IRS CHANGES PUBLIC SUPPORT ADVANCE RULING PROCEDURES FOR SECTION 501(c)
(3) ORANIZATIONS

Under the Internal Revenue Code, there are advantages for a Section
501(c)(3) organization to be classified as a “publicly supported”
organization. To be “publicly supported,” that organization must meet
certain mathematical tests demonstrating a broad base of donor support
(as compared to a small non-public pool of donors, such as a single
family).

Previously, organizations that expect to meet the public support test
would file a Form 1023 exemption application and seek a five year
advance ruling. With such a ruling, the organization would generally
be treated as publicly supported for its first five years. Then, it
would need to submit a Form 8734 to show that its fundraising meets
the publicly supported requirements, and if it did, the IRS would
issue a final ruling establishing publicly supported status (or if it
did not meet that status, it would be reclassified as a private
foundation).

The IRS has now withdrawn the need to file a Form 8734 after 5 years.
Instead, the taxpayer makes its own determination after 5 years, and
if it meets the publicly supported requirements (and for so long as it
does), it will report as a public charity without the need for a final
determination by the IRS. The IRS will police the fulfillment of the
public support requirement by new disclosures required on the Form 990
filings of the entity (assuming such a filing is required).

Note that if a public charity does not meet the public charity support
requirements for two continuous years, it will lose its public charity
status.

The IRS has issued a FAQ in question and answer format that address
various transitional rules and other issues relating to the new
reporting method.

“Can you deliver my sister’s baby? The midwife couldn’t do it and they said you delivered babies.” I asked where his sister was. “At the clinic” was his reply. It was about 2pm, I had closed the clinic at about noon since most of the back country “taxis” or jalónes (Toyota pickups with metal railings around the bed) had already gone back to the further out villages. After 1pm it was usually only emergency cases and the person in need, or their representative, would come up to our house to seek out the “doctor.”

I went in the house and told my wife I had to go to the clinic for a baby delivery and she needed to come on down right away. I grabbed the keys to the clinic and started the quarter mile jaunt to find out what awaited me.

As we walked, the brother explained that they lived in a village about two hour’s drive from ours. His sister had been in labor since last night. The local midwife had difficulty with the delivery and was unable to get the baby out. They had hired a local villager, who had a truck, to drive them to my clinic since they figured I would be able to help. Obviously the news that I was a dentist either hadn’t made it that far out, or they just didn’t care.

As we walked up to the clinic, I could see a truck parked in front with several people standing around it. As we moved closer, the gravity of the situation started to become much more obvious. As I rounded the back of the truck, I saw something that really burned into my memory and will always be there. The back of the truck had an elderly woman (the midwife) sitting on a spare tire with a very pregnant, and very much in labor, woman sitting in the bed with her back against the spare tire and her head in the midwife’s lap.

The rest of the scene almost defies description. The bed of the truck stank of human waste. It was coated in feces, urine, amniotic fluid, and meconium. The result of two hours bouncing through jungle roads while in labor. The woman in labor was sweating profusely and obviously exhausted. She was wearing a skirt that had been pulled up and there I could see a baby’s leg sticking out of her vagina.

This was going to suck.

I quickly ran in the clinic and grabbed my “baby delivery kit.” It had all the instruments I needed, and had, to aid in delivering babies. I ran back out to the truck, gloved up, and jumped in the truck. Even though I was getting coated in human waste, and the rest of the “soup” that lined the entire bed of the truck, there was a job to do. The OB/Gyn that taught me how to deliver babies made one thing very clear: The baby has to come out.

Since babies are supposed to come out head first, there was obviously a problem since I could only see one leg protruding from the mother. I told mom this was going to be rough. I managed to free up the other leg and got it out as well. Then I was able to work the arms out one by one. I reached in and felt the umbilical cord securely wrapped around the baby’s neck and jammed against mom’s pelvic bones. I slid the cord off the neck and, since I have big hands, it was not exactly pleasant for mom. I felt terrible for her, but time was of the essence. Once the arms were free, the baby was only held in by his head. I told mom to push, we had to get the baby out as quick as possible.

My hopes were already fading, the parts of the baby I could see were already dark purple. This is not what I wanted to see.

As I worked on freeing up the head, I noticed two guys that kept kneeling down next to the truck. Since the clinic belonged to a Christian mission, I assumed they were praying. It was very common for family members to pray while I worked on their loved ones. When I saw one of them stand up with a tire iron, however, I realized that they were not praying. Instead they were changing the tire. All while I was trying to get the baby out of this lady. This just struck me as strange and kind of cold, couldn’t they just wait until we were done and out of the back of the truck? This was surreal enough already.

After a lot of work, I finally managed to get the baby out of mom. My greatest fears were realized when he didn’t take a breath, didn’t move, nothing. I clamped and cut the cord and jumped out of the truck and ran into the clinic ER. I set the poor little guy on the table and checked his vitals. Listening with my stethoscope, and closely looking at the baby revealed he had no pulse and he had no breathing. I started CPR in the vain hope that some miracle would happen. Not having a defibrillator, there was really not much of a chance the baby would come back. This being the first time I have ever held a dead baby, and been involved in his care, I wasn’t going down without a fight. I continued CPR for 30 minutes and never got a response.

I gave up and looked at the little guy who never got to see the sun. He was a perfect little baby boy of about eight pounds, with the exception of the fact that he was purple, cold, and dead. There was nothing I could do to change that and it was a horrible feeling. I told my wife to clean him up and wrap him up so we could give him back to his mother. I wished I hadn’t had to do that to her, but I still had work to do. We put him in one of the regular exam rooms and she started preparing the body.

I went back out to the truck and found that it was gone. The truck owner had kicked mom out and the midwife had delivered the placenta in my absence. I helped mom back to my ER and checked her out for vaginal tears or other trauma. I cleaned her up and she didn’t need any further treatment. I told her what had happened and gave condolences as best I could in Spanish. My wife carried in the lifeless body of the baby and we gave him to mom. She asked if she could leave and, since there was really nothing more we could realistically do, we told her she was free to go.

As she walked away, I began to realize the significance of what I had just experienced. Ever since that day, I have gauged life’s turmoil and trying times against what happened in the back of that truck. I will forever remember being covered in human waste and up to my arms in the birth canal in a position that I never, in my wildest dreams , would have imagined being. I will forever be haunted by the horrible feeling of holding a lifeless baby who never had a chance to take his first breath, and the helplessness that goes along with it. Whenever I think I am having a bad day, I reflect on what happened that day, and realize that I don’t have any problems.

A big stormed slammed the Eastern US on the very day my team was departing from Louisville, Kentucky with a destination of San Pedro Sula, Honduras. It was a rather large group of 21 dentists, dental students, and support personnel. As is my SOP, the Mrs. and I had arrived two days earlier to make sure all was well and ready for the group’s arrival. I was already awake when my Honduran cell phone rang at 5:00am and it was one of the team members frantically explaining that the weather had caused a two-hour delay and it was looking like the team may miss their connecting flight in Atlanta.

I told them not to worry, we would monitor the situation and make adjustments as necessary. With 21 empty seats on a plane, the likelihood of holding the flight was greater if they were going to be a little late. Unfortunately, it didn’t work that way.

The next notice I got was after the team arrived in Atlanta. The Herald was a text message to my cell phone. Texting is a much cheaper form of communication, especially for poor students with, what I am sure was, a deer in the headlights look on their faces. The message was that all the group made it to Atlanta, but the only flight to Honduras was already gone. Delta had to figure out how to get the group to Honduras as soon as possible and all the planes were full.

Every thirty minutes, a new text with an update appeared on my phone. I had already notified the first clinic site that there would be no team arriving and we would have to cancel that day’s clinic. The hotel was accommodating and canceled the first night’s reservations so I didn’t have to pay for 10 empty rooms.

The beauty of the text message is that you only send the facts. At a few cents per message, we were able to get pertinent information related without spending lots of time on the phone. I never realized how useful this tool could be in a third world country where dropped calls and expensive long-distance rates reign supreme. I was glad we found out.

Delta had only a few seats left on the next day’s flight and the decision was made to send the bulk of the team to New York to catch a flight on Taca airlines’ red-eye with an early morning arrival. For those who don’t know, we affectionately refer to Taca as Take A Chance Airlines. I had a great feeling of impending doom when I realized they would be involved in this adventure. That feeling turned out to be accurate.

One veteran team member was assigned to go with each group so that someone with some experience would be on each flight and help keep the group focused and prevent panic (it was the first international trip for many).

The plan was that the group in Atlanta would arrive normally and the others would have their bags shipped to New York so that everything would be intact. What actually happened, however, was that the genius in charge of the bags obviously didn’t get the memo. The best laid plans…

Texts continued to roll in at all hours of the night and continued delays were overcome. The first group arrived on Taca and I had my bus and mini-van waiting to collect the team and their luggage. The luggage was very important since it had all the supplies and instruments necessary to accomplish the mission. It was a bit disheartening when the luggage stopped coming on the conveyor and we only had 3 bags.

With the team too tired to think, I whisked them to the hotel to get them put to bed and then returned to the airport to try and locate the bags. The Delta rep said not to worry, it appears they were not in fact shipped to New York, but would be coming in on the Delta flight as planned.

I hung out in the airport waiting for the Delta flight and it finally showed up. Once again that pit in my stomach churned a bit when only 4 bags came off the conveyor. The Delta rep had a worried look on his face when he saw me walking up again. As it turns out, his computer didn’t show where the bags were located. A “discussion” with the Taca rep, who I am now convinced had experienced a major head injury at some point in her life, led to finger pointing and blame placing on anyone but the illustrious Taca Airlines. Situation Normal, AFU!

Getting the Delta and Taca Reps together, they all agreed that there was a great chance the bags would show up on Taca’s flight that evening. Great, I’ll believe when I see it.

Since Taca had contaminated the bags, by becoming involved with the process and ensuring problems, I immediately lost hope that we would ever see them again. I got the rest of the team to the hotel and we went through the bags that did arrive. Turns out we got a handful of instruments and just a few of the supplies necessary.

Improvise, Adapt, and Overcome

At this point, we had to make a decision. Not knowing when, or if, the bags would ever arrive, I didn’t want the team to spend a week in the hotel at San Pedro Sula twiddling their thumbs. I made a run to a local dental supplier and was greatly pleased to see that, for once, the place seemed fully stocked. I bought some basic instruments and enough disposable stuff to function one more day in the naïve hope that the bags would arrive that night and all would be well with the world the next day.

We worked on the next day and actually functioned pretty well, considering. Spirits were OK as everyone had been warned to pack a couple of changes of clothes in their carry-on. Hope still remained. Hope died a horrible death when a trip to the airport led to the final revelation that there was no sign of the bags and no one had a tracking number in the computer. The genius at Taca even suggested that they may be on the UPS cargo flight that day. I didn’t even acknowledge that ludicrous statement since UPS generally requires someone to actually ship something and provides tracking information. Neither of these two critical components existed. THIRTY-ONE pieces of luggage had officially dropped off the grid.

Once again we trekked to the dental supplier and he hit the jackpot. We purchased a collection of surgical supplies and instruments that would impress any oral surgeon and then pressed on to finish the job. All the emergency funds were depleted (along with a little more), but we were in business.

The team did well by sharing clothes and washing them in the sink, or jumping in the hotel pool fully clothed to get the sweat and dirt off them. Once they were working on patients the worries of not having much disappeared. Something about caring for suffering people in the third world really changes one’s perspective. This group realized that they did not, in fact, really have any problems. The people they were treating, however, had a life full of pain, and difficulty. They had problems and we were able to do something about it.

The team performed exceptionally well and treated nearly all the patients that showed up seeking care. On the last day, 10 bags showed up at the airport (several of which were soaking wet from sitting on the tarmac for a week) and we simply re-checked them to Kentucky. The remaining bags did finally arrive back in Kentucky three days AFTER the team had returned home. At least they did that much.

One of my team members later said that he didn’t pay much attention to what I call the Hondofactor until he was faced with it in such an undeniable way. Many lessons were learned about what is and is not important. I was proud of this group and their flexibility allowed for completion of the mission in the face of great opposition. I’ll take any one of them on a trip again. The next time, however, we are flying Continental.

Disclaimer:

Nothing written below should be construed as legal advice. It is a description of my personal experience only. If you get into legal trouble after you read this, it’s your own fault!

Since the question comes up so often “how do you start an NGO?” it seems like the right thing to do is to give my personal experience on creating one. For those of you wondering, NGO stands for Non-Government Organization. In the adventure travel world, it is usually some kind of relief organization. There are many different factors that go into forming an NGO and they are all of great importance. One missed or messed up step and the whole process comes apart at the seams. Since my experience is in the United States, the advice and personal accounts given are based on US law. It is important to check very carefully what the laws are in your country to make sure you get it right.

Just for the basics. I am president of La Cima World Missions, Inc. This is a medical and dental relief organization that primarily functions in Honduras but we are expanding. We take teams of physicians and dentists on short-term mission trips. We also provide some funding for other medical and dental missionaries. Among our latest projects we have arranged transport and care for a little Honduran girl that needed heart surgery and we arranged shipment of pharmaceuticals to the Solomon Islands following an earthquake and tsunami.

Now with that out of the way…

The IRS form that is required to file for non-profit status is the form 1023. This form has all the instructions you will need as far as what paperwork needs to be submitted. It does not, however, give the information on how to create the documents it requires. I will get into how to do that a little bit later. The form 1023 is used to establish that a corporation fits into the guidelines under article 501(c)(3) in the official IRS code. All the forms mentioned in this article are available on the IRS website: www.irs.gov.

Before any paperwork is filed the concept, of what the NGO will be, needs to be brought to life. IRS filings require that a Board of Directors be established. Since this has to be done anyway, it only makes sense to do it first. The BOD is charged with general oversight and accountability of the NGO. It is the governing body and develops the vision and determines direction for the NGO. It is also the responsibility, in many NGOs, for the BOD to do significant fund raising as well as be significant contributors themselves.

Choosing the right BOD is important in that they must all have a common goal. The more connected they are the better, and they have to be in agreement on the general methodology that will be used to achieve the goals. I personally chose to go small. I have five people (myself included) on our BOD. By starting with a small group, it is much easier for us all to come to consensus when decisions must be made. I chose people with experience on the ground as well as experience in their own medical specialties in day-to-day work at home.

The next, quite ironic, and arguably the most important step, when it comes to planning the creation of an NGO is development of detailed plans for its dissolution. One of the first things the IRS considers, when deciding whether or not to grant 501(c)(3) status is how will the money be split up in the event of dissolution of the corporation. It will increase your chances of approval dramatically if the officers and board of directors are not to be recipients of any of the assets of the organization, should it dissolve. The most acceptable plan is to document that all assets will be given to another 501(c)(3) corporation, should it become necessary. Put it in writing and make it very clear that no individual will profit form a failed organization. If this is not clear in the original filing, you can go ahead and count on the first rejection letter to come quickly.

When I first started toying with the idea of putting together a non-profit organization, I stumbled on a technique that I have come to recommend. It saved me quite a bit of money, in the long run, and it allowed my attorney and accountant to quickly get the idea of what I was trying to do. I went to the local university law school library and got a copy of the non-profit corporation law books. I made copies of the sections that related to forming the Articles of Incorporation and the Bylaws.

I used the material that I copied from the law books as a template to make my own version of the AOI and Bylaws. I tried to follow the structure as closely as I could and I got as detailed as I could. Each member of the BOD evaluated what I had written and made additions and suggestions. Once we had documents put together that we thought met the requirements for the corporate filings, we gave them to our attorney. Our attorney then had a very detailed description of what we wanted our NGO to be.

Articles of Incorporation are filed with the Secretary of State of the state where the NGO will form. These are submitted and the State then recognizes the corporation as a legal entity. This DOES NOT give any type of non-profit status. As far as the state is concerned, you are just another business until the IRS says different. It is required, however, that the corporation exist prior to filing any type of paperwork with the IRS.

The Bylaws describe what the NGO will do, what type of projects will be undertaken, how money and other assets will be handled, etc. Bylaws should be very specific line items. In our Bylaws there are very detailed descriptions of what La Cima is allowed to, and intends to do. We put our heads together and thought about everything we wanted to do in the future, if we were able, and we included these in the Bylaws. The thinking was that we want to do it someday, so lets make sure we are allowed to do it when/if the opportunity arises. If the Bylaws do not have permission for a certain action, it is possible to get that added later, but it takes board action and is generally annoying to do it. PLUS, if the Bylaws have everything in them and the NGO is approved for 501(c)(3) status, it confirms that the activities in the Bylaws are legitimate NGO non-profit activities in the eyes of the law.

My advice is to put EVERYTHING in the draft Bylaws and let the attorney sort out what qualifies as a non-profit worthy endeavor.

The AOI and Bylaws, in their final form, should be drawn up by an attorney. I will stop right here and say get a good team together. Find an attorney and an accountant who have had success in developing NGOs in the past. If they don’t do their part correctly, you will be stuck in a quagmire trying to get the organization off the ground.

Not being lawyers, we made some significant mistakes. This is precisely why we hired a lawyer. The purpose served, by writing the preliminary AOI and Bylaws, was that he was able to take what we had written and convert them to legitimate legal documents with much less effort and with many FEWER BILLABLE HOURS than if we walked into his office and said “We want to start an NGO, would you draw up the papers please?”

It is a lot of work, yes, but if you are going to be put off by a lot of work, lets just stop where we are right now and quit the crazy talk of starting an NGO. If you do it right, it will take all you have got to give and usually a little bit more. Consider this just part of paying your dues. And fear not, there are plenty of dues to be paid after these.

Once your organization has become a legal entity, your accountant or attorney can file for a Tax ID Number (TIN) with the IRS. That is the point at which you exist and can move forward.

Now it is time to begin filling out the form 1023. This document is BIG and the difficulty rating for filling it out will depend on what type of organization is being formed. There are several different categories for non-profit corporations and the application procedure varies based on what type of organization is submitting. Read through the whole thing very carefully and begin formulating the game plan. There are many reports, written descriptions and budget issues that need to be filled out.

The narratives that explain the proposed activities of the NGO need to be carefully worded so that it is very clear all activities are charitable in nature. These can be reviewed by an attorney if desired but, in our case, we spent all our legal budget by this point in the game, so I just had to wing it.

The budget section requires three years of annual budgeting be reported. Now we didn’t exist yet, so the alternative is to put in three years projected budget. One tip that our accountant gave us was to be careful in determining expected annual revenue. Be honest, by all means, but know that anticipated or real revenue less than USD 25,000 requires an application fee of about USD 100.00. Anticipated or real revenue greater than USD 25,000 requires and application fee of about USD 500.00.

After completing all the items on the form 1023 checklist, package it all up, make a couple copies to keep and send it in to the IRS. In most cases, NGOs get rejected for non-profit status at least once. Do not be discouraged if/when this happens. In the rejection, there will also be a description of why the application was rejected so that it can be changed and re-submitted. Having the right attorney and accountant in the beginning will reduce the number of rejections an NGO must face before receiving the final “Golden Letter.” We paid a little more in legal fees, but we got approved on the first submission. In my opinion it was worth it.

The “Golden Letter” is duly named as the final acceptance for provisional 501(c)(3) status by the IRS. As my accountant stated, “he who has the letter can then get the gold.” Nobody donates unless they get a tax deduction.

Rinse and Repeat:

Note that the acceptance is for PROVISIONAL 501(c)(3) status. Since there is no history of the NGO operating, the IRS is giving a 3-5 year opportunity with provisional status. At the end of the provisional period (the date will be on the Golden Letter) then file the form 8734. At that point, the NGO must provide a description of what was actually accomplished, and how, over the period. After filing the 8734, proving that the NGO actually did what is said it was going to do, and collected money in the proper manner, the IRS will consider whether or not to permit permanent 501(c)(3) status.

Other random tidbits that don’t need a whole paragraph:

Each year, at least one meeting of the Board of Directors must be completed with minutes taken.

Each year the NGO must place an announcement in the legal section of a local newspaper making its annual report available for public review. Three days is sufficient time to meet the requirement. Keep documentation proving the announcement was placed. Most newspapers will provide a notarized affidavit attesting to this.

File an annual report with the state of origin to maintain active status of the corporation. This is done through each state’s Secretary of State. It is just to let the state know the corporation is still active.

Consult with your accountant to determine whether or not tax filings are necessary. Many times the forms need to be filed even though money does not need to be paid. Sometimes nothing has to be done.

Nothing about what I have said deals with fundraising. If you come up with a surefire technique to raise money for an NGO, please send me an email, letter, or message by carrier pigeon right away. This is the ultimate challenge for NGOs around the world. I just wanted to focus on the basics for getting started. Obviously everything will depend on the organization and its intended goals when it comes to generating interest and support from like-minded individuals.

I hope there is a pearl of wisdom or two that will aid you in your quest to change the world. If you read this and move forward with formation of an NGO, let me be the first to say “Thank You” for doing something that matters. I also bid you good luck and God speed in all you do.

David Sperow

david@lacimaworldmissions.org

No travel tips this time, just a “had a great time, wish you were there” story. We had a small group for a medical team in Honduras. As usual, you never know what you will run into in the NGO world. We had an orthopedist who was working as our doc. Most of the time you get the regular cough and cold stuff, but out of the hundreds that show up, you run into a few major problems. This trip was no different. The clinics were overrun with patients and I had to jump in and help out. Of the three days we had for rural clinics, we had over 520 patients for two of us to check them out. Most of it was cough, cold, fungus, etc. but a few patients needed more than we could offer. Among them a baby with only one lung making noise. This is a sad part of mission work as you can only do what you can do. It is truly a helpless feeling to have a patient in front of you that you know you could help if only you were back in a place where an admission to a hospital would do the trick. That baby was barely alive and we had no way of getting him to a real hospital. We gave the mom money to travel, but whether she did it or not, we’ll never know. The limiting factor for work such as ours is in the resources available. Sometimes the resource is money, sometimes it is medication, transportation, equipment, or proper facility. It is a rude awakening for many health care professionals to realize that most of the world is too far behind or too far out in the sticks to cure “simple” diseases. These rude awakenings are also the reality check that keep us going back into the fray. “Do what you can do, with what you have, in the time you are given” is a mantra that we simply have to live with. If you get a chance, make a difference. You can’t save everyone, but you can sure save someone. You never know if the life you save is the next Einstein, great world leader, or a mom that really cares about the welfare of her children and will bring them up in a loving home in a world that seems to lack that.Once again I had to dip into my bag of special tricks and move slightly outside the normal scope of the dental arts in which I have been trained. I was responsible for all the pre-natal check ups. I also had the privilege of being the official botfly maggot remover. The botfly maggot is a real nasty inch long maggot that lives in the skin of its host for several weeks before crawling out to pupate. It can be a real pain and for one patient with a maggot firmly implanted in his rear end, it was a real pain in the butt. All surgeries were successful and the maggots were squashed in a quiet ceremony.One other note, I quit believing in coincidence a long time ago. We also rolled up on a wreck with one victim. A lady was laying under her car with an open fracture of her left arm. With the bone sticking out, it would have been a real problem getting it properly treated in Honduras. Our doc, being an orthopedist, happend to be just what the missionary ordered however and successfully reduced the fracture and splinted the arm before we handed the victim over to the Red Cross. He gave instructions for follow up treatment and to what hospital to take the patient. It was simply meant to be.