Tax Exemption is in the Eye of the Beholder
by Pam Ashlund
What is the life cycle of a nonprofit organization? What can we expect as we move from visionaries, to implementers, to administrators? Organizational Development professionals have come up with some very valuable takes on the life cycle of nonprofits; and our funding sources have started to rely on that research in their funding selection process.
Seems there are some pretty predictable things that happen as we evolve and therefore we can learn from those we follow. Going through an assessment process can be quite the value-added exercise.
But today I happened upon a different kind of nonprofit life cycle (on the IRS website).
The IRS has a peculiar take on the nonprofit "life cycle"; or maybe not. It is true that life has a beginning, a middle and an end. And that is how the IRS frames it. But their view doesn't just have an ending, it assumes it. Here's how it goes: a nonprofit starts up, then it ages and deals with keeping records over time and keeping up with the current laws (especially those of the IRS); then it goes through what the IRS names "Significant Events". And what is among these significant events? The nonprofit cracks up, does something that blows it, violates a significant law. The IRS calls this "termination of exempt organization". "Boom" that's it.
Now please (especially eager IRS agents) do not take this as an attack on this venerable organization. Just a tiny observation. Perhaps, when looking through the lens of an agency who's job is to collect taxes, this all makes sense.
But let's look at it through another set of eyes. How about these stages of development (often used by foundations to categorize nonprofits):
- Infancy (start-up or start-over)
- Juvenile (growth period)
- Adolescence (growth and decline spurts
- Maturity (established)
Note that the story isn't: start, comply, don't comply, close.
Other resources on nonprofit stages:
Judy Simon's book:
The Five Life Stages of Nonprofit Organizations: Where You Are, Where You're Going, and What to Expect When You Get There