Which (c) is Right for Me? 501(c)(3) vs. 501(c)(6)

by J. Scott Dick, CPA
VP, Finance & Operations

Thinking of starting a new, nonprofit, tax-exempt organization? Trying to decide whether to organize as a c3 or c6? Know the difference?

Whereas the c3 and c6 are alike in terms of exemption from income taxes, their qualifying characteristics, the application process (IRS Form 1023 vs. 1024), and the various rules governing their ongoing activities can be quite different.

It is helpful to first understand the distinction between a “nonprofit” and a “tax-exempt” entity. Nonprofit refers to an entity’s incorporation/organizational status as governed by state law, whereas “tax-exempt” refers to federal income tax exemption governed by the Internal Revenue Code. The c3 and c6 are two common IRS tax-exempt statuses for nonprofits.

To qualify for either exempt status, a nonprofit must meet specific tests which are outlined in IRS Publication 557, Chapters 3 and 4, available at www.IRS.gov.

One common requirement of a tax-exempt entity is that your net earnings may not benefit private shareholders or individuals.

Once organized, c3 and c6 organizations are both required to file annual IRS Form 990, 990-EZ, or 990-N depending on their size. They may also be required to file 990-T and pay taxes if they have “unrelated business income.”

Although the applicable IRS schedules and required disclosures of the c3 and c6 vary, all tax exempt entities are expected to have strong governance policies and practices in place and the new 990 wants to know a great deal about them.

Which exempt classification is right for you? Here are some common differences:

501(c)(3)	501(c)(6)
Operated exclusively for charitable, educational, religious, literary, or scientific purposes	Operated to promote a common business interest, and to improve business conditions in the industry
Includes membership associations (e.g., professional society), if the purpose is to advance the profession with respect to "educational" activities	A membership organization (e.g., business league, industry trade association), advancing a common business interest
Lobbying and political activities are significantly restricted. A c3 will lose tax-exempt status if the IRS determines that it has engaged in "substantial" lobbying activities	Allowed a wide-range of lobbying. Yet, the main stipulation is that a c6 is required to disclose to membership the % of their annual dues that is lobbying (i.e., non-deductible to members for tax purposes)
Special Advantages of the (c)(3) include:
Enhanced fundraising advantages, such as eligibility to receive tax-deductible "charitable contributions" and gifts of property and eligibility to receive many grants	Dues or other payments to a c6 are only deductible to the extent that they serve an "ordinary and necessary" business purpose of the payer
Eligibility to receive other state and local tax exemptions (e.g., sales tax)

As you can see, there are several similarities and distinct differences within the world of the 501(c); and c3/c6 represents only two of several types.

When creating a new nonprofit organization, it is always wise to consult legal, tax and association management professionals with the background and experience to help you make an informed decision and to protect your ongoing tax-exempt status.

Reposted from a popular AMR Blog post October 15, 2010. Click here to see the original post.

Clearing the decks

This is a great illustration of what an association management company can do for your nonprofit organization. Think about it this way, is your board's work and effort adding value to the mission of the association or is it sliced and diced into project and activities that don't actually make the association better able to achieve its vision?

Seth's Blog: Clearing the decks

The example may not be about an association, but imagine if it were? If all those little, day-to-day activities were attended to by a professional and skilled staff, how would your volunteer leadership structure its time and focus its energy? What could your organization accomplish?

Engle Earns Meeting Planner Certification

Will Engle, CMP

LEXINGTON, Ky. – AMR Management Services is proud to announce Will Engle has earned his designation as a Certified Meeting Professional (CMP).

The foremost certification of the meetings, conventions and exhibitions industry, the CMP program recognizes individuals who have achieved the industry's highest standard of professionalism. Established in 1985, the CMP credential increases the proficiency of meeting professionals. The credential, awarded by the Convention Industry Council (CIC), is the most widely known and well-respected designation for meeting planners.

“I am very proud of the expert staff we have here at AMR,” said John Ruffin, AMR President and CEO. “Will’s commitment to the industry in earning this key certification is what sets AMR apart."

Engle started with AMR in 2011 after serving in a variety of positions within in the association industry since 2000. He graduated from Transylvania University in Lexington in 2002 with a degree in Business Administration, and completed his Master of Science in Sport Administration from Eastern Kentucky University in 2006.

Engle resides in Lexington with his wife Kate and 16-month-old son Liam.

About AMR Management Services
AMR Management Services provides professional services to a variety of local, regional, national and international nonprofit trade associations, professional societies and foundations. Through our passion, people and principles, AMR turns vision into action to enable client success.

AMR’s core services include association management, conference and event management, marketing and creative services and technology management. More than 20 organizations rely on AMR for headquarters and administrative support, executive leadership, board management, research and issue management, government affairs, conference and event management, technology support and website development, content management, fundraising, and marketing and creative services. AMR is charter accredited by the AMC Institute and active in the American Society of Association Executives. To learn more, visit www.AMRms.com.

Media Contact
Brian Reuwee
(636) 449-5050
breuwee@amrms.com

NASCA Selects AMR as Management Partner

LEXINGTON, Ky. – The National Association of State Chief Administrators chose AMR as its new association management partner.

“During our research, one company was continually mentioned as an outstanding service provider – AMR,” said NASCA President Richard Sliwoski. “They understood what our needs were, made wonderful suggestions and followed through on their commitments.”

AMR Explores Business Opportunities in Asia

Nick Ruffin, AMR Management Services COO,

talks with a representative from the hospitality

industry in Hong Kong.

LEXINGTON, Ky. – AMR Chief Operating Officer Nick Ruffin recently traveled to Hong Kong as part of a coalition of association management companies (AMC). The AMC Study Mission focused on growth potential of Asia as a market for associations and business opportunities for AMCs.

“The trip familiarized us with the culture and business environment for associations in Hong Kong and the region,” Ruffin said. “Hong Kong is a fascinating place and may be in discussions involving future client conferences and events and future business expansion.”

Representatives from six select AMCs were invited on the tour, sponsored by Meetings and Expositions Hong Kong. Almost a dozen AMC owners and key staff joined Ruffin. The group toured Hong Kong meeting and event venues, met with tourism and economic development officials and participated in discussions about doing business in the region.

“Discussions with local healthcare and hotelier association leaders, and AMCs already doing business in Hong Kong, provided some insight into differences between the U.S. association and meeting planning industry,” Ruffin said.

Economic growth in Asia, and globalization in general, will affect all businesses segments including association management companies and associations.

“We need to be ready to respond to the challenge of doing business globally,” Ruffin added. “This is just a first step.”

About AMR Management Services AMR Management Services provides professional services to a variety of local, regional, national and international nonprofit trade associations, professional societies and foundations. Through our passion, people and principles, AMR turns vision into action to enable client success.

AMR’s core services include association management, conference and event management, marketing and creative services and technology management. More than 20 organizations rely on AMR for headquarters and administrative support, executive leadership, board management, research and issue management, government affairs, conference and event management, technology support and website development, content management, fundraising, and marketing and creative services. AMR is charter accredited by the AMC Institute and active in the American Society of Association Executives. To learn more, visit www.AMRms.com.

Media Contact
Brian Reuwee
(636) 449-5050
breuwee@amrms.com

9 Ways Board Members Can Raise Money Without Fundraising

By Nell Edgington (Social Velocity)

Great post from another blog, Social Velocity. Reposting it on Stronger By Association because of the popularity fundraising topics have received on our site.

I’ll admit it, I’ve been on a board fundraising kick lately in the blog (here and here). I just think that if your nonprofit is going to become more strategic and financially sustainable, you have to start from the beginning (or the top, as it were). In my last blog post I discussed how to overcome excuses for why a board member can’t bring money in the door. But the fact remains that a majority of people don’t like to (or simply won’t) ask for money. Read the full article...

Who Should Manage Your Organization? Industry Experts vs. Association Experts

by Brian Reuwee

Welcome to a fight for the ages! This battle royale will decide who should be the next executive director for your association.

In this corner, the 800-pound. guerrilla. With 25 years of experience in the field, he recently retired from an executive-level position and launched a consulting business. He's served three terms on the board of directors. You know him well -- the Veteran Industry Expert!

And in this corner, weighing in at 130 pounds. She's spent 15 years in the association industry and successfully grew association membership and revenue. She manages a team of 8 staff members and is an ASAE-certified association executive! Please give it up for -- the Association Manager!

Let's get ready to rumble!

All drama aside, this is a serious debate within the association community. Should your organization be led by an industry or an association expert? There's no clear-cut answer. Industry experts provide depth of knowledge, make strong spokespeople and can be great leaders and managers. Association experts bring an understanding of nonprofit best practices; governance, leadership and management experience and can become well versed in your organization's industry and vernacular (surprisingly quick, too).

Fraud Among One Hurts Us All

It saddens (and angers) me when I read stories in the media such as the one of an association executive in Georgia who admitted to defrauding her medical association of more than $300,000. But, it's more than sad and infuriating.

Each news story like this hurts our entire association management profession. It raises suspicions among volunteers about the credibility of professional association staff. And, it speaks to the lack of oversight among boards about implementing financial safeguards that can minimize the chance to similar fraud in their organizations.

As the owner of an accredited association management company, I look at our financial systems from two perspectives: that of the associations we manage and that of our company. I have a moral, legal and fiduciary duty to protect the assets of our clients. And, which ultimately impacts my company. For that reason, we engaged Mary Jane Pieroni, a certified fraud examiner, (and audit manager at Huber, Ring, Helm & Co., P.C.) to help us evaluate the design of our financial systems. I've asked Mary Jane to offer some perspectives about fraud and some steps you should consider when establishing and monitoring your financial systems. Here are her suggestions:

• Organizations should establish and enforce good segregation of duties. No one person should control all aspects of any transaction. For example, the person responsible for writing and recording checks should not be able to sign checks and should not receive the bank statement before it has been reviewed by a manager without access to the accounting records. Periodically, the organization may want to have an outside public accountants review controls and make suggestions for improvement.
• Every organization should consider having an anonymous reporting method available to its employees, customers and vendors. Approximately 26 percent of frauds are initially discovered through information provided by a tip. Studies show that many frauds would have been detected much earlier if employees had known how to report their suspicions. In one recent case, a controller stole more than $31 million over four years; her fellow employees were uncomfortable with some of her procedures, but did not know with whom to discuss their concerns.
• Most importantly, however, no fraud prevention techniques will help to deter fraud without the proper tone at the top. The largest frauds occur in organizations in which upper management is either unethical or careless in the performance of their duties. When management does not hold itself to the highest ethical standard, employees will invariably adopt a lower standard for themselves.

One of the key elements contributing to the fraud detected at the association in Georgia was that the executive director also served as the finance director. Co-mingling duties such as this invites fraud.

Where was the board of directors on this issue? Why did they let this happen?

This is a big "no-no" for the association and for you if you're the executive director. I may be a bit biased, but this situation demonstrates one distinct advantage of the AMC model and of associations moving from a stand alone staff to an association management company.

With an accredited AMC, the roles of the executive director and the finance director are distinct and separate. In our case, our finance team is responsible for the clients' financial systems. We have separate checks-and-balances between the Executive Director and the Controller.

 Many smaller organizations probably can't afford to have two distinct and separate positions. So what can a smaller association do? Engage an outside CPA to manage the financial aspects of the organization. Ensure that different people are involved in each step of the financial operations. If you have only one or two staff, you may need to involve a board member in the process.

Or, you might want to consider moving to an association management company for full service or for the financial management functions. Whether an association hires its own staff or contracts with an AMC, association boards should be monitoring what is happening in the financial operations of their organizations. This ranges from policies to the financial systems (both design and implementation).

What steps or policies does your organization follow to safeguard its assets?

What Are Your Assets?

One blogger I really like is Seth Godin. He offers a daily blog that is short, sweet & easy to repeat. This morning, he talked about assets.

Here's a quick summary: "For a marketer, an asset is a tool or a platform, something you can use over and over without using it up. In fact, it's something that gets better the more you invest. Running an ad is an expense. Building a brand people trust is an asset. Buying a trade show booth is an expense. Having a permission marketing list of people who want to get anticipated, personal and relevant emails from you is an asset. The challenge in growing a business is in building assets daily, and doing it for less money than those assets end up being worth. Your expenses should generate assets."

 So, what are your assets? And, what are you doing to build your assets. Seth's thoughts made be think back to my work last Sunday facilitator an association's board discussion about marketing ... specifically whether the association should launch a business to business marketing program for its industry. During the discussion, I realized they viewed us as an "expert" in marketing for associations and industry groups. This hit me in the same way as when a community association PR director called me summer because "I've been told you are the social media experts." Isn't this reputation part of our brand? Our assets? And, if so, how did we accumulate these assets? Well, here are a few thoughts on that:

• by doing great work and creating a body of work that demonstrates our expertise
• by participating in our trade association ... and, I mean getting involved. Speaking at conferences. Serving as an association leader.
• by speaking and presenting at local and national conferences. And, sharing those presentations on SlideShare and other file sharing systems.
• by freely sharing cause marketing or social media advice to associations and AMC owners.
• by taking the initiative to write and successfully submit a grant that generates $20,000 for one of your client's conventions.
• by networking and providing information free ... as when our staff conducted a social media workshop for out-of-work executives or when I provided free facilitation about industry marketing to a trade association.

Walt Seifert, my PR prof at Ohio State, put it simply when he said it's about "doing good and getting caught." He often talked about making "deposits in the bank of good will." So, what are you and your company or association doing to build your assets in the bank of good will? When was the last time you gave a presentation at a conference? Or, provided free advice and consulting to an individual or another organization? Make some deposits in your bank of good will today!

Certified Association Executive (CAE) — What’s the Value?

By DeLaine Bender, CAE

DeLaine Bender, CAE

Like many association executives I stumbled into this career — first came the job offer, then came the understanding of what association management means.

I love what I do. My career as an association exec has allowed me to work alongside driven, visionary leaders, who became my mentors and friends, and gain an array of professional experiences and opportunities I never anticipated.

Almost from the beginning of my career, I wanted to become a Certified Association Executive (CAE). The CAE is a professional certification program administered by the American Society of Association Executives and accredited by the National Commission for Certifying Agencies.