Nonprofit Pros and Cons

In the past several years, there has been a recurring discussion within GLIFAA on whether the organization should pursue status as a non-profit under IRS regulations. The GLIFAA Board would like to offer our members an open forum in which to discuss and debate this proposal in anticipation of a full vote of the membership in the next month. To inform this give-and-take, Fitz Green has been kind enough to collect the below list of pros and cons for non-profit status. While certainly not exhaustive, it highlights some of the most salient points.

The Board welcomes and encourages your comments, which you can post below. Please remember to keep your comments appropriate and respectful of one another. Comments containing foul language, personal insults, not relating to the discussion at hand, or otherwise inappropriate will be removed.

Incorporating as a non-profit 501(c)3 organization provides GLIFFA considerable tax benefits, but what are the drawbacks? 

Below are some benefits and disadvantages for filing for non-profit status.
 

Benefit #1: No Taxes

As a nonprofit 501(c)(3) organization, GLIFFA would be eligible for federal, state and local tax exemptions.  This would lead to a negligible cost-saving for our various events, such as the Pink Party and Pride celebrations.

Benefit #2: Ability To Receive Public And Private Donations

As a nonprofit 501(c)(3) organization, GLIFFA would be able to receive both government and private grants (donations).  Individual donors to GLIFFA could claim personal federal income tax deductions for their donations, and bequests would be exempt from federal estate taxes.  This might increase the amount of funding GLIFAA could raise from members and other, outside donors.

Benefit #3: Protection From Personal Liability

As a nonprofit 501(c)(3) organization, GLIFFA members would be shielded from personal liability.  Board members, officers, and employees of GLIFFA would be protected from liability for organization debts or liabilities such as unpaid organizational debts or lawsuits against the organization.  Creditors could go after only GLIFFA assets, not the personal assets of the individuals who manage, work for, or volunteer for GLIFFA.

Benefit #4: Organizational Perpetuity

As a nonprofit 501(c)(3) organization, GLIFFA would be a legal entity separate from the individuals who manage it or organize it.  It is this separate legal existence that affords the protection from liability, but it also means that the organization becomes perpetual. GLIFFA continues to exist beyond the lifetime or involvement of the current individuals who began it and/or who have managed it.  The fact that GLIFFA continues in this way might also be attractive to donors who want to fund a cause over the long-term.

Benefit #5: Structure

Forming a nonprofit organization is not simple but the documents required to do so would force GLIFFA to be clear about its mission, think through its operating rules, and develop clear procedures for decision-making.  This is especially important for a nonprofit, like GLIFFA, whose board members come with diverse interests and viewpoints.  Clear-cut delegation of authority and specific operating rules embodied in the articles of incorporation and the bylaws could make running GLIFFA easier and less divisive.

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Disadvantage #1: Organizational and Record-Keeping Burden

Obtaining non-profit status would require GLIFAA to incorporate in a manner similar to that of ordinary for-profit entities.  This would mean a wholesale rewriting of our bylaws, with implementation of strict financial and governance controls on the organization.  Also, to maintain non-profit status, GLIFAA would be legally required to keep detailed financial and other records and prepare annual reports and filings for the federal and state governments.  To do so, given the complex rules and regulations, GLIFAA would likely need to retain the services of an attorney and an accountant, creating a new recurring cost for the organization.  Finally, if incorporated in the District, GLIFAA would need a physical location form which to operate for legal purposes.  Given the shifting, volunteer nature of our leadership, this requirement would be difficult to fulfill.

Disadvantage #2: Need for a Board of Directors

Nonprofits typically have a Board of Directors that oversees the organization's operations and is legally responsible for the financial and organizational health of the nonprofit.  GLIFAA has only ever had an executive board, elected annually, and has sometimes faced significant challenges in filling some or all of these positions.  Creating and staffing a Board of Directors that would require a significant time commitment and whose term of office would need to be significantly longer than one year could prove unsustainable in the long-term.

Disadvantage #3: Limitations on Activities

Federal law limits the actions and activities in which a non-profit can engage.  Of most import for GLIFAA, there are severe limitations regarding lobbying and legislative advocacy.  This could, potentially, negatively impact our ability to interact with Department and USAID officials to advocate for GLIFAA priorities.  In addition, post-911 regulations constrict the activities of non-profits who operate internationally.

Disadvantage #4: Public Scrutiny

As a nonprofit, GLIFAA's finances would be open to public inspection. The public could obtain copies of our state and federal filings to learn about expenditures.