ASHI chapter corporations require proper management. During the past four years, I've been the volunteer who addressed the management needs of PRO-ASHI, Inc. By sharing what I've learned, I hope others can become effective chapter leaders and managers, better prepared to guide a chapter through the legal and tax obstacle course that may be ahead.
To begin, I'd like to dispel the myth that filing tax returns creates problems. It's been my experience that filing tax returns correctly and on time prevents problems. Chapter Boards need to make these types of management decisions. Chapters are well-served by developing leaders who can handle the legal, financial and administrative responsibilities, as well as developing leaders who can provide leadership vision.
Skills plus commitment required
The first challenge of chapter management is finding a volunteer with the appropriate skills who is willing to take on long-term responsibility. If your chapter is like mine, one-year terms of office, along with multiple steps through the chairs gets someone trained just in time to end the term. The person selected to handle financial responsibilities needs to be someone who stays on task and is willing to work on a long-term assignment. It can be someone who ascends through the chairs, or it can be an experienced chapter volunteer whose only responsibility is to manage the corporation.
His or her responsibilities won't conflict with the responsibilities of other volunteers, such as those of the treasurer. All will have plenty to do. After gaining a commitment from the best person for the job, chapter leaders need to decide which administrative duties are best handled by contracting with outside professionals and which can be handled by the volunteer manager. It has been my experience that skilled volunteers can accomplish most corporation management tasks, with some help from an attorney familiar with non-profit corporations, and help from an accountant with non-profit experience to ensure tax-reporting tasks are done.
Bylaws basics-don't get creative
Bylaws provide the foundation for effective chapter management. 'Model Chapter Bylaws' are included in the 'ASHI Chapter Development Manual' (found in the Membership Extranet under Downloads - ASHI Documents). The corporation/financial manager may ask the chapter's board of directors to review the bylaws, paying special attention to the duties of the officers and directors. Although it's tempting, this is not the time to get creative. If minor modifications to the model bylaws are necessary, the board should recommend them. Then, chapter members must adopt them.
Bylaws should provide the most basic set of rules. Too much detail increases the likelihood they'll need to be amended. Amending the bylaws means every change will have to be explained to every chapter member in order to get two-thirds of them to vote on the revisions. (You'll spend lots of time begging people to read them, then more time begging them to vote.) In my opinion, the less specific information included in the bylaws, the better. If this document is well-planned and well-written, it will probably stand for many years.
Here's where you can get creative
The document to describe a chapter's unique systems is the Chapter Policy and Procedure Manual. Every chapter member has an opinion about how to run a chapter. What's more, those opinions and ideas change often. All chapter volunteers should participate in writing the manual. Here's where to describe the details of how to handle dues, elections, and how to form committees. There should be a travel expense reporting policy, detailed job descriptions and more. A simple, effective way to organize this manual is to establish a section for each officer, director and committee. Once developed, the manual can be revised as the chapter evolves. Both chapter and board meetings will result in decisions about how to conduct chapter business. Changes documented in meeting minutes are transferred to the manual. The affected area of responsibility should have the opportunity to write the revision for the manual. Proposed updates should be edited by a technical writer and reviewed at the next board meeting. The board is best able to make policy and procedure decisions, and should have the authority to approve and implement revisions.
Becoming a corporation
Bylaws are an integral part of filing the chapter's 'Articles of Incorporation.' This is customarily filed with your state within the chapter's first year. The bylaws describe, in basic terms, how the chapter corporation will operate.
Once the articles are filed, the attorney files a Form SS-4, 'Application for Employer Identification.' The form states the chapter is a 'Nonprofit, Business League' described in Section 501 (c) (6) of the Internal Revenue Code. From this filing, the chapter will receive a Federal ID number, which is necessary to properly operate the chapter's bank account and to make the tax filings that lay ahead.
The mystery of the missing documents
All original documents should be kept in a central file, with special attention given to its location. For my chapter, there was a long gap between incorporating and filing for tax exemption. When I inquired, none of the chapter volunteers knew where any of the original documents were, and the papers I found in archives boxes were third-generation copies-almost impossible to read. An attorney friend of mine managed to decipher the name of the attorney who had done the original filing, wrote a letter requesting the originals and, within a few days, we had them in hand.
My advice is to keep all chapter corporation papers in one permanent file. If the chapter can afford it, the safest place may be in an attorney's office. Keeping electronic versions of all important documents is ideal. An electronic Director's Book (on Compact Disc) for each board member would save a lot of time, especially as new volunteers step forward.
Corporate responsibilities can creep up
The chapter treasurer needs to produce annual or (preferably) quarterly financial statements. A corporation is required to produce financial statements. The income statement, which tracks revenue and expense, is really the most important statement. Maintaining a written bank reconciliation is probably enough of an accounting for assets. The income statement should include descriptions of the expenses that actually justify the reason the chapter is tax-exempt. For example, the chapter delivers an education program for its members and other inspectors who attend seminars. The education expenses related to chapter meetings and at your seminars all qualify. The larger the proportion of education expenses to the total, the better. Remember, the cost of meals and many other direct expenses wouldn't be incurred without chapter educational programs.
Now, on to what I really want you to know. Before your chapter's revenue exceeds $25,000, the corporate manager will need to file Form 1024, 'Application for Recognition of Exemption,' with the Internal Revenue Service (the application).
Work with advisors who understand nonprofit corporations
Chapter revenue will likely grow to that level when your seminar begins to draw an audience beyond local members. You may choose to file the application as soon as possible just to get it done; that would be wise. We procrastinated on this filing and were not aware of the IRS $25,000 revenue threshold. Repeated questions to several different accountants only got us wrong information. Turns out, we were not asking accountants who had experience with nonprofit corporations. Even the IRS has a separate division of people who work on nonprofit corporations. Our chapter was only weeks away from getting fined by the IRS. In fact, we had to respond to several nasty letters, explaining our situation and the steps we were taking to get the required application filed.
Decide about your calendar year now
To complicate matters, at the time I completed this filing, we decided to change our business year. Yet, I'd already locked us into calendar year (December) tax filings. Changing your tax year is difficult. I get confused looks from members when I attempt to explain it. I recommend that you ask chapter leaders to make a long-term decision about the chapter year, and then stick to it. Weigh carefully the advantages before changing the chapter year. Is it worth changing to June year-end in order to collect dues in the summer when members have the money? Or, is it worth changing to September year-end to take advantage of the fourth quarter business slowdown to get volunteers acclimated to their new responsibilities?
I recommend all chapters prepare and submit Form 1024 (application) well in advance of their revenues approaching the $25,000 threshold. Why not just go ahead and file it as soon as you're prepared? That way, there will be less history and smaller numbers to report. If you are prepared with Articles of Incorporation, with the bylaws and with the policies and procedures, the application will be easy. The IRS has a fill-in-the blank Form 1024 available at http://www.irs.gov/formspubs/index.html.
The basics of completing the form include: 1) describe the chapter's educational program along with other parts of your chapter's mission, 2) identify that ASHI and many ASHI chapters are designated tax-exempt, and 3) provide four (4) years of financial data, including estimates of the current year's statements. Remember, the IRS is staffed by accountants who want current financial information about the chapter.
What to send
Our application included copies of the following attachments: Articles of Incorporation, Bylaws, a chapter brochure, Supplemental Financial Data, Current Bank Reconciliation, Form SS-4, 'Application for Employer ID,' and Power of Attorney (to establish me as the person to sign this and all future tax returns).
A completed Form 8718, 'User Fee for Exempt Organization Determination Letter Request,' is also required. Unfortunately, its only purpose is to get the IRS its $500 fee from the chapter's treasury.
A few months after filing, the chapter will receive the IRS ruling letter. The letter is helpful when claiming exemption from state sales tax (again your exempt purpose is education), for getting nonprofit rates from suppliers, and for lowering the cost of your seminar publicity mailings.
Each subsequent year, the chapter will need to file Form 990 EZ, available at http://www.irs.gov/formspubs/index.html.
Chart of accounts translates to 990EZ
I recommend you establish your chapter's 'Chart of Accounts' so that it translates directly onto this Form 990 EZ. Again, I recommend emphasizing how much the chapter spends on its educational program, which probably accounts for most of the chapter's expenses. IRS filings verify that the chapter spends the majority of its revenue for an exempt purpose-you know the answer by now-we educate our members.
Let's talk about corporation management
I hope this information helps other volunteers develop plans for managing their corporations. Additional reference material is available in the Chapter Development Manual found on the ASHI Web site in the Members Extranet Section. By the way, I haven't implemented every idea described in this article, but I keep working toward that goal. Please call or e-mail me to discuss any of this information. I'll be glad to talk with you.
The author would like to thank Attorney, Colleen Kilbert, Accountant, Ron Lunardi, ASHI Director of Chapter Development, Bob Kociolek and his PRO-ASHI volunteer friends for their wise advice, help and council.