Episode 76: A Nonprofit is a Business - Authorized Reporting Agencies
A nonprofit is a business, accountable to authorized agencies who help ensure the organization is operating as a viable tax-exempt organization. Learn what these agencies are and what type of compliance expectations you should be investigation to prevent losing your tax-exempt status or incurring fines for failure to file required paperwork.
LINKS:
Nonprofit Elite:
NONPROFIT SPOTLIGHT: Esperanza Community Housing
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Podcast Transcript
Speaker 1 (00:04):
Welcome to On Air with Amber Wynn, where nonprofit leaders learned to fuse passion and commitment with proven business strategies to create long-term funding impact and sustainability. And now here's your host and resident, Philanthrepreneur, Amber Wynn.
Speaker 2 (00:27):
Good morning fam. It's your girl and resident, Philanthrepreneur. Today I'm actually going to step into my Philanthrepreneurism. Say that 10 times fast. Today we are going to talk about a nonprofit is a business. You guys hear me say this all the time. A nonprofit is a business. A nonprofit is a business. It's a business with a philanthropic purpose. Today we're going to talk about just how a nonprofit is a business. We are going to talk about the authorized reporting agencies that a nonprofit has to report to and why do they have to report to them because they are businesses and businesses have agencies that they have to report to. If you started a nonprofit thinking that it's going to be your business and you're going to run it your way, trust and belief, if you haven't already, you will find yourself in a world of trouble. But I'm here and I got you. And once we come back from this quick commercial, we're going to dive into how a nonprofit is a business, specifically authorized reporting agencies. When we come back,
Speaker 3 (01:32):
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Speaker 3 (01:42):
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Speaker 2 (02:53):
Welcome back to On Air with Amber. It's your girl Amber Wynn. And today we're talking about a nonprofit being a business, and it's interesting because there are lots of nuances in the nonprofit sector that sets it apart from being a for-profit business, but it is a business. Let me explain to you why forming a nonprofit is a two-step process. The first thing you have to do is you have to ask the state for permission to form as a business entity. It's in that first step that a nonprofit becomes a business because when you say to the state, Hey, I'm forming a business, it authorizes you to move forward. So that's the first step. The second step is then you say, and I want to function as a nonprofit. When you say, I want to function as a nonprofit, it shifts the way the state sees your business. It's going to give you a special tax-exempt status so you don't have to pay taxes on the revenue that you generate. But the very first step, when you get your articles of incorporation, you're saying to the state, I'm forming a business. So, with that comes expectations of a business for a nonprofit. After you get your tax-exempt status from the IRS, now you are now responsible for reporting to the IRS. So the nonprofit has authorized reporting agencies on the federal, state and local level.
Speaker 2 (04:33):
On the federal level, you're reporting to the IRS, and most people know about this. It's the 990, the 990 form. You are responsible for filing that every year, even if you generate no revenue, you would file what's called the 990-N. It's a postcard and basically it says, I'm still a nonprofit. I'm just generating under $50,000. So you are expected. You are required, that's a better word. You are required to file your nine 90 s every year with the IRS. That's the federal level. Then you have the state level. On the state level, you are responsible for filing what's called an SOI a statement of information. It is saying to the state, I am still functioning as a nonprofit. You file those every two years, and if you don't guess what the Secretary of State can revoke your tax exempt status because if you are not functioning as a nonprofit, then they are authorized to work with the State Franchise Board and require that you pay taxes on the revenue that you generate.
Speaker 2 (05:48):
So on the state level, you have the state Franchise Tax Board, and you have the Secretary of State that you are responsible to file forms with. You give them information and they say, okay, you're active and in good standing. Why are these things important? They're important because when you start filing for government grants, governments do their due diligence. The first thing they're going to do is run your tax ID number. If the state Franchise Tax board or the Secretary of State says that you are not in good standing, you will then not be able to qualify for that grant. You'll never know it. They'll just say, Nope, you can't apply. They've done their due diligence. You're not in active 501(c)(3) tax exempt organization. So on the local level is the attorney general. The Attorney general is responsible for protecting its citizens, making sure that there's no tax fraud.
Speaker 2 (06:47):
So if you are fundraising in your state, you need to register with your attorney General. Some of you may have received letters from your attorney general saying, Hey, you are in violation. You need to complete this form. If you don't, we will revoke your tax exempt status that is on the local level. So when I tell you that a nonprofit is a business, I'm telling you that you cannot run your organization as if you are not beholden to authorized agencies. A nonprofit is, and it is your responsibility as the founder, as the executive director to know what those agencies are because you are out there working hard in the community, serving your clients, making your community a stronger, better place, and it could all come to a screeching halt if you aren't in compliance. Compliance is a part of every business. If you have a for-profit, then you have to file your taxes.
Speaker 2 (07:44):
You have to file for your business license. Same thing for a nonprofit. If you are an active nonprofit, there are authorized reporting agencies at the federal, state, and local level that you are responsible for reporting to. Now, I'm trying to tell you this in advance because I have people coming to me all the time saying, I got this letter. They're saying they're going to snatch my tax exempt status. Sometimes it's too late. For example, in the case of the federal level, if you don't file your nine nineties, three years in a row, they will snatch your tax-exempt status. It's called revocation. They will revoke your tax-exempt status. You want to make sure that you're filing your 990-N even if you are not generating any or a lot of revenue, as I said before, you would file a 990-N which is a postcard.
Speaker 2 (08:40):
The IRS just needs to know that you're still functioning. The Secretary of State and the state franchise board needs to know, are we going to charge you taxes on your revenue? And the attorney general needs to know that you are authorized to, and when I say authorized, they're making sure that the funds that you are raising aren't affiliated with any scams or terrorists. So they need to know so that they can protect the people. So when I tell you a nonprofit is a business all day long, all night long, if it was not, then you would not have these agencies that you are required to report to. Does that make sense? It's important because 50% of your organization's sustainability is tied to compliance. These are compliance issues. As a nonprofit, you are required to let these authorized agencies know what you're doing, how you're doing, how much money you're generating, because they need to keep you in check. They need to make sure that you're not doing anything that's off the rails. Okay, so today we have been talking about a nonprofit being a business. Make sure that you understand that and that you are filing all of the documents you need to file on the federal, state, and local level. We're going to pause right now for another break, but when we come back, it is your time to ask your questions in the Ask Amber session. When we get back,
Speaker 4 (10:09):
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Speaker 2 (11:29):
Welcome back to On Air with Amber. I'm Amber, and I'm so excited to be here to support the most amazing people in the world, nonprofit leaders. Today we're talking about nonprofits being businesses. A nonprofit is a business. It's just a business with a philanthropic purpose. And today we're going to jump into your question. Listen, if you have questions for me, you can hit me up on any of my social media. You can find me on my website, Instagram, Facebook, Twitter. You can even email me at amber@amberwynn.net. I'm here for you. Today's question comes from James out of Carson. Hi, my name is James. I'm calling from Carson, California. I have a nonprofit that supports young athletes getting into college on academic scholarships. You go, James. I received a letter from the Attorney General. It says, if I don't respond within 45 days to complete this form, that they would revoke our tax-exempt status.
Speaker 2 (12:34):
I don't understand. Is the attorney general authorized to do that? Our topic today is authorized reporting agencies. Yes, James. In fact, the Attorney General is authorized to do that. It's more than likely that they found out that you are fundraising in the state and you haven't completed the forms that are required for fundraising. There are specific forms. There are two forms from the Attorney General that you have to complete in order to inform the Attorney General that you're fundraising. So more than likely, all you have to do is go on to the Attorney General's website. There's a form there. You will submit $30 and you'll be straight. What you want to do is read thoroughly on the Attorney General's website. It'll let you know For the state of California, it's different for every state. For the state of California, the minute that you receive a donation, that's when you are responsible for reporting it for other states.
Speaker 2 (13:37):
You've got to register 30 days before you start fundraising. So just go to your Attorney General's website, read what the criteria are. Like I said, submit the form $30 and you should be good to go. Alright, so now we're going to switch over to my favorite part of the session, which is our nonprofit spotlight, and we are going to focus on an organization called Esperanza Community Housing Corporation. Esperanza Community Housing Corporation is a social justice nonprofit in South Central Los Angeles that recognizes that indigenous, black and Latino immigrant communities are disproportionately impacted by historical oppression, health disparities, disinvestment, and displacement. In this clip, we're going to show you one of the care providers and her track and really supporting people in the community. Let's take a look.
Speaker 5 (14:41):
My name is Ashley Kissinger and I'm a project director at Esperanza Community Housing Corporation. I work with community health workers to mitigate environmental triggers of asthma. There's need for people to outreach into the community and find those at-risk populations and show them how to improve their current living situation, how to improve their quality of life.
Speaker 6 (15:01):
To have a filter vacuum doesn't get much better than this. Anytime I am introduced to someone or meet a new family, I am received with open arms. Hi, Jasmine.
Speaker 5 (15:14):
This project specifically is connecting the disconnect between the hospital and the home. You can tell the doctor one thing that they have on their medical history form, but you can go into a home and see something completely different.
Speaker 7 (15:27):
Here's a live roach.
Speaker 5 (15:31):
The environmental triggers of asthma that we see in homes here in South Los Angeles are dust, mold, and specifically cockroaches.
Speaker 8 (15:40):
Yeah, Jasmine. So Jasmine does her own interventions. She puts tape around her door. It's duct tape
Speaker 7 (15:47):
Every night, and there's 22 cockroaches.
Speaker 5 (15:50):
Cockroaches when they walk, they actually secrete allergens that affect asthma. Patients' airways.
Speaker 7 (15:58):
We can only go maybe two days or three days without water. Cockroaches are the exact same. They love water more than they love food. I didn't know that. Yeah, so even this, it's great to have clean, but maybe just wipe it, wipe up, wipe it down, put it away.
Speaker 9 (16:14):
The work of Esperanza reaches about 120,000 people a year.
Speaker 7 (16:20):
I really going forward,
Speaker 9 (16:22):
What we find is that there's a real hunger in members of our community for someone they can trust, who they can speak to.
Speaker 5 (16:29):
Okay, well, that sounds good. Esperanza in Spanish means hope, which I feel is something that we offer to the community that often has lost its voice. I absolutely love what I do, and I feel so grateful. I've found what I want to do. I've found where I need to be and where I'm most useful.
Speaker 2 (16:57):
If you're interested in supporting or if you know someone who may need support, reach out to Esperanza Community Housing Corporation at www.esperanzacommunityhousing.org. That's amazing. And you know what else is amazing is individuals like we've just seen pepper, the nonprofit community. You guys are doing the same thing. You love what you do, you see the change in your community. You're making a difference. And so we just want to make sure that while you're in the process and you're doing the work, that it's not for naugh. So you're doing the work. Make sure that you are in compliance so the work can continue as opposed to coming through a screeching halt. With that said, I want to transition to our mindset minute. It's when I'll pause for a minute just to share something that's on my mind and what has come to me because people say it to me all the time.
Speaker 2 (18:01):
Listen, I am a consultant and I was just speaking to my engineer about that. We're talking about how there's just so much to do. There's just so much to do, and especially if you're a solopreneur, and let's just keep it real. A lot of you in the nonprofit sector, you're solopreneurs, right? You are founders and you haven't figured out that magic sauce for generating enough revenue to bring in additional support. So you're doing it by yourself. You've got volunteers, but you are running it by yourself. There's so much work to do. And so today, I just wanted to stop for one minute to talk to you about how to manage the huge amount of information that you're hearing out there. You get a lot from me. I'm always saying, you need to do this, you need to do this. But there's a lot of information out there on the internet.
Speaker 2 (18:52):
You may come across colleagues and they say, oh yeah, you should be networking. Or, oh yeah, go to TechSoup and they'll give you this information. Oh yeah, you can get these interns. And it is a lot of information and it can be overwhelming. And so what I'm going to encourage you today to do is to just map out a plan, map out a plan that says, okay, for this month, I'm going to focus on doing just this, and then next month I'll be able to focus on what's next, which is this. And the month after that, I'm going to focus on, because if you try and do everything at once, you are going to get overwhelmed, and then you're just going to throw your hands up and be like, I can't do it. Because you can't, can't do everything. What I try to encourage my nonprofit leaders to do is to create a plan whereby you invest in something that is going to generate enough revenue so that you can pay somebody with the expertise to do it, to do the work.
Speaker 2 (20:00):
Because what happens is that person knows what they're doing, so it's going to get done quicker, faster, better, and probably the right way. That's not to say that you can't learn how to do some things. You are the executive director. You should know all of the inner workings of your organization. But if you are not an accountant, going to school, learning how to become an accountant is not the best use of your time. If you are not a human resources person, going to school, learning how to become a human resources person is not the best use of your time. You should know about what those things entail, that human resources is going to create the culture. Make sure that the job descriptions are classified correctly, the payroll is processed, that grants are managed. You should know those things, but it doesn't make sense for you to go learn a whole nother something when there are people out there who have specialty in that, right?
Speaker 2 (20:58):
So map it out. For example, if you say, okay, I'm going to spend the next month generating revenue so that I can hire the human resources person that's going to move your organization forward. I'm going to generate revenue so that I can hire a grant writer. That's going to move your organization forward because the grant writer then can generate money. So you can hire people, and that's going to increase your capacity. So that's how I take, that's my approach to everything. What can I do to generate enough revenue so that I can hire somebody with the area of expertise to do what I need to do? Listen, I could do this podcast streaming it. There are many platforms out there. I don't like technology. I know I shouldn't say that in this day and age, because technology is what rules the world. I don't like it.
Speaker 2 (21:49):
So I'm here in the studio, Morris Media, because I have an engineer who can just handle all of it. So I let PO just stay in her lane, I stay in mine, and it works for me. I show up, I'm ready to go. So what that does is it gives me more time and more energy to focus on the things which is serving you, right? So that's what I want to share for my mindset. Minute, map out where you want to go. Let's focus on generating enough revenue so that you can hire the people with the expertise to move your organization forward. And let's just keep it real to increase your capacity so that you're not overwhelmed. That's my approach. And it can be done. And I'm here to serve you. I'm here to give you the roadmap for how to generate more revenue so that your organization can function, not only function, so that your organization can thrive.
Speaker 2 (22:46):
All right? Okay. Alright. So today we talked about how a nonprofit is a business, and specifically the authorized reporting agencies that a nonprofit must report to. I want to thank you for spending your time with me today. Listen, if you found this episode helpful, please share it with people in your space. Please share it with a nonprofit leader who could use the information, make sure that you subscribe, make sure that you like, but make sure, most importantly, that you take care of yourself, the way you take care of your community. We'll see you next time.
Speaker 1 (23:27):
Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynnn.net/podcast for the links and resources mentioned in today's podcast. See you next time.
