Nonprofit Tax Help

David McRee, CPA

Why hire a professional to prepare your filings with the IRS?

Both Form 990 and Form 1023/1024 are designed to detect improper use of funds or assets, and to detect improper relations between directors and the organization. It accomplishes this by asking very technical questions, using specialized language. If you do not have a good understanding of terms and concepts like disqualified person, substantial contributor, excess benefit, excess contribution, unrelated business income, supporting organization, noncharitable exempt organization, and if you do not have a thorough understanding of issues related to reasonable compensation and a "rebuttable presumption," then perhaps your filings with the IRS are better left to a professional who is familiar with those things.

It is important to understand why the form asks certain questions the way it does and how to properly answer the question to give the IRS the information it wants.

Form 1023 and 1024 are your ticket to preferential tax treatment. It's better to do it right the first time, rather than having to rangle with the IRS to straighten out a mess.

Form 990, 990 EZ, and now Form 990-T, are open to the public. Unlike your personal or corporate tax returns, which are private information, these nonprofit forms can be viewed by anyone--prospective donors, your local newspaper and television news reporters, just to name the three most important. When I prepare or review a Form 990, I always do so with these questions in mind: Does it look like the organization is trying to hide anything? Is the return complete? Would an unsympathetic news reporter be able to use any inaccuracies or incomplete areas of the return to cast the organization in a negative light? A good pro can help minimize the chances that your organizations Form 990 could result in bad press that could cause donations to plummet.

Another reason is that there are quite a few organizations that very carefully analyze information as it is presented on Form 990 in order to understand how charities work in the United States. They prepare reports and statistics that help Congress make public policy and laws that affect the way charities operate. They prepare all kinds of comparative statistics, many of which (like compensation information) are used by charities themselves. Accurate reporting on Form 990 is good for everyone.

Choosing a Professional

It is important to understand that not all CPA's, lawyers, or business advisers have experience with nonprofit organizations and the peculiar IRS laws to which they are subject. So it is important that you seek out a professional with nonprofit knowledge and experience.

It is also important that you pay market rate for the services you seek. You will get what you pay for. Just as you expect to pay for electricity, insurance, and various contract services, you should pay for tax and legal services and consider them to be an investment in the success of your nonprofit. Too many times I have seen the inadequate results of pro bono services provided by well-meaning professionals with limited nonprofit experience.