Happy Canada Day! Happy 4th of July!!
Situation
Sami, the CFO at Marathon Bible College (MBC), a private college and public charity under Internal Revenue Code section 501(c)(3), called to say that at MBC’s next board meeting they were having an emergency session on how to raise additional funding for next year’s budget. She asked if we had any suggestions as to activities other Christian colleges were engaging in. We told Sami that it is best to diligently plan (Luke 14:28) and consider the “uniquenesses” of MBC before jumping into activities that may be successful at other institutions. Of equal importance, MBC should ensure that they have a strong knowledge of the IRS’ unrelated business income tax rules so that they do not run afoul of the laws. We suggested that she engage our team to come in and do an REO (Revenue Enhancement Opportunities) program for their team.
Rules
From IRS Publication 598, “Tax on Unrelated Business Income of Exempt Organizations”:
An exempt organization is not taxed on its income from an activity substantially related to the charitable, educational, or other purpose that is the basis for the organization’s exemption. Such income is exempt even if the activity is a trade or business.
However, if an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business.
REO Summary:
In terms of the fun and power we’ve been seeing with the Revenue Enhancement Opportunities (REO) projects I’ve been privileged to facilitate the past several months. First, great thanks to you for your time and insight in helping me brainstorm through improvements in the program!
In summary, we try to get as many leaders of the institution in the room as possible (CEO, COO, CFO, accounting team, board members, deans, key employees, development officers, athletic directors…). Many times, they do not believe we are going to have anywhere near as much fun as we do!
We usually begin the day by looking at a school’s Form 990 and the footnotes to their audited financial statements brainstorming about “uniquenesses” that we see therein – with those uniquenesses is charted on “big yellow stickies”. This time is limited to 30-40 minutes.
Then, we have a few fun polling questions that are anonymously answered – What is your favorite scripture? What did you want to be when you grew up? Etc. These are also “charted” and help us understand personal uniquenessess the group/institution has. We like to take breaks every 60-80 minutes to reload.
Next, we move toward brainstorming about 30 or so ideas for “wild and crazy revenue generating projects”. This is a flexible, informal, open time. With our colleges, we see ideas tend toward development, facilities, certificate programs, and services. However, we try to break those molds. We chart items in four colors with black as information, blue as strengths/uniquenessess, green as positives, and red as negatives.
Then, (usually about 2:00 or 2:30 pm) we engage in the process of narrowing those down to two workable ideas which we will move forward on with “Action Plans”. Historically, we look for one idea that is “big and audacious” and one that is “just add water”. The ideas that are taken down off the wall should not be forgotten – they are generally just long-term or “partnerable” ideas that may be returned to in the future.
Then, expanding upon the two chosen Plans, we build outline descriptions, appoint point people, team members, and establish/calendarize action items. Going forth, we work the calendar – driven by action point dates – to implement the revenue generating projects. It is truly a blast!
I will continue to be involved with follow-up calls and emails and we’ve seen some really cool Plans going forward. I did an “REO Session” yesterday that truly blew me away and – it seems – is revolutionizing the institution. (Among other things, we walked away with the “Three Rs”: Recovery, Restoration, Recycling – of goods and people… as a guiding light for the chosen Plans/Projects!)
Bottom Line
As we look to the future, “alternative lines of income” can be very important for almost all Christian Colleges, Seminaries, and Universities. It is great to be as creative as possible, but you should understand that there are myriad opportunities – and snares – when you are dealing with “revenue enhancement.”
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.