The Life of a Nonprofit
I thought now might be a good time to share some observations about the life cycles of nonprofits from the perspective of someone who spent fifteen years working in nonprofits large and small, including three years' work for a "troubleshooter", a consultant hired to help small nonprofits with their crises
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What you say about remedial non-profit school -- well, they don't think they need it! They don't follow standard procedures and don't think they need to. For example, apparently accepting hundreds and hundreds of hours of pro bono professional services without even having a system to track those volunteer hours! That's something that can create a major, major, MAJOR problem with the IRS! I have seen a small nonprofit close because they got hit with more than $20,000 in penalties for not reporting professional pro bono hours as in-kind donations on their 990s. And yes, software design is absolutely a professional pro bono service. There is a list that the IRS requires reporting at the "customary rates", ie the fair market value of the service. Ditto legal services.
If, for example, your church had an accountant donate hours of her professional service for the church books, the church would need to report the value of those hours as an in-kind donation. It's perfectly legal to do so, but what's not ok is not to report it honestly.
And, when there is the manufacture of something of monetary value, aka software, it gets MUCH murkier! It's one thing when the thing produced is flyers to pass out or ten hours of bookkeeping, but when what is produced is a product with a fair market value of potentially hundreds of thousands of dollars, even if one declares that it's open source, it still has massive monetary value. The production of things of monetary value by people who are not paid wages because they're "volunteers" is something that's a very, very sketchy legal ground because it's so ripe for abuse by companies claiming to be non profits or churches but which are actually businesses. That will trigger an audit in ten seconds flat!
I don't know if their board has board liability insurance, but if it doesn't, then individual board members are liable for penalties if any are levied.
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The key issues for a small nonprofit, whether c3 or church, are twofold -- the value of the professional service, and the monetary value of the creation.
If, for example, you have volunteers make flyers about a music program at church and pass them out, no reporting is necessary. Making flyers is not a professional skill, and the flyers themselves have no monetary value. If you have someone donate their bookkeeping services to the church, you must report as that's a professional skill even if nothing of monetary value is produced. If you have volunteers restore a classic car which is then auctioned off, you have to report because the restored car has monetary value. And if you have someone design software worth thousands of dollars, you doubly have to report! 0_0
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As our annual report indicates, our revenues are relatively small; we could file with the IRS on an e-postcard. We are required to keep track of our gross receipts. Gross receipts do not include in-kind service donations. There are reporting requirements for noncash contributions, but "Noncash contributions do not include volunteer services performed for the reporting organization or donated use of materials, facilities or equipment." Indeed, the IRS further specifies: "No, volunteer time cannot be reported as contributions in line 1 of Parts II or III of Schedule A. It may be described in Form 990, Part III, Statement of Program Service Accomplishments."
It appears that you may be confusing IRS requirements with accounting on financial statements; we may well want to track and value volunteer time for the latter purposes, but it’s misleading (especially to people who are involved in other nonprofits who might take this advice elsewhere) to state that the IRS requires it when, in fact, the IRS does not want in-kind services reported as contributions.
I hope you'll correct this misinformation in any future discussions.
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