Learn more about Tax-Exempt Organizations at Schiff Hardin. Attorneys In This Practice Mazen Asbahi Michael Burnstein Lisa M. Chessare Todd R. Eskelsen Nathan A. Engel Nicole Finitzo Louise M. Fitzsimons Andrew M. Grumet P. Gregory Hess Michael J. Huft Kim Kamin Katherine J. Levy Stephen A. Marcus Christine R. W. Quigley Thomas P. White Schiff Hardin Offices One Atlantic Center, Suite 2300 1201 West Peachtree Atlanta, GA 30309 225 Franklin Street, Suite 2600  Boston, MA 02110  6600 Sears Tower 233 S Wacker Drive Chicago, IL 60606 One Westminster Place Suite 200 Lake Forest, IL 60045 900 Third Avenue New York, NY 10022 One Market, Spear Tower 32nd Floor San Francisco, CA 94105 1666 K Street, NW Suite 300 Washington, DC 20006 - - - - - - - - - Join our mailing list. Forward this issue to a friend or colleague. - - - - - - - - -

Tough Questions for Tough Times

You don't have to be an economist to know that the financial markets are in the most tumultuous state most of us have ever seen. Nonprofit organizations are facing unprecedented challenges as they work to retain or increase much needed support. There are daily reports of nonprofits that have suffered significant declines in the value of their endowments, that are experiencing cuts in government programs and that are suffering from reduced donations from long-time supporters.

In light of what is going on in today's world we thought it would be helpful to highlight a few questions to think about as the year comes to an end and donors are asked to continue to support the nonprofits that work so hard at making our communities great places to live. For donors, these questions highlight the knowledge about potential donees that will help the donor maximize the effect of his or her donations and make sure they are applied as intended. For nonprofits, it is important to consider how you would respond to these questions. And, even if your donors do not ask them, they will help you decide whether certain changes should be made to the way you conduct your affairs:

• Ask Questions — If you are asked to make a contribution, no matter the size, ask lots of questions. For example, ask what the organization does with the contributions it receives (and ask for specifics); ask about what portion of its contributions will go to actual programs as opposed to other costs such as fundraising expenses; ask about the organization's financial condition.
• Know the Organization — Before making any contribution, you should make sure you know about the organization you are giving to. What is its track record? What are its successes and failures? Ask about who runs the organization; what is their experience? What are the organization's top 10 expenses each year? Who receives those payments? How much are they and are the payees related to the organization?
• Address the Economy — It is no secret that the economy is causing nonprofits to work harder to maintain programs and services. As a result, ask what is being done by the organization in response. Ask whether the organization is cutting programs, staff and other costs. Also ask what measures the organization is taking to work with other nonprofits to create strategic partnerships in order to be more efficient to maintain programs and in the delivery of services. If the organization is not taking such actions, ask why not. The fact that an organization is struggling is not necessarily a reason to forgo a gift; in fact, it may be a reason to initiate or increase support. Knowledge of the organization's financial circumstances and why those circumstances exist will help the donor make a more informed decision.
• Returns and Reports — Depending on the size of the donation, it may be a good idea to ask the organization to provide you with copies of its most recent (or three most recent) tax return(s) (typically the IRS Form 990) and audit. If you feel uncomfortable asking, see if you can find a copy on the Internet. You can find many IRS Form 990s on the Internet through Guidestar at www.guidestar.org. Review these documents carefully because they can yield a wealth of information about the organization. Ask the organization to explain anything you see that you do not understand. If in doubt, call your attorney and ask for assistance.
• Tax Exemption — If you are making a gift for the first time, or if there is any other reason for doubt, ask the organization for a copy of its IRS Determination Letter. This is the document issued by the IRS confirming the tax exempt status of the organization. Make sure that the name of the organization corresponds with the name on the letter. Also check with the IRS to confirm that the organization is still exempt. This can be done by looking up the organization in Publication 78 on the IRS website (www.irs.gov/app/pub-78/).
• Web site — These days, most organizations will have a Web site. Review the information contained on the Web site. Many organizations will include detailed information about the organization (e.g., its history, board members and officers, executive management, financial reports and policies).
• Web Searches — Use your favorite search engine to search the Internet for information about the organization. Search for news stories and any other information you can find about the organization, its board members and executive management.
• State Attorney General and Other Agencies — Check with your state attorney general or other state agency that supervises the activities of nonprofits in your state (this can often be done via the Internet) to see if the organization is in good standing, whether there have been any complaints or other action taken with respect to the organization.

Being an informed donor is not something you should do only when the economy is doing poorly, when the amount of the contribution is large, or when funds available for charitable causes are limited. These are questions everyone should always be asking. Nonprofits should, and often do, welcome the opportunity to address questions such as these in order to build strong relationships with their supporters.

RECENT PUBLICATIONS

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"Spotlight On: Charley's Fund," Philanthropic Spotlight (October 2008)

"Extra! Extra! Read All About It!," Nonprofit News (October 2008)

"IRS Abolishes Advance Ruling Period for Public Charities, Makes Other Changes to Public Support Test," Tax-Exempt Organizations Update (September 2008)

"Embezzlement and Nonprofts," Nonprofit News (September 2008)

ABOUT SCHIFF HARDIN LLP

Schiff Hardin LLP is enthusiastically committed to serving the legal needs of tax-exempt organizations, matched by significant experience and practice capabilities in this area. Our attorneys provide comprehensive counsel to a wide array of public and private philanthropic, health care, medical and scientific research, housing, neighborhood redevelopment, cultural, artistic, civic, college and educational, and religious organizations, as well as social welfare organizations, trade associations and business leagues, business and housing cooperatives, and professional fundraisers. For more information about the services Schiff Hardin LLP provides to tax-exempt organizations, please feel free to contact us.