Author Topic: Starting a Non-Profit Org in the US  (Read 1019 times)

hooplady

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Starting a Non-Profit Org in the US
« on: April 08, 2021, 03:27:55 PM »
Hello all,
I did a bit of searching and didn't see this topic, but there are many iterations of the search term (nonprofit, non-profit, charity, 501(c)3, etc.)

Has anyone started a non-profit and funded the seed money with their excess 'stash? Amazingly, I'm sitting here with less than a 2% withdrawal rate and there are things I'd like to do with the excess. And maddeningly, there doesn't seem to be a place to donate these excess funds that will accomplish exactly how I want them used. I've been told that a friend made a donation to a nonprofit and gave them very specific instructions on how it should be used, and those instructions were not honored.

Any advice? Thanks in advance.

maizefolk

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Re: Starting a Non-Profit Org in the US
« Reply #1 on: April 08, 2021, 03:55:31 PM »
I'd say @TheGrimSqueaker is the person who could shed the most light on this. They quite literally wrote a book on the topic of nonprofits and what can go wrong with them.

reeshau

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Re: Starting a Non-Profit Org in the US
« Reply #2 on: April 09, 2021, 06:45:56 AM »
You don't mention it,  but I assume you have already looked into the option of a donor-advised fund?

@wooljaguar has also been involved in the startup of several nonprofits.

NorCal

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Re: Starting a Non-Profit Org in the US
« Reply #3 on: April 09, 2021, 07:18:17 AM »
I recently joined the board of a recently formed non profit.

Iím new to it as well, but have learned a few lessons.

Itís not super complicated, but you do want to make sure you do your accounting right and use funds only in allowable ways. We hired what I would call an ďumbrellaĒ non-profit to manage the back-office functions. I highly recommend that.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #4 on: April 09, 2021, 10:19:33 AM »
You don't mention it,  but I assume you have already looked into the option of a donor-advised fund?

@wooljaguar has also been involved in the startup of several nonprofits.
I was just about to post that I'm probably not looking for a 501(c)3 but something like this, thank you! I'll have to do more research.

I've been treasurer of a couple of small non-profits so I'm familiar with the accounting and some of the state filings.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #5 on: April 11, 2021, 06:02:47 PM »
OK folks, while I now think that starting a separate non-profit may be overkill, I'm not sure I understand how Donor Advised Funds work.

From what I've read, I can work with an existing partner (Fidelity, Vanguard, etx.) to make a contribution that will be sent to a specific non-profit (immediately or over time, at my direction). However, I'm not seeing how I can direct the specific use of my contribution. Is that within the control of the Donor?

Paul der Krake

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Re: Starting a Non-Profit Org in the US
« Reply #6 on: April 11, 2021, 06:20:43 PM »
The DFA doesn't give you any extra "rights" to direct how funds are to be spent. It's merely a mechanism to time your donations for increased tax efficiency.

What do you mean by "not honored"? If you give money to a non-profit asking them to give tacos to the homeless and they feed them apple pie instead, in practical terms there probably isn't much you can do. If they spent it on a BMW for one of the directors, that's a different story.

maizefolk

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Re: Starting a Non-Profit Org in the US
« Reply #7 on: April 11, 2021, 06:30:23 PM »
I've heard second hand that a lot of non-profits are wary of accepting donations with specific instructions for us just because of the potential for bad blood/litigation if they try to execute in good faith and the donor ultimately disagrees with how things turn out.

Would you be comfortable sharing a bit more about what it is you want your funds to be used for, either by an existing nonprofit or one you create yourself?

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #8 on: April 11, 2021, 08:01:15 PM »
I've heard second hand that a lot of non-profits are wary of accepting donations with specific instructions for us just because of the potential for bad blood/litigation if they try to execute in good faith and the donor ultimately disagrees with how things turn out.

Would you be comfortable sharing a bit more about what it is you want your funds to be used for, either by an existing nonprofit or one you create yourself?
My biggest passion is animal welfare, specifically cats, and even more specifically, fixing feral and community cats. The reason I'm so passionate about this is that I foster neonatal kittens, and addressing cat welfare has a direct impact on the number of kittens who are born each year. There is a nonprofit who assists our local municipal shelter, but their main focus is dogs. There are a couple of other large animal-related organizations, but they still address general animal welfare so there isn't a clear way to target my donations.

This is a very specific scenario, but I'm thinking it may apply more broadly - in cancer research, there are ways to donate to specific types of cancers. In addressing a homeless population, there are ways to target a specific region. It may be that I'm wishing to donate at a granular level that just isn't attainable, in which case I often find that giving directly in non-tax-deductible ways is the answer. I mean, at some point I'm saying that I only want to fund orange female tabbies who have litters of four or more in ZIP code XYZ, which is clearly nuts. But if there's a way to get what I want then I figured this group would have the best suggestions. :-)

maizefolk

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Re: Starting a Non-Profit Org in the US
« Reply #9 on: April 11, 2021, 08:20:42 PM »
Makes sense. I'm assuming as a municipal organization your shelter cannot accept charitable donations directly. How does the nonprofit assist the shelter? Buying equipment? Organizing volunteers? Paying separate employees who are stationed at the shelter? I suspect you may be right that the easiest way may be to sacrifice the tax deductibility to spend money directly on accomplishing the things you care about.

It's certainly possible to set up small and targeted nonprofits. Flatbush Cats is a 501(c)(3) dedicated to TNR work in a single neighborhood of Brooklyn (although obviously drawing donations from across the country from posting youtube videos). But it certainly seems to require at least one person who is going to make running the organization a big part of their life.

For cancer research there are generally specific charities set up to support work on specific kinds of cancer so it's straightforward to pick one to donate to in order to support research into a specific kind of cancer.

reeshau

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Re: Starting a Non-Profit Org in the US
« Reply #10 on: April 11, 2021, 08:28:22 PM »
My biggest passion is animal welfare, specifically cats, and even more specifically, fixing feral and community cats. The reason I'm so passionate about this is that I foster neonatal kittens, and addressing cat welfare has a direct impact on the number of kittens who are born each year. There is a nonprofit who assists our local municipal shelter, but their main focus is dogs. There are a couple of other large animal-related organizations, but they still address general animal welfare so there isn't a clear way to target my donations.

Do you mean like this group?  Or these?  It seems like a Google search of "feral cat neutering florida" brings up a lot of organizations.  Maybe they aren't in your area; if not, I would approach several or the one that looks best to you and ask how to get them to come to your area.  You might have a role in founding a local chapter, but you wouldn't be starting from scratch.  So really, you could also go faster.  They may also be able to put you in touch with others interested in your area to help.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #11 on: April 11, 2021, 08:46:37 PM »
Makes sense. I'm assuming as a municipal organization your shelter cannot accept charitable donations directly. How does the nonprofit assist the shelter? Buying equipment? Organizing volunteers? Paying separate employees who are stationed at the shelter? I suspect you may be right that the easiest way may be to sacrifice the tax deductibility to spend money directly on accomplishing the things you care about.

It's certainly possible to set up small and targeted nonprofits. Flatbush Cats is a 501(c)(3) dedicated to TNR work in a single neighborhood of Brooklyn (although obviously drawing donations from across the country from posting youtube videos). But it certainly seems to require at least one person who is going to make running the organization a big part of their life.

For cancer research there are generally specific charities set up to support work on specific kinds of cancer so it's straightforward to pick one to donate to in order to support research into a specific kind of cancer.
For my municipal shelter they do things such as fund heartworm treatment (a major cost), support the Foster Office (kitten/puppy formula etc.), fund special vet services such as orthopedic consultations and surgeries. etc. Flatbush Cats is actually a great example of what I was hoping to set up as a nonprofit, the only difference is that my city is smaller.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #12 on: April 11, 2021, 08:54:07 PM »
Do you mean like this group?
Yes, exactly like Operation Catnip in Gainesville, except that I'm in North Florida. Which is why I initially thought establishing a 501(c)3 was the proper avenue if I want to replicate this in my area. But others suggesting Donor Advised Funds as a way to accomplish the same thing.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #13 on: April 11, 2021, 09:03:44 PM »
I want to say that although it may seem like I'm really splitting hairs (fur!!!)  in my desire to target a narrow population, I really appreciate all the responses I've received. It's entirely possible that the answer is "Hey Hooplady, you're attempting to get a tax benefit for something so bleeping specific that it's really not practical,." And that's OK, I'm just looking to bounce ideas off a community who I consider to be pretty darned experienced.
 
« Last Edit: April 12, 2021, 09:01:02 AM by hooplady »

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #14 on: April 11, 2021, 09:13:37 PM »
The DFA doesn't give you any extra "rights" to direct how funds are to be spent. It's merely a mechanism to time your donations for increased tax efficiency.

What do you mean by "not honored"? If you give money to a non-profit asking them to give tacos to the homeless and they feed them apple pie instead, in practical terms there probably isn't much you can do. If they spent it on a BMW for one of the directors, that's a different story.
I think I'm finally starting to grok the advantages and limitations of DFA's.

Regarding my mention of donations "not honored", it was a case of "Hey, I want this money to benefit everyone in the county" which was actually implemented as "We'll limit this to x instances for each person using these funds."  The donor (not me) was upset, but I'm now starting to look at the bigger picture as to whether this was truly such an egregious misuse of funds or simply a small misinterpretation of intent.

Dicey

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Re: Starting a Non-Profit Org in the US
« Reply #15 on: April 12, 2021, 12:57:48 AM »
A DAF has specific rules about who you can give to, mainly IRS qualified 501(c)(3)s. However, you as the holder of the DAF can specify to the intended NP exactly what your gift is for before you give it. If they don't use it as agreed upon, you simply never give them any more money. You can also specify payment in increments, as in, "I will contribute $5k for [fill in the blank], and make four equal payments over 24 months." If they don't perform, you don't order the next check. Nothing a NP can do to make you pay the full amount if they don't keep their end of the bargain.

Setting up your own NP is expensive and a lot more work.

For more ideas, here are two groups who help cats in my region.  Tony LaRussa's Animal Rescue Foundation (ARF) rescues cats and dogs from shelters and places them for adoption at their state-of-the-art facility.
https://www.arflife.org/cats

Community Concern for Cats. CCC is a smaller, more homespun, but well established group that only helps cats. http://www.communityconcernforcats.org/

Good luck!

reeshau

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Re: Starting a Non-Profit Org in the US
« Reply #16 on: April 12, 2021, 06:38:37 AM »
Do you mean like this group?
Yes, exactly like Operation Catnip in Gainesville, except that I'm in North Florida. Which is why I initially thought establishing a 501(c)3 was the proper avenue if I want to replicate this in my area. But others suggesting Donor Advised Funds as a way to accomplish the same thing.

Check out the second link I posted--had like 50 different orgs in FL.

maizefolk

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Re: Starting a Non-Profit Org in the US
« Reply #17 on: April 12, 2021, 06:47:30 AM »
Yes, I don't think a DAF is the right tool if you are worried about how your donation is going to be spent. It's a great tool for splitting apart the decision to give money to charities (and get the tax deduction for doing so) from the decision about what particular causes you want to support and when.

reeshau's idea of approaching an existing cat focused nonprofit and seeing if they'd be willing to start sponsoring medical procedures for cats at your local shelter and/or establish a local chapter if you gave them a donation to support that work seems like a good one (worst case they completely ignore your wishes and spend your money on helping other cats in other parts of Florida). Dicey's solution of giving donations in stages as you see the money being used for the purpose you'd intended it to be (and talking to the nonprofit about your plans to do so) is also a good one. You could either try that with the nonprofit already associated with your local shelter or combine it with reeshau's approach of getting a cat-focused organization from elsewhere in Florida interested in your local shelter.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #18 on: April 12, 2021, 08:55:47 AM »
Check out the second link I posted--had like 50 different orgs in FL.
I did, and my local clinic is already listed. There are some other possibilities on the list though so thanks!

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #19 on: April 12, 2021, 10:52:54 AM »
A DAF has specific rules about who you can give to, mainly IRS qualified 501(c)(3)s. However, you as the holder of the DAF can specify to the intended NP exactly what your gift is for before you give it. If they don't use it as agreed upon, you simply never give them any more money. You can also specify payment in increments, as in, "I will contribute $5k for [fill in the blank], and make four equal payments over 24 months." If they don't perform, you don't order the next check. Nothing a NP can do to make you pay the full amount if they don't keep their end of the bargain.
This seems like a very good approach and gives me lots of flexibility, whether I use a DAF or not. I suppose if they got persnickity they could sue for breach of contract, but if the conditions are laid out correctly that shouldn't be an issue.

robartsd

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Re: Starting a Non-Profit Org in the US
« Reply #20 on: April 12, 2021, 11:58:00 AM »
A DAF has specific rules about who you can give to, mainly IRS qualified 501(c)(3)s. However, you as the holder of the DAF can specify to the intended NP exactly what your gift is for before you give it. If they don't use it as agreed upon, you simply never give them any more money. You can also specify payment in increments, as in, "I will contribute $5k for [fill in the blank], and make four equal payments over 24 months." If they don't perform, you don't order the next check. Nothing a NP can do to make you pay the full amount if they don't keep their end of the bargain.
This seems like a very good approach and gives me lots of flexibility, whether I use a DAF or not. I suppose if they got persnickity they could sue for breach of contract, but if the conditions are laid out correctly that shouldn't be an issue.
The DAF would allow you to separate the tax planning aspect of donating from the exerting control over how the money is used aspect of donating.

TheGrimSqueaker

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Re: Starting a Non-Profit Org in the US
« Reply #21 on: April 12, 2021, 03:21:10 PM »
The DFA doesn't give you any extra "rights" to direct how funds are to be spent. It's merely a mechanism to time your donations for increased tax efficiency.

What do you mean by "not honored"? If you give money to a non-profit asking them to give tacos to the homeless and they feed them apple pie instead, in practical terms there probably isn't much you can do. If they spent it on a BMW for one of the directors, that's a different story.
I think I'm finally starting to grok the advantages and limitations of DFA's.

Regarding my mention of donations "not honored", it was a case of "Hey, I want this money to benefit everyone in the county" which was actually implemented as "We'll limit this to x instances for each person using these funds."  The donor (not me) was upset, but I'm now starting to look at the bigger picture as to whether this was truly such an egregious misuse of funds or simply a small misinterpretation of intent.

The vagueness of the initial instruction left it open to interpretation. Whoever left instructions like that isn't in much of a position to complain. If the money was used for a genuinely charitable purpose, and wasn't used to create a private instrument or some kind of insider benefit, the donor doesn't have much of a leg to stand on.

When you make a directed donation like that, it behaves a lot like a grant. Grants are limited to the purpose for which they are given. For example, a church might receive a disability access grant to rebuild its front stairs to include a wheelchair ramp. If they use the money to replace the leaking roof instead, they're technically in violation of the terms of the agreement. Money is fungible, so if they do the work they received the grant/donation to perform, it's a wash.

Suppose now that the church never did put in the wheelchair ramp despite having received money to do so, and the donor/grantor finds out. The donor typically asks for the money back, and can sue and win, although in the case of a small charity it might be hard to collect.

You can set up a not-for-profit corporation to hold your assets and spend the ~$800 to create a private operating or private non-operating foundation, which is a type of 501(c)3 tax exempt organization. Lots of wealthy people have one or the other. It allows you to make tax exempt donations to an organization you basically control (as opposed to a public charity which gets contributions from the general public).

Difference between POF versus PNOF is that POFs "operate" or run a program. You'd have to actually rescue a cat, foster some kittens, pay for some neutering, and have actual expenses with a POF, and that would have to consume more than half of your program activities. A PNOF does not have operations of its own and strictly distributes money to other organizations. You'd have to decide whether you want a POF or a PNOF. I personally am more of the PNOF-ish type myself.

There are things you can't do with a POF or PNOF regardless of whether you run a charitable program. You can't perform any type of self-dealing (example: renting real estate from yourself or your company... Eric Trump got in trouble for that not long ago). You can't create a private instrument (setting aside or earmarking money for a specific individual). The kinds of third party organizations you fund would have to be 501(c)3 and none of them can be domestic terrorist organizations (David Green's Hobby Lobby POF got in trouble for that a couple years back). Political contributions, campaign contributions, lobbying, or trying to influence the results of an election are seriously illegal.

The thing you buy, with a POF or PNOF, is control. You don't have control with a DAF; the DAF is basically an account that you have with your charity. The investments in it aren't up to you. You can make recommendations and you can keep your identity secret in a way that a POF or PNOF doesn't allow. You also don't have to participate in the folderol of meetings, Board members, and all the administrative stuff that goes on with the running of a charity.

Does this make sense?

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #22 on: April 13, 2021, 09:54:28 AM »
Thank you, @TheGrimSqueaker that's very helpful, especially the part about foundations. You've hit the nail on the head - I'm looking for control. I just have to decide how much I really want that control and whether I'm willing to do the hard work of setting up and running a NP.

In other news, I spoke with the COO of the clinic yesterday and expressed my concerns about the amount of the current funding and the way it is being doled out. I offered to make a sizeable donation if I could be assured that it would be used in a way that would address what I see as a problem right now. It should be noted that I'm literally just trying to mirror previous grants that they've had in place. I'm not trying to re-invent the wheel here, rather I'm wanting to go back to something that has worked repeatedly in the past. We did not come to a meeting of the minds yesterday but agreed to discuss again later.

In all my years of donating to charities I've never, ever tried to give money "with strings" in this way. But then, I've never been sitting on such a sizeable stash before, and seeing what I perceive is a hole that really needs to be plugged.

TheGrimSqueaker

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Re: Starting a Non-Profit Org in the US
« Reply #23 on: April 13, 2021, 11:03:47 AM »
Thank you, @TheGrimSqueaker that's very helpful, especially the part about foundations. You've hit the nail on the head - I'm looking for control. I just have to decide how much I really want that control and whether I'm willing to do the hard work of setting up and running a NP.

In other news, I spoke with the COO of the clinic yesterday and expressed my concerns about the amount of the current funding and the way it is being doled out. I offered to make a sizeable donation if I could be assured that it would be used in a way that would address what I see as a problem right now. It should be noted that I'm literally just trying to mirror previous grants that they've had in place. I'm not trying to re-invent the wheel here, rather I'm wanting to go back to something that has worked repeatedly in the past. We did not come to a meeting of the minds yesterday but agreed to discuss again later.

In all my years of donating to charities I've never, ever tried to give money "with strings" in this way. But then, I've never been sitting on such a sizeable stash before, and seeing what I perceive is a hole that really needs to be plugged.

One more thing to consider is that if you set up a NP, you have to have at least a handful of other people willing to go through the rigmarole and to be part of your executive team and Board of Directors. There are meetings and paperwork required, and if the other people involved aren't as into the task as you are, you'll end up basically carrying them. That happened with a youth charity I set up, and I'm in the process of extricating myself from it because otherwise it won't ever stand on its own.

hooplady

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Re: Starting a Non-Profit Org in the US
« Reply #24 on: April 13, 2021, 12:03:59 PM »
One more thing to consider is that if you set up a NP, you have to have at least a handful of other people willing to go through the rigmarole and to be part of your executive team and Board of Directors. There are meetings and paperwork required, and if the other people involved aren't as into the task as you are, you'll end up basically carrying them. That happened with a youth charity I set up, and I'm in the process of extricating myself from it because otherwise it won't ever stand on its own.
Oh yeah, been there done that! I have a friend who co-founded their own NP, the founding two were very active and the other board members were just on paper. I contacted one of them to ask a question and she replied that she had resigned several months before. Later I found out that the my friend wasn't even aware of her resignation! They quickly devolved to the point that the other founder left. Friend was then smart enough to recruit a whole lot more people who were actually hands-on, they're doing much better now.

Oh and the founder who left was the financial person, so they had a lovely time trying to figure out their 990 and State filings.