will soon lose its spirit.

Old Dogs Just Make It Up.  Interestingly, the very best executive directors just estimate the numbers
after the fact and focus instead on the narrative and the quality of work performed.  That’s all the
Foundations meant to ask for in the first place, really.  (Nevermind that they cloned another
Foundation’s award letter and it says ‘you must be prepared at all times to tell us how our own
dollars were spent, how much you spent on the program, and how much you are spending
organization-wide’.)  There is even a fancy way to describe this in GAAP speak:  (FAS 117, 21)  
“However, donor-restricted contributions whose restrictions are met in the same reporting period may
be reported as unrestricted support provided that an organization reports consistently from period to
period and discloses its accounting policy.”

“Yeah, that” says the seasoned director.  So, s/he just makes a reasonable estimate, fills in the
financial report, and sends it in (sometimes without even asking the quarrelsome overworked
bookkeeper who has a low tolerance for ambiguity).  It is the less experienced, rising directors, who
struggle dangerously with grant restrictions.

Creating Fiduciary Exposure.  Accepting too many restricted grants raises needless fiduciary
exposure for boards of directors, and creates friction between the development side of the “house”
and the finance side of the “house.”  Violating fiduciary duty means that board members are
individually exposed to Attorney General action for violating the charitable trust, and possibly to action
by grantors and donors.  I recently received a call from an important group considering Chapter 7
bankruptcy because of a $200K restricted balance and a $<200>K unrestricted balance (i.e.
“misspent funds).

“But that’s only if they’re not doing their work and not keeping good records!” say the funders, feeling
so wronged by the implication that they have led to this problem, just like so many Visa card issuers
encumbering the working class.  Might be a good time for those funders to help the group’s staff
figure out how to fill out a timesheet so we can figure out what discrete portion of their time is spent
on the funder’s pet project.  Once everyone’s trained up on the timesheet then we can begin to figure
out how to account for payroll, benefits, benefits administration, rent, dial-tone, supplies, insurance,
legal fees, accounting fees and other expenses not directly attributable to the pet fishery.
Screeds / Opinion
IRS on Good

Are they out ahead of
their skis?
Update Dec 2009:  see my 990 page for discussion of the IRS' new governance "guide sheet"
(towards the bottom of that page on my site.                                                                                                        

IRS has begun publishing material on what constitutes good governance, joining Charity Navigator,
Wise Giving Alliance and who knows how many other self-appointed watchdogs.  The IRS clearly
feels that if there are good governance practices, that exempt purposes are more likely to be adhered
to.  I heard legal scholar Bruce Hopkins suggest that they are way beyond their legal authority (and
competence) (apologies if I've mischaracterized what he said) and had another conversation with
former boss and legal scholar Thomas Silk, who has a more sanguine view of growing regulation of
nonprofit governance generally, as reflected in
this article.
What do I think?  (like it matters?).  I agree that this is not really IRS' area of authority - governance is a
matter of state law; for example, California requires most charity boards to meet at least annually, and
what it takes to do their jobs prudently and in good faith is a matter of seasoned legal advice - some
charities should meet monthly, while annually is fine for others.  Wise Giving Alliance/Give.org
requires 3 meetings a year of which one must be face to face (nice that they're willing to give mass
legal advice (!)).  IRS going off on governance is a bit like that. But...I also thought their document,
linked above, was short enough, readable, and if practiced would generally have good results.  So
while I'm interested in what Silk has to say, I'm afraid my smaller groups, while not at all corrupt, will
be made to look as if they are cavalier or wasting public resources.
(1-23-2011 and updated...see the very bottom for the latest across my desk)
First of all, at 183 pages, the decision is going to take some time for experts to fully digest.  I
recommend progressive nonprofits keep their eye on the Alliance for Justice
Advocacy Blog and get
on their mailing list.  At first glance, it is a horrifying decision, and the Republicans should never again
be allowed to portray themselves as being "originalists" or "strict constructionists" in judicial matters.  
Make no mistake: this is a putsch by the Court that will loom larger in history than 2000's Bush v. Gore
travesty, and Anthony Kennedy has ruined his judicial legacy (and the lives of his grand-children).  
OK, enough ranting, what does it really mean?  

Background:  tax [exemption] law says that
501(c)(non-3) organizations (mostly 501(c)(4), (c)(5), (c)
(6) organizations) may engage in electioneering for candidates for elected office so long as that
activity is 1) legal and 2) not the primary activity in any one tax year.  

Under this Court's decision
, gutting much of the law and the Court's own decisions going back to
1907, the definition of "legal" will now change.  Since issue-based c4/5/6's are corporations (and (c)
(5)'s are usually labor unions not incorporated but covered by this law), they have long been
hamstrung from direct intervention in electioneering
unless done through a political committee,
properly formed and funded in compliance with FEC and state and local equivalents. (At a State level,
in CA that's the Fair Political Practices Commission, in OR the Secretary of State, in WA the Public
Disclosure Commission, and so on.)  

This law will allow unlimited "free speech" by such organizations (since corporations are now even
more fully "human," per this so-called originalist court, (may the founders rest in peace), and so
probably c4,5,6's can now directly intervene using general funds (there may still be a 527(f) tax that
requires planning for if an organization has much investment income).  While the Court's decision is
only about Federal races, since it is very broadly written and about "free speech" it is likely to rapidly
invalidate similar bans on corporate money directly in electioneering at lower levels of government as

The FEC, FPPC et al may still be able to limit direct contributions to candidates, but so long as a
campaign intervention communication is done "independently" there is unlikely to be any limits.  
NPR's Nina Totenberg says that the only thing necessary to conduct an independent expenditure
campaign is to copy the favored candidate's message.  This is why the press calls it opening the
floodgates" because big money will now rush in like we have not seen.  The public will need to think
very critically about messages it hears.  FEC et al may also still be able to force accurate attribution of
ad sponsors, but we've seen how hard that is to track already ("Citizens for this or that" - in the case at
hand, "Citizens United" is really the organization which wanted to run a movie about Hillary Clinton.  
The Court used a limited set of facts and leaped to a much large decision in a very classically activist
judge fashion.)

So what does it mean for 501(c)(3)'s?  Well, they will find big lies being told about issues that
concern them, and will need to be very clear about truth and falsehood.  There may be a big "market"
created for even-handed thoughtful treatment of issues as reporters (if there are any left) hopefully
look for rational voices to fact-check the lies that the corporate interests will promote.  It could be an
important time for issue-advocacy (c)(3)'s to staff up in the "institute" fashion with good researchers
and fact-checkers so they can be ready tor respond quickly.  

In the near term, 2010 could easily be a Republican tidal wave as the money hits politics, and the
best hope for the public may be in 2012.  My own guess is that this is the end for any sort of carbon
limits or cap and trade, as well as any real controls on the financial industry.  Health care could still
be reformed since corporate interests will benefit from broadening coverage and payment for

If you want to see/hear a
true screed from the screed-master on this, MSNBC's Keith Olbermann did
one, which I had linked initially, but I think more rational voices have provided better material below.  
Still, you might consider YouTubing him.  (Disclaimer: as one friend writes:  "[Olbermann] has gotten
a lot of flack for his histrionics...[ref: Jon Stewart on Olbermann's attack on MA Scott Brown]...that kind
of hysteria I think only turns people off".  I say:  maybe it turns them off, maybe they're in denial.):

A possibly
optimistic take on the situation (I think it's naive) by David Kirkpatrick in the NYTimes.

And the
Chronicle of Philanthropy logs in with a prediction by prominent exempt-org tax expert Fran
Hill that C3's will now sue for the same rights.  IMHO this will lose charities any remaining "halo
effect" of being charities (if successful).  Regan v. Taxation With Representation was essentially on
the same question, under a different Supreme Court, and concluded that it wasn't about free speech
it was a limit on what charities could do with their
tax-subsidized monies.  So presumably the case
would fail.  But then with this Court, who knows?

1/26/2010:  Gail Harmon's firm (and many others, including Beth Kingsley and John Pomeranz) have
published their
in-house "Navigator" take on Citizens United, the best piece I have seen so far
sorting out the meaning for nonprofits.  (Note for the future: I can see that this link doesn't have shelf
life, so it's their
2010 Issue 2.

1/23/2011:  One year later.  
Greg Colvin, a former boss of mine and a partner at Adler & Colvin who is
an expert in "political tax law" has proposed a solution via
constitutional amendment.  This remains
a serious problem.  I also believe the IRS should be auditing some of these (c)(4) and (6)
electioneering stalking horses, but perhaps that should be a separate screed.  Colvin's blog post
Only People Can Vote—Only People Should Finance Campaigns is here.
Citizens United v. FEC

What does it mean for
Rethinking Overhead
as THE key metric

Signs of hope!
Technology Network (NTEN) (www.NTEN.org) called The Overhead Question: The Future of
Nonprofit Assessment and Reporting
which was a follow-up to an important joint press release in
January, that I'd only read about secondarily.  The press release, and even more so the webinar's
panel members, raises the question of why "overhead" is such an obsession in nonprofit ratings
(program / admin / overhead).  Most hopefully, Charity Navigator has announced they are dropping it
as their key metric (over time).  

NTEN has posted a transcript and a recording of this webinar; if you're interested you can get to them
here (registration required, but it is free).  You might also be interested generally in their blog.  
The panel was:
Bob Ottenhoff, Guidestar
Ken Berger, Charity Navigator
Lucy Bernholtz, Blueprint R & D
Peter Campbell, TechCafeteria
Christine Egger, Social Actions
David Geilhufe, NetSuite
Sean Stannard-Stockton, Tactical Philanthropy
Holly Ross, NTEN

The call's best sound bite was Ottenhoff saying that the "popular" approach to overhead is like
choosing an airline based on which one spends the least on maintenance.  :)  [To be fair, Berger did
suggest that it might pay off to examine the outliers:  very high
or very low reported overhead.  
Someone else more or less said that the numbers are too varied in practice.]

Another fascinating sound bite / factoid is that 6% of nonprofits get 94% of the money.  (And I think
someone said that 0.2% of nonprofits get 60% (?) of the money !)  This was in re: who should be
expected to really track and report effectiveness measures.
The Death of Manners

What has happened to
common courtesy in
hiring?  Is it bad
manners, tactical
stupidity, or a toxic brew
of both?
I recently went through the process of seeking a new job.  Business practice in the nonprofit world
confounds me.  It's a small world; you don't want to burn applicants to your organization because in
ten years you may be in a position where you need their respect.  Let me say again:  SMALL world.

I've done plenty of searches myself.  In my opinion, perhaps no acknowledgment is needed of every
resume that comes rushing in from a Craiglist post, but as soon as you've taken someone's time in
even a phone interview, let alone face-to-face, IMHO you owe it to them to tell them if you've hired
someone else.  Likewise, if you're the applicant and get a different job but are an active candidate
somewhere (have been interviewed), you owe it to them to tell them.  Here's one story from a close
friend that rings all too true:   

"It totally sucks that companies are so ill-behaved that you don't get feedback on whether you are a
live or dead candidate. I had a similar experience in Nov/Dec where I thought I'd nailed a lunch
interview (this was following a 30 min phone screen) where the woman I was meeting with ended our
conversation with explicit next steps ("I think you'd be a great fit for this job. Would you mind doing a
series of phone interviews as a next step since the team is back East?"). She never even replied to
my thank-you email and I've not heard a peep."

All I have to say is even if your Mama raised you badly and you have no manners, on a tactical level at
least, it's plain stupid to treat serious candidates this way; I don't care how busy you think you are.  It
is a very small world in any given industry or field and one doesn't build for success by burning their
way through a rolodex.  Enough.  I daresay the results are obvious enough, and weakness is evident
where it is found.
[Dashed] Signs of
Hope:  [once]
fascinating new
developments in the
world of political

Is IRS going to get a
spine on this stuff?  
Hope springs eternal.  
Sprang eternal!]  :-)
Unfortunately (IMHO) this did not go anywhere:  In the words of Greg Colvin:  "The IRS just announced
that it will not pursue gift tax audits of donors to 501(c)(4) organizations, and close the outstanding
examinations.  Further, it is coordinating prospective only and after notice to the public."  Greg, like
many tax lawyers, I suspect, welcomes this, since surprise enforcement, uneven enforcement, and
arbitrary enforcement ultimately weakens our laws.  I haven't a clue how he feels about the
substantive matter.  The IRS'
retreat letter of 7.7.11 is here.

## Background:

For some time it has been technically true that large gifts to 501(c) organizations other than
501(c)(3)s are subject to a gift tax on the donor, with an annual exclusion currently at $13,000 and a
lifetime exemption currently at $1M (which includes the donor's estate).  

Gifts to 527 organizations are not gift taxable (same as with (c)(3) orgs) but are not tax deductible
either.  Back in the day this gave rise to the "527 organizations" so called because they were
sufficiently political to be beyond (c)(4) and into 527 yet stopped short of express advocacy and
escaped FEC reporting and donor disclosure.  That was fixed in 2000 so now such an organization
discloses donors on a tax form (8872).  

In turn, major donors seeking secrecy then flocked to 501(c)(4)'s especially after the awful Citizens
United decision of the Supreme Court (discussed below on this page).  A 501(c)(4) organization is
required to be operated primarily for social welfare purposes, not political (electioneering) ones, in
EACH year.  The most high-profile of these was Karl Rove et al's "American Crossroads" a tandem of
a (c)(4) and a 527.

There was always a risk that donors would owe the gift tax, although that had not been enforced, and
there may be some ways that donors will litigate if IRS really tries to enforce this.  IRS announced in
its current workplan that it was going to begin looking into certain 501(c)(4,5,6) matters.  (There is a
parallel problem of giant corporate gifts into political funds at the US Chamber that also flooded the
airwaves in 2008).

Citizens United unleashed all these organizations because in the past they were somewhat
hampered, as corporations, from direct intervention in candidate elections, but now those
corporations have been granted corporeal "free speech" by the Right Wing Thomas Court.  Going in
to the 2012 cycle, Obama's team threw over their much vaunted values about special interest money
and announced that well-connected former aide Bill Burton and one other were going to start a
similar (c)(4)/527 tandem to play in 2012.  One hook is that to work and escape FEC limits (not just
disclosure which is still on 527s) they must spend money without coordinating with the candidate
committee or party ("independent expenditure.")

About two weeks ago, on 5/10/11 as I write on 5/25/11, news broke on Politico.com that certain
donors had gotten letters inquiring about gift tax on large contributions to C4's.  Later, NYTimes
covered it and quoted Greg Colvin, my old boss, on the left, as having gotten at least one of these to
one of his clients, so it's clear that as usual the IRS is balancing itself politically, although the Right
Wing has abused this stuff far worse.  And now, as of this morning, Huffington Post ran a great story
that the American Crossroads C4 may not be granted which could lead to a huge tax bill for it.  Some
history is in order on this:  some years ago (10?) they tried to argue that Ralph Reed's Christian
Coalition was not a genuine C4 and was primarily political and the IRS never seemed to get traction
on that and eventually lost.  It would be great if they'd enforce 1) the primarily social welfare rules on
C456 orgs, 2) the gift tax, and 3) the non-deductibility to business of political expenditures (i.e.
through the Chamber).

Politico's coverage, the letter from IRS to an unknown client that a tax lawyer source
made available to Politico,
a great newsletter on the topic that Harmon Curran Spielberg &
Eisenberg, LLP sent out which discusses the arguments litigants might make in resisting IRS (and
links to many of the other docs discussed here), the
NYTimes story on 5/12, another Politico piece on
5/18 about
Republican Senators push-back on IRS :-) and this morning's seemingly well-researched
Dan Froomkin piece in Huffington Post on the story about whether the Crossroads C4 application is
in trouble.  

Newer developments.  Rep. Dave Camp, Republican (of course) Chair of the House Ways & Means
committee wrote a
public letter to IRS demanding all sorts of information about how decisions were
made to send the C4 gift tax letters and who made them.  Decide for yourself if it is a naked attempt to
intimidate IRS.  IRS: be strong!  If I find a way to express this sentiment to IRS I will post it here.

Kathleen Ronayne writing on the Center for Responsive Politics'
OpenSecretsblog, described a
subset of so-called Super PACs" (Independent Expenditure PACs not limited in expenditures) where
donor gives to C4, C4, as a newly-unleashed corporation, gives to PAC, and donor remains
unknown.  Curiously, they led their list with longtime community organizing stalwarts Kentuckians for
the Commonwealth at $130K for this sort of "play" - chicken feed I say.  The lists finishes with a
7-figure play by the National Association of Realtors.  I assume this is to avoid charges of bias
leveled against CRP.  I first read about this in a short post on Politico.com.

If any of these links are broken, please write me - I have saved PDF's of them.

Press coverage on
issues one knows
:  the supposed IRS
scandal on conservative
groups scrutiny, May 2013.
Instead of a mere single Screed on this one, I posted a whole page - in place of the outdated "new"
990 page.  See
Comment: IRS Uproar.