Guest Blog: Getting Your 501(c)3 Status Just Got Way Easier – But is it Good Policy?

Editor's Note: this post has been re-blogged with the author's permission. Originally created for YNPN Grand Rapids. See the original post here.YNPN Atlanta also recently went through a 22-month process to receive our official nonprofit status, and we are interested in this conversation and believe it is an important one.

By Kevin Lignell, YNPN GR Just as the Young Nonprofit Professionals Network of Grand Rapids completed an arduous, multi-year process to register for 501(c)3 status, the IRS made a decision that should solicit a collective eye-roll from our local board members: it will now be easier - and much less time consuming - to apply for the coveted 501(c)3 status.

Well thanks for nothing, IRS.

According to Time Magazine, 501(c)(3) nonprofits with less than $50,000 annual income need only complete a three-page form online and pay a $400 fee to receive automatic approval from the Tax Exempt and Government Entities Division. Additionally, it will replace 26-page form and non-profit narrative that was reviewed by the division, a process which had created a 66,000 application backlog. The IRS was overwhelmed with applications, and obviously something had to be done.


 The process is being stressed as a modernization of current practices, but the reasons for this decision are probably more about relieving some of a the pressure and criticism that stemmed from the Tea-party debacle in 2013. Last year, the IRS was accused of being biased against Tea-party nonprofit organizations that were applying for 501(c)4 status. There was a huge lawsuit and a media backlash, leading to the resignation of ex-IRS commissioner Lois Lerner. The IRS now will put less focus on new nonprofits, and more scrutiny on larger ones with the bigger bankrolls.

 

 


Call me a skeptic, but I still see many issues with this proposal. The decision will make it easier for new nonprofits to form, but also all the more easier for corruption and incompetency. Less time and energy will be put into vetting the legitimacy of small nonprofits. Additionally, it could lead to a huge expanse of new nonprofit organizations, many who will not be subjected to much government oversight.
The decision also seems to avoid a crucial question: What organizations truly deserve tax exemptions? Moreover, does this decision make it easier for nonprofit organizations to solve problems more effectively, or just create more nonprofits?
I am certainly an advocate for nonprofit organizations and their potential to solve problems, but far too often I see an overabundance of organizations fighting for a voice on one issue, while community resources get stretched thin. More isn't always better.


Nonprofits have always been touted for their creativity, flexibility and responsiveness. So does this mean nonprofits should be viewed the same way as small-business innovation, where the mass proliferation of new entities is welcomed? Or should they be more scrutinized, stressing their increased responsibility of having the public's trust?


These questions are not so easily answered. Too often, professionalism in the nonprofit world is missing. Few people know how to run a nonprofit organization effectively, yet many aspire to found them. They add their organizations to crowded field of others searching for recognition and funding. That is not to say that anyone with an advanced degree, training or experience shouldn't found a non-profit. Institutions like GVSU's very own Johnson Center were created to bridge this gap and bring more professionalism to the nonprofit sector. There are certainly ample opportunities for passionate people to learn the ins-and-outs of the nonprofit world. Despite this, simply having more nonprofits doesn't make outcomes better. It can decrease the power of collective good rather than promote it.


So back to the key question: What organizations truly deserve to be tax exempt? It appears the IRS doesn't feel the need to assess that question with more scrutiny. As a consequence, many questions arise about how this policy change could negatively affect the nonprofit sector.


On the other hand, social innovators should be thrilled: It just got a whole lot easier to form a nonprofit organization.
Kevin Lignell is a non-profit communication consultant and long-timeYNPN.Grad Rapids member. You can follow him on Twitter at @kev_lig, or contact him to respond at lignellk@gmail.com