I'll skip the cheap shot about how many people start non-profit organizations without intending to. I am better than that – then again maybe not. Before you ask the fine people at the state corporation commission to interrupt their nap time to process your corporate application, ask yourself this one question. “Have I ever successfully managed any organization in my life?” In other words, have you successfully started and managed a business? Have you ever successfully managed a department with financial responsibility in a large company? Please note the word, successfully.
If no one has ever trusted you with the financial responsibility to manage an organization, why do you think you are qualified to run a non-profit organization? Step one in starting a charity is good intentions. However, step two is having the talent and experience to run one. There are two parts to having talent and experience. Part one is having expertise in your charity's mission. I like dogs. That doesn't qualify me to run a dog rescue organization anymore than watching the Redskins qualifies me to coach football. Part two is having general business experience. Charities are businesses too. Fools don't have higher success rates in charities than they do in for-profit businesses.
Sue opened up a new corporation ten months ago to promote better breeding opportunities for teenage male giraffes. Giraffes need to get laid too. For the last ten months, Sue has been trying to qualify her organization as a charity under I.R.S. rules. The chief benefit of Sue's qualifying as a charity is that she can then solicit tax deductible contributions to support her effort to find slutty female giraffes. Six months ago, Sue sent a cheerful e-mail missive to all of her colleagues and friends announcing that her organization had qualified as a charity. She was a bit premature.
Starting a charity is not an easy process for experienced non-profit executives in the best of circumstances. First, you create a corporation with specific wording, required by the I.R.S., in the articles of incorporation. This is not a do it yourself task. Setting up a corporation varies state by state. I strongly recommend using an attorney with experience in non-profit organizations. I know a couple if you need a referral. Operators are standing by waiting for your call.
Next, you complete an application with the I.R.S. to be classified as a charity. The application is form 1023. Form 1023 is the bureaucratic equivalent of the Bataan death march. It is twenty-six pages of pure administrative torture with short pauses for sheer horror. The CIA makes terrorism suspects fill out this form when water boarding doesn't break them.
The questions to be answered and the schedules to be completed could only be designed by mindless, bureaucrat-zombies. For instance, the form requires that new organizations complete budgets three years into the future. What is wrong with this? What is the point? Is there a particular brand of crystal ball they recommend? The I.R.S. can't reliably produce its own historical financial statements, but they can require new organizations to predict the future. Similarly, the form asks for details of future operations that don't exist yet.
The I.R.S. hopes that this insane paper chase will allow them to spot and eliminate scam charities before any money gets stolen. In reality, scam artists are typically VERY good at paperwork. Remember Bernie Madoff? Bernie was a paperwork genius. Filling out stacks of S.E.C. disclosure forms was how he kept his scheme alive. The easiest way to complete a form, like the 1023 form, is to lie.
What the I.R.S. has really accomplished with the charity application is the creation of a business plan competition for charities. The twist is that I.R.S. employees are the judges. If you have had the misfortune to have extensive interaction with I.R.S. employees, you know they aren't exactly business geniuses. For the most part, they are moderately competent at what they do, but what they do certainly isn't business consulting.
Let's see how Sue stacks up as a potential charity executive. First, does she has experience in her charity's mission? Of course she does. She is the world's foremost expert on all the lines male giraffes use to pick up chick-giraffes at local watering holes. Any dude-giraffe, who is striking out with the ladies, would be happy with her expertise.
Does she have any business experience? Sadly no. She has been an employee all of her career without much supervisory experience. She is an excellent technician, but not a good candidate to run an organization. Nonetheless, she feels her enthusiasm for providing sex toys to giraffes trumps her lack of experience. I disagree.
Four months after Sue sent her cheerful message announcing her organization's acceptance as a charity by the I.R.S., she received a notice from the I.R.S. that she had lost the business plan contest. She hadn't permanently lost. They sent her a list of twelve additional questions before they would reconsider her application. This is not unusual. Winning the I.R.S. business plan competition the first time isn't nearly as likely as it was ten years ago.
One of the items requested was a detailed description of Sue's as yet non-existent facility. Not surprisingly, this confused her. The I.R.S. was really asking for her plans for the future, although that wasn't how the question was worded. This gave Sue license to indulge her fantasies about providing government subsidized giraffe condoms. I do wonder how they put them on. Sue concocted, I should say prepared, answers to the twelve questions.
A month later, the I.R.S. sent another list of nine additional questions. Apparently, they weren't impressed with the giraffe porn that had been enclosed with the earlier questions. Sue was angry and made an ill-advised call to the I.R.S. agent in charge of her application. From my experience dealing with the I.R.S., I know there is a time to indulge your worst qualities and scream at an I.R.S. agent. This wasn't such a time. We needed the agent in a happy frame of mind. Sue threatened to call the agent's supervisor, the President of the United States, and his holiness, the Pope. None of this upsets the average I.R.S. employee. They get threats like this ten times a day. A disgruntled taxpayer flew a plane into an I.R.S. building a few years ago. What really throws them off is being nice. Answering their inane questions also works pretty well – eventually.
Sue wanted to debate the statutory authority of I.R.S. employees to ask questions that went way beyond the questions actually on the 1023 form. We could debate that with James Madison, George Washington, and Thomas Jefferson on our side, but that wouldn't get the tax exemption for her organization. The only way to get the exemption, before the sun burns out and the universe ends, is to appease the I.R.S. employee in charge of the application. This is like paying alimony to your ex – distasteful but necessary.
Here is where Sue's application is today. I am working on repairing the relationship with the I.R.S. agent. I got her to laugh at one of my jokes. That's a good start. We are working on answering the additional questions. Sue will eventually get her charity status unless she actually calls the Pope or does something else stupid. However, I don't have much hope that her organization will succeed. This experience has convinced me that Sue doesn't have the business experience and maturity to lead an organization. Because of her phone tantrum, thousands of horny male giraffes aren't getting the romantic assistance they need.
After Sue's story, if you are still intent on helping your fellow earth inhabitants, please consider joining an existing charity instead of starting one. According to the National Center for Charitable Statistics (www.nccsdataweb.urban.org), in 2010 there were 1,014,816 charities in the United States. Maybe you aren't a fan of horny giraffes, but that still leaves 1,014,815 charities that could use your help. I sit on the Board of Directors of Christian Relief Services (www.christianrelief.org). C.R.S. is involved in relieving hunger and deprivation in the United States and around the world. Please consider joining our efforts.
As always if you are looking for less snarky tax and business advice, please check out the main Stitely & Karstetter web site, www.skcpas.com. Thanks for reading!
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