Sunday, April 27, 2008

The Benefits and Risks of Small Nonprofits

The Times Union of Albany, New York has an interesting article about the legal and accountability issues raised by small nonprofits, often formed in the wake of a particular tragedy.  It cites numerous small nonprofits founded either to help a particular individual who is injured or missing or to help others in the memory of some specific person or tragedy.  It correctly states that the former type of nonprofit is not a charity under New York state law or eligible to receive tax deductible charitable contributions under federal tax law, but notes that such groups may still receive a significant number of donations because of sympathy for the individual who will be helped.  It also reports that many of these nonprofits are exempt from state or federal filing requirements because of their small size, limiting accountability for how they spend the funds they raise.

For example, it describes the Joshua Szostak Search Fund, created to help the search for a State University of Plattsburgh student who disappeared just before Christmas in 2007 and whose body was recovered from the Hudson River last week.  The fund did not claim charity status but according to Joshua Szostak's father, Bill Szostak, used the proceeds of two fundraisers to charter a helicopter, buy binoculars and other search equipment, and pay for various search expenses.  The fund is not registered with either the New York Attorney General or the IRS, and Bill Szostak declined to discuss how much it had received from donors.

The IRS will soon, however, be at least aware of the existence of even the smallest nonprofits if they claim exemption from federal income taxes because of the new requirement that such nonprofits file the Form 990-N, also known as the e-Postcard.  This form is due for the first time in 2008 for tax years ending on or after December 31, 2007.  More information about this requirement is available on the IRS website.


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