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How do we avoid looking like salary reduces programs?

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How do we avoid looking like salary reduces programs?

Our 501(c)(3) charity was lucky enough to receive a $30,000 donation in 2015 to be used for a development/grant writer. Because this person is an independent contractor (we have no paid staff) if we pay this person about $20,000 in 2016, as we expect, our 990 will look as though we spent almost all of what we bring in, which is only about $60,000 a year, on an independent contractor.  How can we indicate on our 990 that we used money donated specifically for this purpose and did not take from program services? Even if we bring in $75,000 this year, this salary will reflect that we spent more than 25% on "salary."  

We have said for years that your Form 990 can be your most important public relations document because it is instantly available to anyone in the world.  So I agree that you should be concerned about the presentation you make.  But I am not sure that you are looking at it correctly in this case.

Assuming that this person is actually an independent contractor and not an employee, a $20,000 expenditure will not show up separately on the list of highly paid (more than $100,000) independent contractors on either the full Form 990 or on the simplified Form 990-EZ for smaller organizations.  (You can file the 990-EZ if you have less than $200,000 in revenue and less than $500,000 in total assets at the end of the year.)  The cost will show up on the Form 990 as a fundraising cost in Part IX and on Schedule G or on the 990-EZ as a payment to an independent contractor.  Only if the person is really an employee will the cost will show up as salary on either form. It will have to be allocated to fundraising if you use the Form 990. 

If you are still concerned with the way it appears, you can always use Schedule O to explain that you received a temporarily restricted gift that could be used only to hire a fundraising consultant and that it did not take any money away from your program.  (Your issue may not be that it is cutting into program, but that you are spending too much for what you are getting by way of increased contributions, especially since you don’t project much of an increase.)  You may also want to explain how you accomplish your program without staff.  If you are using volunteers, you can talk about the value of the volunteer time and how you are leveraging that volunteer effort to make the program successful without salary costs.  You have a lot of opportunity to show what you are doing on either form, especially with Schedule O, that you can use honestly but with an eye to the public relations impact.

Wednesday, February 10, 2016


I couldn’t help but note the following:  The cost will show up on the Form 990 as a fundraising cost in Part IX and on Schedule G or on the 990-EZ as a payment to an independent contractor.

I think it’s worth clarifying that indicating the expense as a fundraising cost could be incorrect.  At the very least, it could be incomplete.  Grant writing could be treated as either fundraising or MGA, depending on what’s being solicited.  Soliciting revenue from exchange transactions (like government grants or sponsorships, etc.) should be treated as MGA.  Soliciting bequests, foundation grants and special gifts should be treated as fundraising.  This is according to the exhibit 1-4 in the AICPA’s Accounting and Auditing Guide for Not-for-Profit Organizations.

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