Nonprofit Sector Insights - October 2022
Counseling your clients about nonprofits: The good, the bad, and the big leaps
The nonprofit sector accounts for more than 12 million jobs in the United States, and job growth in the nonprofit sector in recent years has outpaced job growth in the private sector. As an advisor, you are more likely than ever to represent clients who hold executive positions at nonprofits, serve in key roles on nonprofit boards of directors, or do business with nonprofit organizations.
Please reach out to the community foundation as a resource when questions about nonprofit matters arise in your client discussions. Here are three examples of the types of issues that come up in the nonprofit arena:
The application process for exempt status has improved dramatically in recent years, thanks to IRS enhancements to Form 1023. This is important for you to know when you are advising clients who are involved with a new charity. For those in the business, the new Form 1023 was a huge win and a major IRS accomplishment.
Watch out for exempt status issues. At the heart of a nonprofit’s favored tax treatment is the concept of “exempt purpose.” For charitable entities organized under Internal Revenue Code Section 501(c)(3), exempt status is crucial for an organization to remain exempt from paying income tax. Exempt status under Section 501(c)(3) also allows contributions to the organization to be eligible for income tax deductions (as well as estate and gift tax deductions). A bitter case in point is described in a recent private letter ruling outlining the reasons a healthy juice enterprise lost its exempt status.
–The big leaps:
The nonprofit sector, powered by private philanthropy, can be and has been, transformational for our society. If you’ve not spent some time reading up on the major societal changes that have their roots in the nonprofit sector, you might consider doing so. As always, the team at the community foundation would welcome an opportunity to provide big-picture background and inspiration to support the ongoing service you provide your clients who are involved in the nonprofit sector.
The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.