Best Defense is a Good Offense

Strategies for protecting tax-exempt status, minimizing impact of new assessments

In these trying fiscal times, local, county, and state governments increasingly are looking to nonprofit organizations to help balance their budgets.

In addition to municipalities seeking payments and user fees in lieu of taxes (see companion article in Issue 4 – 2010 of the Alliance for Children & Families Magazine), there also are recent instances of challenges to organizations’ tax-exempt status.

As highlighted in various news reports and legal analyses published during the past few years, some nonprofits, particularly churches, have experienced financial repercussions when they have chosen to close specific facilities, such as places of worship or schools. These organizations have reported surprise upon receiving tax bills for the time the building stood vacant.

A case originating in La Crosse, Wis., recently resulted in a federal court upholding the city’s taxation—a reminder to nonprofit boards that property tax exemptions depend not solely on ownership, but the actual use of the facility in question.1

Awareness and Board Preparedness

As organizations’ legal and fiscal stewards, board members must stay attuned to these trends.

Every board member of every nonprofit organization must come to understand that tax exemption is a privilege, not a right, says Peter Goldberg, president and CEO of the Alliance for Children and Families. This important understanding should be the foundation of not only governance, but of daily operations.

“Nonprofit organizations have a goodwill account with the American public,” Goldberg says. “The best way to inoculate our field from further financial distress is to keep making deposits in that goodwill account. We cannot rest on our laurels; we have to continually demonstrate our value to local and state governments, as well as to our other stakeholders.”

Proactive Ambassadorship

Protecting organizations from local fees and assessments is best done proactively, Goldberg says. This requires an organizational culture that never takes its tax-exempt status for granted. Moreover, it strongly suggests every board member should be a strong, vocal ambassador for the organization, in good times as well as bad.

An organization should use every available tool to define its impact in the community, recommends Kathryn Vanden Berk, a Chicago attorney who specializes in nonprofit law and authors a column in the Alliance for Children & Families Magazine. She suggests looking for new ways to share outcomes and success stories.

“Many organizations don’t take full advantage of the Form 990,” Vanden Berk says. “It provides the opportunity to describe your programs in detail. Use it. Always assume that stakeholders will review your Form 990.”

Vanden Berk also urges organizations to register with GuideStar and use the free website,, to tell their story.

Specific Definition of Impact

When possible, quantifying the organization’s specific value to the community will help stakeholders to clearly understand the positive impact the organization provides.

Tom Harvey and John Tropman, who author the On Board with Nonprofit Governance column in this publication are proponents of well-researched impact statements.

“We prefer the term ‘tax expenditure’ rather than ‘tax exemption’ because it better reflects the act of society investing in the mission of social-benefit organizations,” Tropman says. “We recommend that, when feasible, organizations calculate the value of their tax expenditures and report this back to the community wherever possible. That number continually reminds trustees, executives, and the broader public of the amount of benefit they are receiving via tax policy.”

Krista Larson, executive director of Alliance member Metropolitan Family Service, Portland, Ore., shares this example: “Our 1,875 volunteers contributed more than 133,000 hours of service last year, a value of $2.3 million to the community. As a local nonprofit, our ability to leverage the skills and compassion of local citizens to help address vital community needs is one of our strongest contributions to the Portland region.”

Leveraging Community Partnerships

Investing in community partnerships also is critical, Goldberg says. “Organizations should always be seeking individuals to volunteer and serve on the board or committees, corporations with which to partner and build relationships, and similar-minded nonprofit organizations to team with on important community issues. Doing so deepens the organization’s roots and provides new forums for demonstrating the organization’s impact.”

In Illinois, Chicago-based Alliance members Children’s Home + Aid, Metropolitan Family Services, and One Hope United, in conjunction with the Chicago Alliance for Collaborative Effort, the United Way, and the Chicago Community Trust, launched the Illinois Partners for Human Service. “We bring together human service providers with residents, business and civic leaders, policy experts, communities of faith, and other constituency groups to problem solve and advocate,” says Nancy Ronquillo, chair of the coalition and president and CEO of Children’s Home + Aid.

After the Economic Recovery

Once they are implemented, fees and assessments rarely are repealed, even after the economy improves. That’s why, as always, the best defense is a good offense.

“The word offense implies competition, but that’s not fully the case,” Goldberg says. “It’s not a competition or a disagreement so much as a need to always be mindful of injecting your organization’s name, ideas, and messages into the community on a daily basis in a proactive manner. Doing so will yield many positive results, not only financial ones.”


1. More information about the case from La Crosse,
 Wis., is available online.

Your essay writing approach

Your essay writing approach needs to focus specifically on the implications which your analysis creates for different stakeholders and how it may impact further research on the topic. more