Las Vegas nonprofits feed the poor, shelter the homeless and help the
mentally disabled. But behind the scenes, some of the most well-meaning groups
can be an operational mess.
Many nonprofit leaders, locally and nationally, fail to file paperwork required by the Internal Revenue Service and lose their tax-exempt status. Others put friends on their boards of directors in spots that should be reserved for well-connected fundraisers. Some use their groups as personal piggy banks, looting donations. Others hire outside finance chiefs to control the purse strings only to discover that one day they have vanished, along with money from the group.
"Nonprofits are started by people with a passion for a cause. They're not necessarily the best businesspeople," accountant Brenda Stout said.
Of course, many nonprofits are well run, with a strong board of directors, balanced finances and consistent programming.
A good number, however, are riddled with problems. Many of the issues revolve around paperwork.
Managers often incorrectly believe that once an organization incorporates as a nonprofit in Nevada, they automatically are granted nonprofit status with the IRS.
That's not the case. They still must apply with the federal agency if they want tax exemptions and donor write-offs.
"A lot of small (groups) don't understand that," said Rick Cunningham, a tax attorney with Roland & Kaplan.
Once they get IRS clearance, nonprofits that bring in at least $50,000 a year in revenue have to file annual tax returns that are available to the public. Known as 990s, they disclose revenue, expenses, executive salaries and vendors that get paid $100,000 or more a year.
Smaller nonprofits with less revenue have to notify the IRS using an e-Postcard, which takes a few minutes to complete.
The rules are relatively simple, but not everyone complies.
In Nevada, the IRS has yanked tax-exempt status from 1,100 nonprofits since 2011 because they failed to file either a 990 or e-Postcard for three consecutive years, according to federal records. There are almost 4,600 tax-exempt charities in Nevada, according to the IRS.
Almost all of them are small, little-known groups, such as sports leagues or religious organizations. Many likely failed to file because they no longer exist, Cunningham said.
Other common missteps involve retail sales.
If a tax-exempt chamber of commerce, for instance, leases out its conference room, the group might have to pay federal tax on the income it received from the rental. That's because leasing falls outside its stated mission of business advocacy and education.
In addition, wealthy people sometimes set up charitable foundations, then decide to reverse course and take back their seed money. Under IRS rules, however, that money can't go back to the founder. It must be spent on charitable purposes, donated to a service group or transferred to another check-writing foundation.
"It is a trap for the unwary if you don't follow the rules," Cunningham said.
Perhaps the biggest pitfall, however, involves boards of directors.
A board's main responsibilities are raising money, setting policy and, when applicable, replacing themselves, Stout said. Directors should come from a range of industries and be well-connected in the community.
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