Saturday, October 15, 2016

A Short 501 (c) (3) Guide for Immigrant Nonprofits

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US Immigrants

USA is a country of immigrants, many of whom come to the country for a variety of reasons. Some immigrants come to flee political and religious persecution. Others come for educational opportunities, while others come for the economic opportunities that are unique to the USA. Many come to seek refuge from the never ending conflicts in unstable regions of the world, while others come to seek refuge from natural disasters such as earthquakes, tsunamis, and so on.

Regardless of the reasons why immigrants come to the USA, many still maintain strong ties to their countries of origin. Many, having lived in USA and benefiting from the many opportunities the country presents, become disillusioned by the lack of opportunities, the poverty, the repression and the destitution that characterizes their native countries. Some immigrants in America give up on focusing on the many problems back in their countries of origin. The decide instead to cut ties, become fully immersed in the American way of life. Other immigrants become political activists, agitating for positive change in their native countries. Still, some decide to directly make a difference, engaging in individual and group efforts to launch meaningful community development programs or projects in their countries of origin.

United States is unique in the opportunities it offers to those who want to engage in social good. The country has a long and strong tradition of individuals with a common bond coming together to tackle community issues outside the scope of formal government.

Immigrant Philanthropists
Many Americans, unlike people in other areas of the world, believe in limited government and maintain steadfast faith in the capacity of individuals to solve their own local problems. Americans believe that communities of people can band together and solve their own problems effectively, with little interference from an overarching government. This American characteristic is truly different from what occurs in many countries around the world, where citizens are led to believe that the government is the solution to almost all of society's problems.

American federal and state governments actively encourage individual and group initiatives that are directed towards public good. Federal and state governments provide many incentives for people to engage in these activities. In order to promote community initiatives to tackle problems such as homelessness, poverty, job skills development, the care of vulnerable adults, tackle child poverty and so on, the American government provides tax incentives to people forming nonprofit organizations to tackle these challenges that government and the private sector does not adequately address. Nonprofit organizations are formed by individuals or groups to pursue a social mission rather than profit. Though nonprofits can engage in profit making ventures, the profit from such ventures must be used to further the mission for which the nonprofit was founded.

There are many type of nonprofits. However, a discussion of the types of nonprofits that exist is not the focus of this paper. The most popular nonprofit organizations among immigrants are the tax exempt or 501 (c) (3) nonprofits. These nonprofits typically enjoy two main types of tax advantages. The first is that they are not required to pay taxes on the earnings from their activities. They should however ensure that the majority of the earnings are put towards the organizational mission. The second advantage of these nonprofits is that financial contributions made to them by individuals are tax deductible. Individuals can reduce their tax burdens by the amount they contribute to the nonprofit. This second advantage provides a great incentive for individuals to engage in charitable giving, as doing so substantially reduce their tax burdens.

The process of becoming a 501 (c) (3) nonprofit can be time consuming. However, there are many organizations and professionals that can guide new nonprofits navigate this complex process. The attainment of 501 (c)(3) status by a nonprofit is usually a period of celebration, as the organization is now permitted by the government to raise funds for which the donors can claim tax deductions! This should greatly facilitating fundraising.

What Distinguishes A 501 (c) (3) from Other Nonprofits
The term 501 (c)(3) is derived from the section of the Internal Revenue Code that deals with tax exempt nonprofits. Apart from the fact that 501 (c)(3) nonprofits receive tax exempt contributions and are not required to pay taxes on their earnings, there are other requirements that must be met for an organization to become a 501 (c)(3) nonprofit. The IRS clearly defines the purposes for which a 501 (C)(3) nonprofit can be formed. In order to qualify for tax exemption, the organization must be engaged in a purpose that is “charitable, religious, educational, scientific, literary, testing for public safety, fosters national or international amateur sports competition, and prevents cruelty to children and animals.” According to the IRS, the type of charitable purposes that can qualify includes, “relief to the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burden of the government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; combating community deterioration and juvenile delinquency” (IRS, 2016)

Even though there are restrictions on the type of purposes for which a tax exempt nonprofit can be formed, there are still a lot of purposes for which tax exemption can be sought. Organization seeking tax exemption must ensure that their activities fall within the scope of purposes permitted by the IRS.

Relevance of 501 (C)(3) Nonprofits to Immigrants
Immigrants from many poor parts of the world can form tax exempt nonprofit organizations to address the same needs outlined in the IRS code, within their native countries. Nonprofit organizations registered in the USA can take advantage of the same tax advantages regardless of where their charitable operations are being undertaken. OneVillage Partners (OVP) is a Minneapolis based nonprofit that is helping rebuild rural communities in Eastern Sierra Leone. Rural Health Care Initiative (RHCI)  is another Minnesota based nonprofit that partners with the people of rural Sierra Leone to improve health.

Ebola Worker in Kenema Sierra Leone
Immigrants who want to improve social conditions in their native countries can establish tax exempt nonprofits to tackle a variety of socioeconomic challenges .For example both the countries of Sierra Leone and Liberia suffered through many years of brutal civil wars that devastated much of the  economic infrastructure in the two West African neighbors. Barely a year ago, an Ebola epidemic struck both countries, killing a lot of people, revealing the institutional weakness of the health care institutions in both countries.

The government of both countries have very weak tax bases, with public sectors that are characterized by inefficiency, mismanagement and corruption. Both governments either lack the resources to tackle the many problems existing in local communities or lack the political will or know how to effectively provide meaningful solutions. Both countries however have large immigrant populations in the USA and many other developed countries. The remittances sent back home by these individuals represent a significant fraction of national revenue in their home countries. Immigrant groups can take advantage of the nonprofit culture in the United states to initiate nonprofit programs in local communities within their countries of origin. RHCI was formed in 2010 by a group of Sierra Leone immigrants and a group of philanthropic Americans to address health care needs in rural Sierra Leone.

Immigrants who have the motivation to help their communities of origin can use tax exempt laws to do considerable good and help alleviate a lot of problems such as lack of access to good schools, clinics, clean water supplies, clean energy, and many other social challenges.

Words of Caution
The tax advantages that a nonprofit acquires from being a 501 (c) (3) nonprofit are granted with the expectation that the organization is run with the utmost integrity and purely for public good. All actions taken by nonprofits are only for the organization’s mission and never for private benefit. No individual or group owns a tax exempt entity and even where the organization is dissolved, no individual can benefit from its assets. When a nonprofit is dissolved it is generally advised that its assets be transferred to another nonprofit and strict records of such transfer be kept.

Nonprofit organizations are governed by a board of directors who act as trustees of the organization, providing guidance, oversight and strategic direction. Board members are expected to be morally upright individuals with integrity and good character. Nonprofit survival is  based on the trust donors to the organization have that their donations will be put to the use for which they were intended. Any action on the part of the board or management that causes an erosion of this trust will negatively impact future fundraising and could cause the organization lose its tax exempt status and its management prosecuted. Nonprofits are therefore expected to display the highest degree of accountability and transparency.

Nonprofits must never lose focus of the mission for which they exist. Many African nonprofits fall prey to personality conflicts and other negative tendencies that distract from mission and put an emphasis on power relationships within the organization. Nonprofits exist purely for their mission and where the mission cannot be attained, it should either be modified or the nonprofit dissolved. Nonprofits should ensure that board members elected are those who will make a positive contribution to the organization’s mission.

Nonprofit organizations are expected to devote a substantial part of their revenue to programs that further the mission. Some nonprofits like hospitals may have high operating expenses and are labor intensive. A quick look at their books may lead one into the belief that they are spending more on payroll than programs. However, it should be noted that without these employees, the hospital will not undertake its programs, consequently not attaining its mission. In any case, nonprofits must demonstrate that most of the incomes they receive are directed towards the fulfillment of the organizational mission. Board members of a nonprofit are not paid. They may however receive reasonable reimbursement for expenses related to the mission of the organization. The staff of a nonprofit are however paid like employees of any other organization.

As long as proper guidelines are established, individuals remain focused on mission, and all involved with the nonprofit are doing so in furtherance of the public good, nonprofit organizations can be a vehicle through which immigrant groups can help their communities in their countries of origin. The can be valuable vehicles of social progress.

Note About the Author
Sheku Sheriff, BSc Hons, RN, MNM, MPA is a manager at Highland Chateau Health and Rehab in Saint Paul, MN. He holds degrees in Economics, Nursing, Public Administration and Nonprofit Management. He is a founding member of Rural Health Care Initiative. His hobbies include blogging, photography and playing scrabble. He was born in Sierra Leone, West Africa.

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