Anne E. Schrantz, CPA ■ (301) 652-9100 ■ Anne.Schrantz@reznickgroup.com

Philip Cornblatt, CPA ■ (410) 783-4900 ■ Philip.Cornblatt@reznickgroup.com

Spring 2011

Survival Strategies

There is some good news: Individual

donations are increasing. However, founda-

tion grants and corporate giving are not.*

The billions of dollars of federal stimulus

money being channeled to nonprofits will

soon end. And state and local governments,

many of which are struggling to cover severe

budget deficits, are an unlikely source of

additional financial support. Meanwhile,

demand, particularly in the social services

sector, continues to increase.

These are serious challenges and many

organizations are struggling. In this climate,

it’s no surprise that mergers, collaborations,

and innovative partnerships are being

considered as possible survival strategies.

Some Advantages

Having two or more “like-missioned”

organizations join forces can provide many

potential benefits. Ideally, the new entity

will be stronger than the sum of its parts,

allowing it to widen its charitable impact,

expand its reach, and pursue opportunities

to develop new programs.

When organizations band together, each

may bring different funding sources to the

union. Funding diversification is particularly

important in today’s economy.

Possible Barriers

What about the obvious benefit of

saving money through a merger? While a

collaboration should allow organizations to

streamline operations and reduce expenses,

it is not a given. In fact, a merger might

involve a significant investment of money

— and time. Any benefit to the bottom line

should be viewed as a long-term goal, not a

short-term expectation.

Charitable groups that are considering a

merger should also be prepared to encounter

resistance from the people closest to the

organization: staff members, executives,

board members, and donors. The sense of per-

ceived loss, especially the loss of institutional

identity, can be very powerful and should

be addressed carefully and thoughtfully.

An Action Plan

Here’s a very general checklist for organi-

zations that may be considering some type

of collaboration or alliance.■ Keep the organization’s mission as

your top priority. An alliance of organi-

zations with similar or compatible goals

generally has a better chance of suc-

ceeding than a corporate-like merger

driven by cost savings.

■ Conduct thorough due diligence,

including a financial review. Do not skip

this step, even if you’re very familiar

with the other organization(s).■ Create a procedural “blueprint” to

forecast how each step of the merger

will be handled. Include cost estimates.■ Carefully plan communications — both

internal and external — to help ensure

that your message is delivered in a

positive, straightforward manner.■ Enlist the support of board members

and get them involved in the transition.■ Build support among your top donors

and solicit their involvement as well.■ Hold “coming together” events for the

staff, executives, board members, and

donors of the merging organizations.■ Strategize branding and marketing efforts.■ Determine how an alliance might affect

your tax status and funding sources.■ Identify legal issues, such as potential

contractual obligations and liability

exposure, that may result. ■

* “Nonprofits Strategize to Help Them Cope with a Perilous2011,” The Chronicle of Philanthropy, January 9, 2011

Nonprofit AdvisorFor the Nonprofit Executive and Board of Directors Member

Although the U.S. economy is showing signs of improvement, the recovery is far from robust. From a nonprofit standpoint, 2011 is shaping up to be another challenging year.

■ Survival Strategies 1

■ Talking Points To Boost Partici-pation in Your Retirement Plan 2

■ More Nonprofits Eligible for e-Postcard 2

■ A Fresh Look at Fundraising 3

■ Recent Developments 4

In This Issue

Copyright © 2011

“ . . . mergers, collaborations,

and innovative partnerships

are being considered as

possible survival strategies.”

Nonprofit Advisor2

Talking PointsTo Boost Participation inYour Retirement Plan

Your employees may just need some

encouragement. Here are some points to

stress.

Tax Deferral

Remind employees that making pretax

contributions to the plan means they’ll owe

less current federal income tax on their

earnings. Taxes are also deferred on invest-

ment earnings generated in their retirement

accounts. Although taxes generally are due

when funds are distributed from the plan,

rolling a distribution over to another plan or

individual retirement account (IRA) can keep

the tax deferral going longer.

Special Opportunity To Save More

The 2010 Tax Relief Act* has reduced the

Social Security payroll tax rate for employees

from 6.2% to 4.2% for 2011. Suggest that

employees put this 2% “raise” to good use

by increasing their plan contributions.

Saver’s Tax Credit

Let employees know about the saver’s

tax credit — a federal income-tax credit that

can effectively lower the cost of contributing

for employees who meet certain income

criteria. The credit is available for up to

$2,000 of contributions. ■

* The Tax Relief, Unemployment InsuranceReauthorization, and Job Creation Act of 2010

A retirement savings plan is a valuable benefit — but only if employees take advantage of it. If participation in your organization’splan has been lagging — or contribution levels are low — steppingup your communication efforts may help.

More Nonprofits Eligible for e-Postcard

Small organizations, however, may file

the much simpler electronic Form 990-N

(e-Postcard). A recent change in IRS filing

requirements will allow more organizations

to utilize the e-Postcard.

Effective for tax years beginning on or

after January 1, 2010, most organizations

are eligible to file the e-Postcard if their

average annual gross receipts are:■ $50,000 or less for the last three tax

years, including the tax year for which

the return is filed. This applies if the

organization has been in existence

for at least three years.

■ $60,000 or less for the first two tax

years. This applies if the organization

has been in existence for more than

one year but less than three.

If an organization has been in existence

for one year or less, it may file the e-Postcard

if gross receipts, including amounts that

are pledged by donors, total no more than

$75,000. ■

Gathering the information required for Form 990, the annual returnthat most tax-exempt organizations file with the IRS, typically takes asignificant amount of time and effort.

Saver’s Tax Credit 2011 Income Ranges

50% Credit 20% Credit 10% Credit

Married Couples Filing Jointly Earning Up to $34,000 $34,001 - $36,500 $36,501 - $56,500

Head of Household Earning Up to $25,500 $25,501 - $27,375 $27,376 - $42,375

Single & Married Filing Separately Earning Up to $17,000 $17,001 - $18,250 $18,251 - $28,250

The maximum credit is $1,000 (50% × $2,000 of contributions) for an individual, $2,000 (50% × $4,000 of contributions) for a married couple. Earnings are adjusted gross income(AGI). To qualify, an individual also must be age 18 or older before the end of the year and can’t be a full-time student or claimed as a dependent on someone else’s return.

3

A Fresh Look at Fundraising

Web 2.0 introduced interactivity. And

that turned the Internet from a static vault

of information into a full 24/7 communication

platform. Social media, such as Facebook,

Twitter, YouTube, and LinkedIn, are game

changers. Given these new ways of commu-

nicating, what are the challenges for non-

profit organizations as they reach out to

connect with current and potential donors?

Fundraising in Transition

One of the key goals of a fundraising

campaign is to share your mission and your

story in the most effective way possible. In

the past, direct mail was generally the best

communication option for fundraising cam-

paigns. But that may no longer be the case.

With new communication channels

opening up, there may not be a single most

effective way to reach out any more. A

recent study shows how donors from differ-

ent generations ranked the importance of

various information channels. (See table.)

While the numbers indicate that direct

mail is still an effective way to reach donors,

repeating this study in a few years could

yield very different results. As the population

ages and technology advances, it is very

likely that more of your donors will turn to

social media channels for information and

to make donations.

Spreading the Word

There are some impressive advantages

to using social media. The cost of entry is

low in terms of actual dollars (although not

necessarily in terms of time). You can build

a community of supporters and, in turn,

empower them to reach out on your behalf.

The biggest advantage of all, however, is the

ability to establish a connection and com-

municate directly with your community.

Nonprofits of all sizes have been quick to

embrace the various social media channels.

According to figures from The Chronicle of

Philanthropy’s latest annual survey of online

fundraising, the top five social media tools

organizations use are:■ Facebook: 58%■ Twitter: 42%■ YouTube: 36%■ Blogs: 18%■ Text messages: 15%

Not all organizations are convinced that

using social media is worthwhile. One major

complaint is that maintaining an effective

presence is time consuming. And it is.

Developing a robust social media presence

requires time and effort. The reward, how-

ever, is the ability to immediately reach out

to, converse with, and respond to your

community.

Getting Started

Since social media is rapidly becoming a

way of life, making the transition from the

old communication channels to social media

may be inevitable. If your organization is on

the social media sidelines, and many are,

you may want to do some research. If you’re

not sure where to start, ask a tech savvy

volunteer or staff member to help. When

you’re ready, draw up a simple plan for using

social media. Set measurable goals, such

as boosting visibility, increasing website

traffic, and building community. You can

always add online fundraising later.

Make It a Policy

It’s likely that you have volunteers and

staff members who are active social media

users. It’s very important, on many levels,

that they consider the repercussions of their

online actions. More and more, organizations

and businesses are adopting formal social

media policies to provide clear usage guide-

lines and avoid liability exposure. Even

organizations that don’t currently use social

media need a policy. ■

To say that the Internet has changed our lives is an understatement.Twenty years ago, the Internet was a big deal. Now it’s a normal partof everyday life. These days, the big changes are the innovationsushered in by Web 2.0.

The general information in this publi-

cation is not intended to be nor should

it be treated as tax, legal, or accounting

advice. Additional issues could exist

that would affect the tax treatment of

a specific transaction and, therefore,

taxpayers should seek advice from an

independent tax advisor based on their

particular circumstances before acting

on any information presented. This

information is not intended to be nor

can it be used by any taxpayer for the

purpose of avoiding tax penalties.

Preferred Information Channel

Facebook,E-mail/ other social

Generation Mail e-newsletters Website media Twitter

Matures (born 1945 or earlier) 49% 24% 14% 2% 0%

Boomers (born 1946–1964) 36% 28% 22% 5% 1%

Gen X (born 1965–1980) 38% 34% 34% 16% 5%

Gen Y (born 1981–1991) 26% 29% 36% 17% 7%

Source: The Next Generation of American Giving, March 2010, commissioned by Convio

Reznick Group offers a broad

range of audit, tax information,

return preparation, and executive

board advisory services to non-

profit organizations. If we can be

of service to you, please call.

Anne E. Schrantz, CPA ■ (301) 652-9100

Philip Cornblatt, CPA ■ (410) 783-4900

How May We Help You?

Nonprofit Advisor

PRESRT STD

U.S. Postage

PAID Permit No. 2446

Merrifield, VA

ADDRESS SERVICE REQUESTED

7700 Old Georgetown Road, Suite 400Bethesda, Maryland 20814Telephone: 301-652-9100

4

Recent DevelopmentsExecutive Compensation Resource

Transparency and accountability have

been — and still are — big issues in the

nonprofit world. Form 990 was redesigned

specifically to provide the IRS with better

insight into how nonprofit organizations are

run. Executive compensation issues receive

particular scrutiny.

The IRS has published guidelines for “best

practices” to help organizations meet the

new reporting requirements. In addressing

compensation, the guidelines say that “a

charity may not pay more than reasonable

compensation for services rendered” to

officers, directors, trustees, key employees,

and others in a position to exercise “substan-

tial influence over the affairs of the charity.”

Although the IRS does not directly spell out

a process that organizations should use to

determine compensation, the guidelines

specify that it should include a review of com-

parability data, i.e., “looking to compensation

levels paid by similarly situated organizations

for functionally comparable positions.”

GuideStar, an organization that gathers

and publicizes data about nonprofits, now

offers a compensation resource that allows

organizations, consultants, and regulators

to easily and effectively analyze executive

compensation.

Health Care Reform Timeline

Last year’s extensive health reform

legislation is still a hot topic. So hot that

the Henry J. Kaiser Family Foundation has

launched a website to provide an information

gateway — http://healthreform.kff.org — for

individuals and organizations interested in

learning more about the Patient Protection

and Affordable Care Act. It provides expla-

nations of the law, in-depth analysis of

implementation issues, recent developments

related to health care, and access to data,

studies, and developments.

The website’s Implementation Timeline,

featuring a year-by-year list of provisions, is a

particularly useful resource. In addition to offer-

ing a comprehensive overview, viewers can

“drill down” for more information and addi-

tional links by clicking on each provision. ■