What we learn from the fall of nonprofits

We live in an area rich in outdoor activities, amazing quality of life, kind people, and many special events. Until recently, northern Nevada was home to more non-profit organizations per capita than most cities in the United States. That is until the IRS revoked the status of 800 organizations this summer, including 24 just last week.

The reason, quite simply, is that these organizations failed to comply with the Pension Protection Act of 2006, which requires organizations to file an annual return. Organizations which failed to submit a 990 for three consecutive years lost their exempt status.

While the large number of northern Nevada-based non-profit organizations may be a shock, closer to home here in Washoe County, we lost 22.7 percent of our local 2,000-plus organizations. Among those stripped of tax-exempt status were:

* Nevada Festival Ballet, whose most recent 990 filing (in 2000) reported a $600,000 budget.

* Reno Lions Club Charity Foundation, whose 2004 filing reported over $180,000 in net assets; and,

* Junior Assembly of Reno, whose 990s can't be found even though they were active in our community.

If these organizations choose to continue operating, they must now file a federal tax return and pay federal taxes. In addition, they must reapply for tax-exempt status.

The reduction of tax-exempt organizations makes two bold, yet similar statements.

1. It's a reminder that not all non-profit organizations are run well. Poor management and operations result in failure.

2. The "weeding out" process should remind organizations that, in order to succeed, they need strong leadership, strategic planning, cohesive and targeted funding models, corporate and community alliances, compelling visions, and outstanding programs.

From a donor's perspective, this is a good thing. Community, philanthropic, and business leaders enjoy and receive great satisfaction by investing in noteworthy non-profit (or, better yet, community-benefit) organizations. They lose interest in giving, in general, after learning that their hard-earned dollars supported organizations which fail to operate effectively or meet critical requirements.

Charitable giving has changed in recent years. Donors are more selective and apply greater thought, research, and analysis into their charitable decisions. Businesses are moving away from "checkbook charity" giving and becoming more engaged with organizations where they can build strong, mutually-beneficial, and rewarding alliances. They, in addition to individuals and private foundations prefer to focus on organizations which allocate the majority of their revenue to programs, build meaningful relationships with constituents, properly treat their staff and volunteers, and operate with dedicated and committed board leaders. Equally as attractive are community-benefit organizations which are transparent, particularly when it comes to such things as spending practices, program descriptions, policies and procedures, and financial controls.

The long-term benefits of the revocation process are much clearer than the short-term impact. The increased transparency will lead to a more accurate picture of the non-profit sector. The IRS will be able to allocate its education and enforcement resources more efficiently. Donors, volunteers, and other stakeholders will have confidence that the organizations that receive their support have reported as required and deserve their trust.

The non-profit sector not only represents a significant amount of the employment and wages in Washoe County, but also contributes to quality of life issues. Northern Nevadans have access to quality healthcare, education, job training, social activities, and recreation because of this important sector of our economy. When looking at the non-profit sector, it's time to recognize it as not just a source of outstanding community support, but a sector of strength and economic importance.

Pete Parker is managing partner of NPcatalyst, a Reno-based philanthropic solutions that provides services to businesses and non-profit organizations. Contact him at 333-9444 or pparker@npcatalyst.com.