Completing the Necessary Paperwork to File for Tax Exemption

Filing paperwork can be a difficult task, and most people do not look forward to this stage of the process. However, this can be an opportunity to ensure ahead of time that an organization’s numbers are making sense and if the financials are in order. This is the most complicated yet important part of filing for tax-exempt status.

The first step in filing is to apply for an Employer Identification Number, or EIN, from the IRS. Form SS-4 is available online through the Internal Revenue Service’s website, and can be filled out in minutes. This number, which is like the social security number for an organization, is usually received in relatively short order, and its receipt allows the company to continue the application process.

Because they are the most in touch with the financial workings of the organization, a nonprofit’s CFO, or Chief Financial Officer, is most often the person who does the filing for tax-exempt status. There is a great deal of work required, however, so it is sometimes shared by the president or other organization members.

After the tax-exempt paperwork has been filed, an organization is free to work toward its mission with only annual filings to concern itself with in the future.

Main Components of the NPO Business Plan

A not-for-profit business plan is generally the same as that for a for-profit enterprise. The main components include:

1. Title page – This page lists the official name of the NPO as well as the board members (or directors in some states) with titles and a date.
2. Executive Summary – an outline of what the subsequent pages will contain. The key points are arranged with appropriate facts.
3. Corporation Description – a summary of how the NPO came to be and what the founder hopes to accomplish with it. This section also includes an analysis of which parts of the business model make the mission or board likely to succeed.
4. Market Analysis and Data – This section demonstrates the need for the organization as supported by real numbers and an analysis of the local constituency. Surveys and demographic data are appropriate here.
5. Services – a description of what exactly the NPO will offer the members of the community.
6. Operations – a description of how the NPO will go about providing said services.
7. Marketing Plan – a description of what types of media the NPO will use to get people interested in it, and what position the organization will take within the NPO “marketplace.” If a board member or committee of members is responsible for marketing, this section lists who is involved as well as their credentials.
8. Board of Trustees and Members – an outline of how board operations will be handled, who will be part of the board, and how elections will be overseen.
9. Management and Personal – This section describes a business plan that outlines each person’s responsibilities within the company. Any special or specific policies should be mentioned here.
10. Required Funds – an explanation of what funds are necessary to the NPO and how procured funds will be spent.
11. Financial Statements and Projections – the NPO’s five-year plan, along with the supporting reasoning, should be stated here. Historical documents are also appropriate in this section.
12. Appendix – This section includes tables, data, exhibits and charts. NPO bylaws and other rules for order to be adopted by the board should be included here.

Having a clear and concise business plan is foundational to successful everyday operations. Gathering the information necessary to a complete plan that is illustrative of how a nonprofit will operate can help a founder to have a complete picture of the organization and to be able to anticipate any future trouble.

The Nonprofit Business Plan- A Framework for Success

All nonprofits, whether submitting their plans to a bank (or other organization) or not, should draw up and maintain a professional, accurate business plan. Like any other business model, nonprofits can fail without proper planning and preparation. However, with the correct tools, resources, and materials, the likelihood that a nonprofit will be successful increases exponentially.

The Basic Business Plan

There are many published guides that help in the process of putting a business plan together. All manuals stress the importance of including in a business plan what the NPO intends to do, how it will go about doing it, and how the organization will remain solvent throughout the years.

Attendance at Regular Meetings

Most states require that board meetings are held at least once a year. All members will have to attend meetings. Again, the meetings can be as strict or as loose as you like, but everyone is required to deal with the issues at hand and give their opinion or vote. In some states, members can sign off on the minutes of a meeting by email, in lieu of actually being there.

Electronically, telephonically, or physically, members must be present at board meetings in one way or another. This is especially important for boards that require a certain number of votes to carry a motion. The best board members understand the importance of participation in meetings.

Representing the Public Interest

Many nonprofits choose board members from the community it serves. Having members who are in touch with the mission of the organization can be a valuable tool for effective business operations; they will likely have a clear idea of the needs of the end-users of the specific educational or research effort.

Board members who are well-acquainted with the community may also have clear leads on local sources of funding, useful contacts, and legitimate areas of demand in the area. In choosing experienced and in-touch members, the organization will gain a certain amount of legitimacy, as well as a valuable resource of information.

Potential Conflicts of Interest

Founders and board members alike cannot legally profit from their NPO. They may be reimbursed for expenses, but they cannot receive any special favors, they cannot directly profit from the sale or endorsement of any instruction or advertisement, and though the members’ companies can do business with the NPO, the members in question are not allowed to vote on any decisions involving their company. Conflicts of interest are a decidedly grey area, and knowing the ins and outs of legal operations means having a clear idea of how to avoid these potential conflicts of interest.

Board members may be deemed unsuitable because they have a clear conflict of interest with the work or results of a particular nonprofit organization. Such conflicts can result in a tax-exempt status application to the IRS being denied. If a person stands to make money off his or her involvement with a nonprofit, then their participation on the board is very likely illegal. Other conflicts of interest could be membership in an organization or regular employment at a company that inherently conflicts with the mission of an NPO as a charitable organization.

Though a high school science teacher who wants to assist an NPO agency as part of classroom curriculum is considered a public good, a board member who owns a business that will profit off of the publicly unavailable research of the NPO is considered a breach of trust and conflict of interest.

Potential board members who have a conflict of interest may still be signed on to the board as members, but they will likely have to sign some additional statements saying that they will keep such affairs separate. For this situation, the legal and practical advice of a tax attorney is indispensable. Professionals will be able to explain what relationships are legal and what sort of language is necessary to make documents regarding conflict of interest binding and legal.

Finding the Board

Locating board members who are well-suited to a particular NPO can be a significant hurdle in the process of establishing the company. Networking is the best way to undertake the challenge of finding the best people for the job.

Professional associations are a great place for a founder to meet with people and tell them about the specific organization. Community and city council meetings are good places to find those who are involved with other projects or even related ones. These civic-minded individuals are perhaps the best prepared to understand what the needs of the community are. Corporations also sometimes come into being as a result of an online collaboration. If the community that a prospective NPO will serve is widely scattered, having board members from across the country could be a useful tool for the NPO.

Discussing what an NPO does is the best way to spread word of mouth about the organization and learn who is inspired by the mission. In talking about a nonprofit, any founder who is looking for potential board members creates opportunities for prospective members to not only learn about the organization, but to express interest, as well. Networking through formal or informal organizations can be the best way for a founder to find the right people to become board members.