Nonprofit Amicus Brief

Case: 13-31296
Document: 00512670422
Page: 1
Date Filed: 06/19/2014
No. 13-31296
(Aligned with Nos. 13-30843, 13-31299, 13-31302)
________________________
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________
IN RE: DEEPWATER HORIZON
________________________
LAKE EUGENIE LAND & DEVELOPMENT, INCORPORATED; ET AL.,
Plaintiffs,
PLAINTIFFS STEERING COMMITTEE,
Appellee,
v.
BP EXPLORATION & PRODUCTION, INCORPORATED; BP AMERICA
PRODUCTION COMPANY; BP P.L.C.,
Defendants-Appellants,
v.
SEALED APPELLEE,
Claimant-Appellee
________________________
On Appeal from the United States District Court
for the Eastern District of Louisiana
MDL No. 2179, Civ. A. Nos. 12-970 & 13-492
_________________________
BRIEF OF AMICI CURIAE NONPROFIT FINANCE FUND,
AMERICANS FOR THE ARTS, GRANTMAKERS IN THE ARTS, AND
ALLIANCE OF ARTISTS COMMUNITIES
IN SUPPORT OF APPELLEE
________________________
[counsel listed on next page]
Case: 13-31296
Document: 00512670422
Zachary L. Wool (32778)

Dawn M. Barrios (2821)
Bruce S. Kingsdorf (7403)
BARRIOS, KINGSDORF & CASTEIX, LLP
701 Poydras Street, Suite 3650
New Orleans, Louisiana 70139-3650
Telephone: (504) 524-3300
Counsel for Amici Curiae
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SUPPLEMENTAL STATEMENT OF INTERESTED PARTIES

Pursuant to this Courts Rule 29.2, undersigned counsel of record for Amici
Curiae certifies that the following persons or entities have an interest in the outcome of
the case:
Amici Curiae
Nonprofit Finance Fund (a 501(c)(3) not-for-profit organization)
70 West 36th Street
11th Floor
New York, NY 10018
Americans for the Arts, Inc. (a 501(c)(3) not-for-profit organization)
1000 Vermont Avenue, NW
6th Floor
Washington, DC 20005
Grantmakers in the Arts (a 501(c)(3) not-for-profit organization)
4055 21st Avenue West, Suite 100
Seattle, WA 98199-1247
Alliance of Artists Communities (a 501(c)(3) not-for-profit organization)
255 S. Main Street
Providence, RI 02903
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Zachary L. Wool
Dawn M. Barrios
Bruce S. Kingsdorf
New Orleans, LA 70139-3650
/s/ Zachary L. Wool
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TABLE OF CONTENTS
SUPPLEMENTAL STATEMENT OF INTERESTED PARTIES .......................... i
TABLE OF AUTHORITIES ................................................................................ iv
INTERESTS OF AMICI CURIAE ....................................................................... iv
ARGUMENT .........................................................................................................1
I. BPs Misrepresentations and Misunderstandings of Corporations with
Not-for-Profit Status. ..................................................................................... 2
A. Corporations with a not-for-profit designation do engage in business
activities. ......................................................................................................... 2
B. Not-for-profit businesses do earn a profit/surplus through their central
business operation. .......................................................................................... 5
C. Contributed Income is a vital source of revenue for not-for-profits. .......... 7
D. Calamities like a massive oil spill negatively impact not-for-profit
businesses. ....................................................................................................... 9
CONCLUSION ....................................................................................................11
CERTIFICATE OF COMPLIANCE ....................................................................12
CERTIFICATE OF ELECTRONIC SERVICE ....................................................14
iii
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TABLE OF AUTHORITIES
Cases
In re: Deepwater Horizon I, 732 F.3d 326 (5th Cir. 2013) ...................................4,9
In re: Deepwater Horizon III, 744 F.3d 370, 375-376 (5th Cir. 2014).................... 1
Statutes
26 U.S.C. 501(c)(3).............................................................................................. 3
26 U.S.C. 6033..................................................................................................... 4
Federal Rule of Appellate Procedure 29(c)(5) ...................................................... vii
Other Authorities
Amy Blackwood, Katie Roeger, and Sarah Pettijohn, The Nonprofit Sector in
Brief: Public Charities, Giving and Volunteering, 2012, Urban Institute (October
5, 2012) .................................................................................................................. 5
Carol J. De Vita, Amy Blackwood, and Katie Roeger, A Profile of Nonprofit
Organizations in the Greater New Orleans Metropolitan Area, Urban Institute
(November 1, 2012) ............................................................................................... 7
Danshera Cords, Charitable Contributions for Disaster Relief: Rationalizing Tax
Consequences and Victim Benefits, 57 Cath. U. L. Rev. 427 (2008) ...................... 9
Doug MacCash, BP oil spill settlement strengthens the Contemporary Arts Center,
The Times-Picayune, March 23, 2013...................................................................10
IRS Publication 558 (March 12, 2012) ................................................................... 4
iv
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TABLE OF AUTHORITIES
Other Authorities Continued
Kate Barr and Jeanne Bell, An Executive Directors Guide to Financial
Leadership, The Nonprofit Quarterly, Fall/Winter 2011 ........................................ 8
Nonprofit Finance Fund, Glossary of Financial Terms ........................................... 5
Nonprofit Operating Reserves Initiative Workgroup, Maintaining Nonprofit
Operating Reserves: An Organization Imperative for Nonprofit Financial Stability
(2008) .................................................................................................................... 6
Peter Schworm, Old-line charities losing support; Many Area Donors focus on
victims of Marathon Attacks, Boston Globe, May 13, 2013 ..................................10
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INTERESTS OF AMICI CURIAE

Nonprofit Finance Fund, Americans for the Arts, Grantmakers in the Arts,
and Alliance of Artists Communities are 501(c)(3) not-for-profit corporations
familiar with the not-for-profit sectors operations and financing. They bring to the
table various perspectives on contributed income as a means of not-for-profit
funding by representing individuals and organizations that award grants on the one
hand (Grantmakers in the Arts), and organizations that plan and receive grants on
the other (Alliance of Artists Communities). Americans for the Arts works with
corporations and individuals on both sides of the equation in an effort to advance
the arts. And the Nonprofit Finance Fund has, for thirty-four years, worked with
thousands of not-for-profit corporations to understand and improve their financial
operations and long-term sustainability.
They universally have an interest in
correcting some fundamental misunderstandings and misrepresentations made by

BP about the not-for-profit sector.
Amici support the decision of the District Court and the Claims
Administrators treatment of each Sealed Claimants claim, 1 and they vigorously
oppose BPs position that contributed income is not revenue. BPs position stands
in stark contrast with almost every major authority on the subject, and its briefing
1
Amici recognize that appeal nos. 13-31299, 12-31296, and 13-31302 are aligned but are not
consolidated. Amici will file the same Brief in each case. The forth aligned appeal no. 1330843 concerns administrative rules, and amici have nothing to add to Class Counsels
arguments.
vi
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may likely leave this Court with erroneous impressions about the not-for-profit
sector and how it operates. In particular, amici understand how catastrophes like
an oil spill can negatively impact the not-for-profit sector, how not-for-profits are
businesses with a central business purpose, how the sector plans for and relies on
contributed income, and how not-for-profits universally seek to end each year with
a profit (which the not-for-profit sector calls a surplus). Amici strongly support
the District Courts decision and the claim outcome for Sealed Claimant Appellee
and respectfully request that this Court should it reach the substantive merits of
these appeals affirm the District Courts inclusion of grants as revenue,
generally, and the outcome of Sealed Claimant Appellees claim. 2
Pursuant to Federal Rule of Appellate Procedure 29(c)(5), counsel for amici certifies that
neither Class Counsel nor counsel for any Sealed Claimant authored, in whole or in part, any part
of this Brief and that no party, its counsel, or any other person or entity made any monetary
contribution to the preparation or submission of this Brief. Further, neither counsel for Sealed
Claimant Appellee nor Class Counsel object to the filing of this Brief. The BP Entities do not
object, though they reserve the right to object and to file a response after reviewing [amicis]
position.
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ARGUMENT
Businesses with a not-for-profit tax designation have more in common with
businesses that do not than BP would have this Court believe. At the time it
negotiated the Deepwater Horizon Economic and Property Damages Settlement,
BP recognized this similarity and included all businesses regardless of IRS taxstatus designation in the Business Economic Loss claim category. ROA.1331302.4578, 4674. Now BP has a much different view. And just like it wielded a
footnote in Exhibit 4B of the Settlement on a previous appeal in an attempt to
undermine the objective causation standards to which it agreed, 1 it now seeks to
eviscerate the claims of not-for-profit businesses in a round-about fashion by
excluding one of their most important sources of revenue.
Nothing prevented BP from excluding contributed revenue and services at
the time it negotiated the Settlement, and it cannot seek to re-write the Settlement
now. As this Court has said, there is nothing fundamentally unreasonable about
what BP accepted and now wishes it had not. 2 That sentence is as true now as it
was when written by this Court.
Amici Curiae Nonprofit Finance Fund, Americans for the Arts, Grantmakers
in the Arts, and Alliance of Artists Communities (Amici) submit this Brief in
1
2
In re: Deepwater Horizon III, 744 F.3d 370, 375-376 (5th Cir. 2014).
Id., at 377.
1
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Support
of
Sealed
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Claimant
Appellee
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to
address
and
correct
some
misunderstandings and misrepresentations made by BP about the fundamental

workings of not-for-profit businesses. Like businesses that do not apply for taxexempt status from the IRS, not-for-profit organizations are incorporated
businesses that engage in a central business activity. Like their for-profit brethren,
they seek to generate more revenue than they spend. They rely heavily on grants
and donations as integral parts of their revenue. And they can be negatively
impacted by outside economic forces such as a massive oil spill just like forprofit businesses.
I.
BPs Misrepresentations and Misunderstandings of Corporations with

Not-for-Profit Status.
A. Corporations with a not-for-profit designation do engage in business
activities.
Just as two brothers may incorporate a business to sell t-shirts to tourists on
a beach, so too can two brothers incorporate a business to provide free meals to the
homeless. The better the product of the t-shirt selling brothers, the more revenue
they will generate through sales. The better the quality of services to the homeless
that the brothers provide, the more revenue they will generally receive through
grants and donations of those wanting to support their mission. Whether it be
selling t-shirts or providing free meals, both are business activities that generate
revenue. The revenue generated is central to their ongoing operations.
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Not-for-profit organizations are not an odd form of business entity created

by the IRS Code.
Rather, they are businesses organized under state law for a
public or charitable purpose that then apply for tax-exempt designation.
For
example, one type of not-for-profit status that businesses apply for is the 501(c)(3)
designation.
And to achieve that designation, corporations must meet two
requirements. First, the business must be incorporated. 3 When they incorporate,

just like a for-profit business, they register with a Secretary of State, file
incorporating documents, and go through the other formalities required by state
law.
Second, a corporation must be organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or educational

purpose. 4 That requirement forces a corporation seeking 501(c)(3) tax-exempt
status to have a core business activity it must pursue, such as providing low-cost
legal services, offering free meals to the homeless or operating an art museum. To
retain its tax-exempt status, the corporation must continue to operate in that same
core activity that formed the basis of its original application to the IRS. 5
The requirement that a not-for-profit corporation must focus on its central
business operations manifests itself in the way the IRS requires not-for-profit
3
26 U.S.C.501(c)(3) (starting with the basic premise that those eligible for tax-exempt status
are corporations, and any community chest, fund, or foundation).
4
Id.
5
This heightened requirement is one way in which not-for-profit corporations differ from forprofit corporations. For-profit corporations are free to change the business activities in which
they engage at the whim of their owners, whereas not-for-profit corporations are restrained to
operate in their core area(s) approved by the IRS.
3
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businesses to report their income. Generally speaking, not-for-profits must file an

annual Form 990 tax return (entitled by the IRS Return of Organization Exempt
from Income Tax). 6
That return requires the organization to report revenue
generated by its central business operations (i.e., through its tax-exempt mission
and purpose). Should a not-for-profit organization earn money separate from its
central mission or purpose, that income is not tax-exempt and must be reported on
a Form 990-T. 7 The Form 990-T requires an organization to report, in Part I, its
unrelated trade or business income. This separate, dual-reporting requirement
underscores that, contrary to BPs assertions, not-for-profits do engage in a central
trade or business and do generate revenue from that same central trade or
business. 8
As discussed infra, grants and contributions constitute a large portion
of that revenue generated by the central mission and business of a not-for-profit

corporation.
26 U.S.C. 6033.
See generally IRS Publication 558 (March 12, 2012) (available at www.irs.gov/pub/irspdf/p598.pdf).
8
BP has conceded this point at the District Court level, recognizing that grants and donations to
not-for-profit businesses are revenue, both generally and in the context of the Settlements
application. In response to In re: Deepwater Horizon I, 732 F.3d 326 (5th Cir. 2013) from this
Court, the District Court asked Class Counsel and BP to propose matching policies. BPs
proposed policy included a section on defining revenue for Exhibit 4C purposes. That section
included grants and donations to not-for-profit businesses as revenue for Exhibit 4C purposes.
(Rec. Doc. 11886-2, at 35-36).
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B. Not-for-profit businesses do earn a profit/surplus through their

central business operation.
Just as for-profit businesses seek to end their fiscal year with more income
than expenses, so too do not-for-profits. In the for-profit community, this excess is
called profit. In the not-for-profit community, this excess is called surplus. 9 The
major difference between not-for-profit businesses and for-profit businesses is that
this surplus is, generally speaking, not taxed. In a sense, the commonly-used
moniker not-for-profit (that stems from a designation given by the IRS) is a
misnomer. 10
In 2012 the Urban Institutes Center for Nonprofits and Philanthropy
released a study entitled The Nonprofit Sector in Brief: Public charities, giving,
and Volunteering. 11
The study examined the finances of not-for-profit
organizations through their Form 990 tax returns, making various findings on
private charitable giving and volunteering. Of interest and import here, the study
found that all not-for-profit organizations nationally reported revenue of $2.06
trillion.
Those same organizations had expenses of $1.94 trillion, with a
profit/surplus of $120 billion. That surplus was not an anomaly. In 2005, the not9
Nonprofit Finance Fund, Glossary of Financial Terms, (available at

http://nonprofitfinancefund.org/financial-terms/S?title=).
10
The name derives from the idea that not-for-profit corporations are not primarily motivated by
profit; instead, it is subordinate to their public purpose, which could not be supported if the
corporation did not strive to earn a surplus.
11
Amy S. Blackwood, Katie L. Roeger, and Sarah L. Pettijohn, The Nonprofit Sector in Brief:
Public Charities, Giving and Volunteering, 2012, Urban Institute (October 5, 2012), available at
http://www.urban.org/UploadedPDF/412674-The-Nonprofit-Sector-in-Brief.pdf.
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for-profit sector reported total revenues of $1.63 and expenses of $1.48 trillion,
which translates into a surplus of $150 billion. In 2000, the sector reported $1.15
trillion in revenue, $1.01 trillion in expenses, and $140 billion in profit/surplus. 12
Achieving a profit/surplus does not happen haphazardly; rather, financially
sound not-for-profit organizations plan to make money, just as for-profit
organizations do. In 2008, the Nonprofit Operating Reserves Initiative Workgroup
authored a White Paper entitled Maintaining Nonprofit Operating Reserves: An
Organizational Imperative for Nonprofit Financial Stability, annexed hereto at
Exhibit 1.
The White Paper cautioned that not-for-profit corporations must
pursue financial stability by budgeting for and then actually achieving

reasonable, modest surpluses year after year. Id at 1.
Under the heading
Nonprofit doesnt mean that you cant make a profit i.e., have a
surplus, (emphasis in original) it warned that the staff and board of
nonprofitsneed to understand and agree that it is ok to save money and build a
reserve, but that it is a critical necessity for long-term sustainability. Id. at 3. A
not-for-profits reserve fund, observes the White Paper, increases as a result of an
excess of revenue over expenses, or when the not-for-profit achieves an annual
profit/surplus. Id. at 1.
12
Id., at 2.
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Contrary to BPs assertions, not-for-profit corporations should and do, on a

sector-wide basis, generally earn surpluses every year.
That profit/surplus is
placed at great peril when natural or man-made disasters strike, as discussed in

Section D, infra.
C. Contributed Income is a vital source of revenue for not-for-profits.
Not-for-profits have various income streams. The IRS Form 990 tax return
for not-for-profit organizations lists four categories into which most revenue must
be categorized (except, of course, revenue not related to the central business
purpose of the not-for-profit, which must be reported on the separate Form 990-T):
contributions and grants, program service revenue, investment income, and other
revenue. 13 Grants and contributions are reported first; they are not grouped into
the catch-all category of other revenue. The importance, though, of grants and
donations to the continued feasibility and operation of not-for-profits is not limited
to the realm of the implicit, abstract, or merely academic.
In 2012, the Urban Institute released a study of the health and human service
sector of the not-for-profit community. 14 The study found that 63% of health and
human service not-for-profit revenue in the greater New Orleans area came from
13
The IRS does not require that a not-for-profit report all types of income. For example,
donated services, which accounting authorities such as FASB guidelines consider revenue, need
not be reported. Appellees Brief in 13-31302 at 20.
14
Carol J. De Vita, Amy S. Blackwood and Katie L. Roeger, A Profile of Nonprofit
Organizations in the Greater New Orleans Metropolitan Area, Urban Institute (November 1,
2012), available at http://www.urban.org/UploadedPDF/412689-A-Profile-of-NonprofitOrganizations-in-the-Greater-New-Orleans-Metropolitan-Area.pdf.
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contributions and grants, amounting to approximately $369,477,749 in revenue. In

the Louisiana-wide health and human service sector, 58% of total revenues come
from contributions and grants, amounting to $1,095,767,823 in revenue. With
more than $1 billion in revenue from grants and donations in the Louisiana health
and human service not-for-profit sector alone, it comes as no surprise that not-forprofit corporations strive year after year to improve their services and
programming to attract donors, large and small, individual, corporate, and
governmental. 15 And they expend substantial resources to do so.
The actual 2010 data showing the breakdown of contributions and grants as
a portion of revenue in both New Orleans and Louisiana illustrate how vital grants
and donations are to not-for-profit organizations. The data stand in stark contrast
to the portrait BP paints of grants and contributions generally being gratuitous, notplanned-for, unearned, and unexpected. 16 Given the size and importance of grants
and donations to not-for-profits, a question arises:
how can the Claims
Administrator exclude such vitally important revenue sources like grants and
15
It is common practice for not-for-profits to budget for revenue in the form of grants and
contributions from unknown donors or organizations. The development staff must then work to
find and raise the funds. Kate Barr and Jeanne Bell, An Executive Directors Guide to Financial
Leadership, The Nonprofit Quarterly, Fall/Winter 2011, at 8 (If the budget includes as-yetunidentified income, which is standard for many organizations).
16
Amici note that BP cherry-picked three individual claims and attempts to mischaracterize the
whole not-for-profit industry through the lens of those three claims. BP also fails to explain why
FASB guidelines, the AICPA, and the IRS should all be ignored, instead relying on Blacks Law
Dictionary (9th ed. 2009) as the main accounting authority for its argument. Appellants Brief in
no. 13-31299, at 20.
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donations, yet still process claims in accordance with economic reality? In re:
Deepwater Horizon I, 732 F.3d at 339 (5th Cir. 2013). The answer is obvious: he
cannot.
D. Calamities like a massive oil spill negatively impact not-for-profit
businesses.
BP argues that, by awarding money to not-for-profits, the Claims
Administrator is giving awards to entities that have no colorable claim of injury.
Appellants Brief in no. 13-31299, at 39. Belying that sweeping statement is that
calamities negatively impact not-for-profit businesses on a routine basis. The
adverse impact is attributable to two simple facts: first, those affected by the
calamity tend to slow their giving (deciding whether to keep the donations for
personal spending or to give to charity because they do not know how the calamity
will affect them personally) and, second, donors shift their giving to those
impacted directly by the disaster (deciding between charities based on the outside
influence of the calamity). Danshera Cords, Charitable Contributions for Disaster
Relief: Rationalizing Tax Consequences and Victim Benefits, 57 Cath. U. L. Rev.
427, 246 (2008).
This impact is not merely academic; it manifests itself in reality.
For
example, in the aftermath of the Boston Marathon bombings, not-for-profits that

did not work to support those injured in the bombings fell short of their financial
goals as public giving shifted to, e.g., the One Fund Boston:
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Support for One Fund Boston, the primary relief effort

that has raised nearly $30 million [in] donations and
pledges, has sucked all the oxygen from the fund-raising
air, said Peter Lowry, publisher of massnonprofit.org, a
news service for the nonprofit sector. 17
The Times-Picayune also reported the same phenomenon in New Orleans in
the wake of the Oil Spill. In an article dealing with the Contemporary Arts Center
(CAC) in New Orleans, the then Executive Director observed that
philanthropies that might have been counted on to provide funds for arts
organizations like the CAC focused their largess on areas more directly impacted
by the spill, such as the seafood industry. 18
Not-for-profits certainly have, at a minimum, colorable claims for injury as
they can be negatively impacted by a calamity such as an oil spill.
BP
acknowledged this fact when it negotiated a settlement that explicitly included notfor-profit corporations as claimants, when it agreed to a causation test under
Exhibit 4B that includes all revenues, when it sat idly by for nearly a year as notfor-profit claims were paid by the Claims Administrator, and when it submitted its
matching policy which included grants and donations as not-for profits revenue.
17
Peter Schworm, Old-line charities losing support; Many Area Donors focus on victims of
Marathon Attacks, Boston Globe, May 13, 2013.
18
Doug MacCash, BP oil spill settlement strengthens the Contemporary Arts Center, The TimesPicayune, March 23, 2013.
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CONCLUSION
BP
fundamentally
misunderstands
and
misrepresents
not-for-profit
businesses and how they operate to achieve now what it did not negotiate for in
2012. When not-for-profits and their operations are explained and put into context,
it is readily apparent why every major authority on the subject including the IRS,
American Institute of Certified Public Accountants, and Financial Accounting
Standards Board (the SECs authoritative financial accounting body) considers
contributions and grants revenue; how the Claims Administrators policy on the
issue is correct; and how the outcome of Sealed Claimant Appellees claim is
proper.
For the foregoing reasons, amici curiae Nonprofit Finance Fund, Americans
in the Arts, Grantmakers in the Arts, and Alliance of Artists Communities urge this
Court to affirm both the District Courts interpretation of the Settlement and the
individual award made to Sealed Claimant Appellee based on that proper
interpretation.
11
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Respectfully Submitted,
/s/ Zachary L. Wool
Telephone: (504) 524-3300
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CERTIFICATE OF COMPLIANCE
Pursuant to Rule 32(a) of the Federal Rules of Appellate Procedure and
Circuit Rule 32(a)(2), I hereby certify that the foregoing brief is proportionately
spaced, has a type of 14 points, and contains 3,782 words as determined by the
word-counting feature of Microsoft Word 2010.
/s/ Zachary L. Wool
Telephone: (504) 524-3300
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CERTIFICATE OF ELECTRONIC SERVICE

Pursuant to Rule 25 of the Federal Rules of Appellate Procedure, I hereby
certify that I have electronically filed the foregoing with the Clerk of Court for the
United States Court of Appeals for the Fifth Circuit by using the appellate
CM/ECF system. I certify that all participates in the case are registered CM/ECF
users and that service will be accomplished by the CM/ECF system.
/s/ Zachary L. Wool
Telephone: (504) 524-3300
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EXHIBIT 1
Case: 13-31296
AWHITEPAPER
BY:TheNonprofit
OperatingReserves
InitiativeWorkgroup
In spring 2008, a Nonprofit
Operating Reserves Initiative
Workgroup (see member list on
page 10) comprising experienced
individuals representing multiple
facets of the nonprofit sector was
convenedwiththeobjectiveof:
1. Defining
an
ReserveRatio
Operating
2. Using the ratio to focus

attention on the importance
ofnonprofitfinancialstability.
The Nonprofit Operating Reserves
Initiative Workgroup reached
consensus on definitions for
operating reserves and the
Operating Reserve Ratio. The
workgroup also reached a
conclusion on what constitutes
adequate operating reserves.
Workgroup member Richard
Larkin had previously concluded
and written that the answer is: it
depends.DrawingonMr.Larkins
insight and experience the
workgroup concluded, there is no
one size fits all ratio or
benchmark. However, the
Workgroupeffortresultedinsome
insightful
conclusions
and
recommendations that are shared
inthisWhitePaper.
Final note: The Operating Reserve
Ratio is one of a number of
important and useful financial
viability indicators thataddress
variousaspectsoffinancialhealth.
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MAINTAININGNONPROFITOPERATINGRESERVES
AnOrganizationalImperativeforNonprofitFinancialStability
December2008

Atoppriorityfornonprofitleadersneedstobemaintainingoperatingreservesat
levelsadequateforachievingfinancialstability.Whilethismayseemobvious,
preliminaryresearchindicatesthatmanyorganizationsneglecttoputasidefunds

thatwillhelpthempreservetheircapacitytodeliverontheirmissionsintheevent
ofunforeseenfinancialshortages.

Thefactisnumerousnonprofitshavenegativereservesandarealreadyatrisk.The
WorkGroup(seesidebar)recognizesthatthecurrenteconomiccrisisthreatens
theveryexistenceofthousandsofnonprofitorganizations.Atatimewhen
nonprofitorganizationsmaybefocusedonsurvival,thethoughtofbuilding
reservesmayseemadistantpriority.Butfororganizationscurrentlyjusthanging
onwhichexpecttosurvivethiscrisisandthoseinrelativelystablecurrentfinancial
conditionwhichseektofortifytheirposition,theWorkGroupencourages
includingoperatingreservesintheplanningprocess.Organizationswhichreview
theirpoliciescloselyanddeviseplansforreplenishingtheiroperatingreservesto
anagreeduponadequatelevelwillemergefromthiscurrenteconomiccrisisina
strongerfinancialposition,positionedtowithstandthenextchallengethatarises.
Briefly,operatingreservesaretheportionofunrestrictednetassets(seeFigure1)
that nonprofit boards maintain or designate for use in emergencies to sustain
financialoperationsintheunanticipatedeventofsignificantunbudgetedincreases
in operating expenses and/or losses in operating revenues. Unrestricted net
assets is a required line item in the balance sheets of financial statements
preparedinaccordancewithgenerallyacceptedaccountingprinciples(GAAP)and
IRSForms990ofnonprofitorganizations.[SeeOperatingReserveRatiopage2]
Figure1 Suggestedbalancesheetnetassettermspresentedinanillustrationthatallnonprofit
CEOsandboardsneedtounderstand.
UnrestrictedNetAssets
Equityinfixed
Available*
(Excluded from available

unrestricted net assets*)
OperatingReserves
BoardDesignated
(SuggestedMinimumGoal:
25%ofannualoperating
expensebudget)
(Setasideforstrategicpurposes
and/orquasiendowment)
*Availableunrestrictednetassetscouldalsoexcludetheequityinothernoncurrent,nonliquidnetassets
suchaslongtermreceivables,inventory,prepaidexpensesanddepositsheldbyothers.
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MAINTAININGNONPROFITOPERATINGRESERVES: ANORGANIZATIONALIMPERATIVEFORNONPROFITSTABILITY
The amount of accumulated unrestricted net

assets is increased or decreased as the result
of annual operating surpluses or deficits.
Nonprofits pursue financial stability by
budgetingforandthenachievingreasonable,
modestsurplusesyearafteryearuntiltheyhave
mettheiroperatingreservesobjectives.

TwoInterRelatedQuestions

Nonprofitscanaskthefollowingtwoquestions
tofacilitateinternaldiscussionsaboutadequate
operatingreservesforfinancialstability.

1. Whatdoesitmeantobefinanciallystable?
2. Whatareadequateoperatingreserves?

According to Richard Larkin, CPA, National
Technical Director of NotforProfit Accounting
andAuditing,BDOSeidman,LLP,theansweris,
It depends. Mr. Larkin goes on to say, It is
best to start by saying that based on the
literature available there is simply no single
correct solution for all organizations. Despite
the importance of the issue there exists no
agreed upon industry benchmark. To
complicatemattersfurther,suchbenchmarksas
are commonly used must be viewed in the
context of the particular organization to which
theyarebeingapplied.1
25 percent or 3 months of the annual expense

budget.

The classification of unrestricted net assets in
the balance sheet, as depicted in Figure 1, is
critical to developing a clear and accurate
snapshotofanorganizationsfinancialposition.
Available unrestricted net assets are the
portionoftotalunrestrictednetassetsthatare
available for use. A simple definition for
available unrestricted net assets is
unrestricted net assets less the equity in fixed
assets i.e., fixed assets net of related long
term debt. A more conservative definition of
available unrestricted net assets is footnoted
in Figure 1. Each organization needs to
determine if the simple definition can be used
reliablyformeasuringOperatingReservesorifit
needstouseamoreconservativedefinition.
Operating Reserves are that portion of
available unrestricted net assets that an
organizations board maintains and/or has
formally designated, or reserved for use in
emergencies to sustain financial operations in
the unanticipated event of significant
unbudgeted increases in operating expenses
and/or losses in operating revenues. The
adequacy of operating reserves beyond the
minimum is variable and depends on factors
such as the reliability of operating revenues,
impactofeconomicconditionsamongothers.

IRSFORM990ASHELPFULTOOL

The Workgroup concluded that the Form 990
providesagoodtoolforillustratingthecontent
oftheOperatingReserveRatio.UsingtheForm
990,OperatingReservesconsistofUnrestricted
net assets less fixed assets net of debt. Fixed
assets net of debt equals (Land, buildings, and
equipment i.e., fixed assets) minus
OPERATINGRESERVERATIO

The Nonprofit Operating Reserves Initiative
Workgroup recommends that nonprofit boards
establish a minimum Operating Reserve ratio
policy. An organizations Operating Reserve
Ratiocanbecalculatedintermsofapercentage
(operating reserves divided by the annual
expense budget) or number of months
(operating reserves divided by the average
monthly expense budget). The minimum
operating reserve ratio at the lowest point
duringtheyearsuggestedbytheWorkgroupis
1
DeterminingAppropriateLevelsofReserves,RichardLarkin,CPA,NationalTechnicalDirectorofNotforProfitAccountingandAuditing,BDOSeidman,LLP,BethesdaMaryland.
2
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crisis. For example, it may be having difficulty

meeting payrolls, and/or may be seriously
behind in paying its bills. It is likely operating
handtomouth disbursing funds as soon as
they are deposited. The staff and members of
the board can be devoting a disproportional
amount of time on daytoday financial
management, resulting in a reduction in the
delivery of program services. In some cases,
staff may be asked to forego all or portions of
their salaries. And, some staff members may
leaveforamorestableenvironmentormaybe
subjecttofurloughsorlayoffs.Internalcontrols
maybeignoredwithlessstafftodomorework.
(Mortgages and other notes payable). Annual

expenses consist of (Total functional expenses)
less(Depreciation).

NEARLY50%HAVELESSTHANTHEMINIMUM
Organizations with significant temporarily or

permanently restricted net assets may be
borrowingfromthosefundstocoverdeficitsin
unrestrictednetassetsavailableforoperations.
This is a very serious financial management
problem because it violates the organizations
fiduciaryresponsibilitytoassurethatrestricted
fundsareusedonlyforpurposesdesignatedby
thedonors.
Preliminary research indicates that a large

portion of nonprofits may not have sufficient
reserves to weather unexpected setbacks. For
example,accordingtoanalysisofIRSForm990
data (2003)2, 1,516 or nearly fifty percent of
3,154 nonprofits located in Washington, D.C.
hadyearendoperatingreserveratiosbelowthe
suggestedminimumof25percentorlessthan3
months of their annual expense budget. In
fact,996nonprofits(32%)hadreserveratiosof
zero to 25 percent while 520 nonprofits (17%)
actuallyhadnegativereserveratios.
DESIGNATED FOR INTERNAL MANAGEMENT,

NOTOUTSIDEWATCHDOGGROUPS
Precisely because it depends, the Nonprofit
Operating Reserves Initiative Workgroup
adamantly
maintains
that
any
recommendations and/or guidelines outlined
here are for the purpose of helping staff and
boardsbetteraddresstheneedforplanningfor,
and measuring financial stability for their
particular organization. Using it depends as
the underlying theme for this Whitepaper is
expected to put to rest any thought of using
Operating Reserve Ratios to measure the
worthiness of a nonprofit organization or to
compareoneorganizationwithanother.
IMPACT OF NEGATIVE OPERATING RESERVE

RATIOS

When the Operating Reserve Ratio is negative,
be experiencing a serious, disruptive financial
2
NationalCenterofCharitableStatistics,CenteronNonprofitsandPhilanthropyattheUrbanInstitute,IRSForm990data,circa2003.
3
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APPLICABILITY
a)daytodayfluctuationsinnormalcashflow
requirements,and
b)unusualand/orunforeseenemergencycash
requirements.

Keystepsforanyorganizationinformulating
thepolicy.

Workgroupbelievesthisdiscussionisofvaluefor
alltaxexemptorganizations.Whethertheannual
budgetis$100,000or$10million,committingto
andholdinganadequatereserveisanimportant,
prudentbusinesspractice.
1. Establish a minimum level for an

ESTABLISHAPOLICY
adequateoperatingreserveratioatthe

lowest point during the year. (The
Precisely
because
it
Nonprofit Operating
depends, the Nonprofit
Reserves
Initiative
Operating Reserves Initiative
Workgroup suggests
Workgrouprecommendsthat A board may find it useful for internal
accounting and reporting during the year
25% of the annual
every nonprofit organization to divide Operating Reserves into two
operating
expense
haveawrittenReservePolicy unrestricted net asset accounts: Board
budget as a starting
that defines its own Designated Operating Reserves and
Operating Funds. The Board
point.)
adequateoperatingreserve Designated Operating Reserves account
2. Define how the
level, defines how its would show the portion of Operating
Reservesthattheboardhasdesignatedfor
operating
reserve
operating
reserves
are use in unusualor unforeseen financial
ratiowillbecalculated
calculated and provides the emergencies. This net asset account
[e.g., use formula
rationale that led staff and couldserveasaninternallineofcredit
withboardspecifiedtermsofuseand
shown
in
the
Board to this conclusion. In
replenishment. The Operating
Operating Reserve
general, for calculating the Fundsnetassetaccountwouldshow
Ratio section on page
Operating Reserve Ratio, the the remaining portion of Operating
2 or another formula
Workgroup is strongly biased Reserves and would fluctuate up or
downaccordingtodaytodaychanges
designed to meet
towardthesimplestandmost
innormalcashflowactivity.
specific
operating
widely applicable formula.
reservesneeds].
[See Operating Reserve
Ratio on page 2.] The group also felt that
3. Definehowreserveswillbeinvestedaspart
operatingreservesinanamountdeterminedby
of the overall Investment Policy Statement
an organizations board to be adequate
basedonshort,intermediateandlongterm
should be accumulated in advance of other
needs.
boarddesignatedfunds.
4. Define frequency of measuring and
reporting on operating reserves. (As a
FORMULATINGTHEPOLICY
minimum,theNonprofitOperatingReserves
Eventhesmallestnonprofitorganizationscould
Initiative Workgroup recommends a
establishatleastasimplereservespolicywith
monthly report to the CEO and a quarterly
theoverarchingpurposebeingtobuildand
reporting system to the boards finance
maintainacertainlevelofpositiveunrestricted
committee.)
netassetsthatcanaccommodate:

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foradditionalBoardDesignatedspecialpurpose
funds and/or QuasiEndowments are logical
next steps to allow for planned, strategic
program development that might include new
programs, capital purchases, staff expansion,
for example. By design this higher level of
financial flexibility allows the organization to
enhance quality, introduce new program
elements and grow without compromising or
jeopardizing core program delivery to existing
constituentsandstakeholders.
5. Define methods by which the operating

reserve will be replenished if it is used, or
for any reason drops below the policy
mandatedminimumthresholdatanypoint
during the year. One example would be to
establish a surplus budget in order to
replacethelostrevenue.Fororganizations
with additional, nonoperating Board
Designatedfunds,therecommendedpolicy
would be to redesignate portions of those
Board Designated special purpose funds as
needed to replace lost value of operating
reserves.
NONPROFITDOESNTMEANYOUCANTMAKE
APROFITSOSTRIVETOHAVEASURPLUS
ITDEPENDSFACTORS
Themostfinanciallystablenonprofitsarebeing
proactive in building reserves through annual
surpluses,butasevidencedby thesnapshotof
DC nonprofits there are still many nonprofits
living dangerously close to the bone. The staff
and boards of nonprofits, as well as their
funders,needtounderstandandagreenotonly
thatitisoktosavemoneyandbuildareserve,
but that it is a critical necessity for longterm
sustainability. For nonprofits struggling but
striving to reach a certain operating reserves
threshold, the Nonprofit Operating Reserves
Initiative Workgroup advocates specifically
budgeting for it as a disciplined approach to
achievingthegoal.Insomecasesthismayalso
require a rigorous evaluation of the
organizationscurrentoperatingmodelthathas
ledtothechronicshortfalls.
There are numerous it depends factors that

makeitimpossibletoconstructastandard,one
size fits all formula for what is the correct or
adequate level of operating reserves for all
organizations. In general, there is a continuum
of variables that might influence what defines
the appropriate operating reserve level for any
given organization. The extent to which an
organization findsitselfmoreorlesssubjectto
the variables will influence how far above the
suggested 25% baseline the adequate or
appropriatereservelevelisset.Someofthese
variablesareoutlinedin detailinAppendixA
It Depends Factors to Be Considered in
Deciding What Amount of Reserves an
OrganizationWillPlantoMaintain.
BEYOND OPERATING RESERVES
PROGRAMDEVELOPMENT
FOR
1. When an organization operates within a

balanced budget that includes a modest
surplus (e.g., 5%), operating revenues for
the year will exceed operating expenses,
with the result that the available
unrestricted net assets would be increased
at the end of each year. An organization
with no reserves at all could thus plan to
build its Operating Reserve Ratio to the

Workgroup suggests that adequate operating
reserves are the basis for financial stability.
However, for organizations that have a written
policy and have successfully met the policy
parameters for their Operating Reserve,
establishing and budgeting surpluses needed

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suggestedminimum25%targetover5to6
yearsofmodestsurpluses.
WHOARESTAKEHOLDERSWHATCANTHEYDO?
Thestakeholdersthatcanhelpnonprofitsachieve
financialstabilityinclude:
2. The need for an operating reserve is clear:

Without a reserve, the organization can be
thrown into cash flow stress and become
distracted from good longterm decision
making or forced to make expensive short
termcrisisbaseddecisions,orworse;itmay
nothavetheresourcestocontinuedelivery
ofitsprograms.
CEOs,CFOsandboardsofnonprofit
organizations.
Grantmakingcommunity,suchasprogram
officersoffoundations,regional
associationsofgrantmakersand
governmentagencies.
Over time, based on its existing available

operating reserves and the percent of budget
surplus added, the organization will have used
its profits to prudently build the operating
reserve to the level established in the
organizationspolicyasadequateoroptimal.
Associationsofnonprofitsandumbrella
groupsgeographicandsubsector.
AccountantssuchasindividualCFOsand
CPAs,CFOgroupsandCPAsocieties
Managementsupportorganizations
FINANCIAL STABILITY ITS EVERYONES

RESPONSIBILITY
Academiccenterswithnonprofitprograms
After many hours of discussion and numerous

iterations of this Whitepaper, the Nonprofit
Operating Reserves Initiative Workgroups
conclusionsaresimple.
Financialinstitutionsservingthenonprofit
sector
Allgroupscanencouragenonprofitsto:
EstablishcomprehensivewrittenReserves
Policiesformaintainingadequate
operatingreservesforfinancialstability
andgeneratingspecialpurposefundsfor
optimalmissionaccomplishment
1. Nonprofit organizations will be better

managedandmorefinanciallystableifthey
haveapolicydefininganOperatingReserve
Ratio level appropriate for the specific
conditions in which that particular
organization operates, with full support of
the Board, CEO, CFO and other senior
leadership.
Employbudgetingandaccounting
proceduresthatimplementtheirReserves
Policyeffectively.
2. Because it depends on numerous

variables, which are best known and
applied to the decision by the organization
itself,thebestpolicywillbedefinedbythe
organization rather than by adhering to
some arbitrary benchmark imposed by
outsiders.
NonprofitBoardmembers,CEOsandCFOscanask
forandreceiveatleastquarterlyreports.
Resourceproviderscanencourageandpermit
budgetingsurplusesandbuildingreserves.

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MAINTAININGNONPROFIT OPERATINGRESERVES: ANORGANIZATIONALIMPERATIVEFORNONPROFITSTABILITY
3. By taking this conscious and proactive

approach to setting its own financial goals,
the staff and board take responsibility for
thefinancialstabilityoftheorganization.
HELPFULRESOURCESRELATEDTONONPROFIT
OPERATINGRESERVESINITIATIVE
WorkingPapersandHelpfulResourcesofthe
NonprofitOperatingReservesInitiativeWorkgroup
canbefoundatthewebsite(seep.10forlink)
4. It is important that institutional funders,

individual donors, and other community
leaders understand the need for small and
midsized nonprofit organizations to build
and sensibly use their unrestricted net
assets to create an operating reserve that
achievesfinancialsustainability.
providedbyCenteronNonprofitsandPhilanthropyat
TheUrbanInstitute,whichservesassecretariattothe
Workgroup.
SupplementstoNonprofitOperatingReserves
WhitePaper.
x ImpactofinadequateOperatingReserves.
x DefiningtheOperatingReservesRatio.
x ItDependsFactorstoBeConsideredin
DecidingWhatAmountofReservesan
OrganizationWillPlantoMaintain.
InitialNonprofitOperatingReserveRatioWorking
Documents
x NonprofitOperatingReserveRatio(primary
workingpaperforWhitePaperAugustdraft)
x SummaryNonprofitOperatingReserveRatio
RelatedpapersbyRichardF.Larkin,CPA,BDO
Seidman,LLP
x NonprofitsandSquirrelsor,Howbigareserve
doyouneed?
x DeterminingAppropriatelevelsofReserves.
Illustrativereservespolicies
x UnitedWayofAmericaReservesPolicy
x IllustrativeGuidelinesforDevelopinga
Reservespolicy
Reservespolicytoolkit1.0(Scheduledtobe
CALLTOACTION
Thepreliminaryfactstellusthatnearly50%of
nonprofit organizations in the DC metropolitan
area have operating reserves of less than 25%.
As a result of these preliminary findings the
Urban Institute is planning to do a more in
depth study of the data. This research project
willhelpbetterdefineandquantifythestateof
financial stability among area nonprofits. And,
while that information will prove extremely
valuable, you as a board member, a CFO, a
donor, a funder or any other nonprofit
stakeholderneednotwaitto takeaction.Ifyou
know of an organization that appears to be
struggling to achieve this objective, share this
information with key leadership. If your
organization doesnt have a policy, establish
one. If your organization has a policy but has
notrevieweditinthelastthreeyears,pullitout
andevaluateit.
completedSpring2008.)

AlldocumentsaredownloadableinPDFformatandalso
availableinwordonrequesttoBillLevis
(qrlevis@aol.com).Theviewsrecommendationsand
suggestionsexpressedintheWhitePaperandother
documentsarethoseoftheNonprofitOperating
ReservesInitiativeWorkgroup.SomeWorkgroup
membersmaydisagreeonsomepoints.Workgroup
positionsontheissueshavebeenestablishedona
consensusbasis.Workgroupmembersrepresent
themselvesandnottheiraffiliations.Thesedocuments
arenotresearchbasedpapersoftheCenteron
NonprofitsandPhilanthropyatTheUrbanInstitute.
Thereisnoonesizefitsallsolution,butthereis
a solution that is right for every organization if
thekeystakeholderstakethetimeandeffortto
understand and define what is best for your
situation. The region depends so much on
nonprofits to deliver myriad services to valued
citizens of our community. And, achieving
financialstabilityisacriticalcomponentofyour
missionsustainability.Takethenecessarysteps
to be financially stable so that our community
cancontinuetobenefitfrom yourmission.

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AppendixA ITDEPENDS

FactorstoBeConsideredinDecidingWhatAmountofReservesanOrganizationWillPlantoMaintain
ByRichardF.Larkin,C.P.A.,BDOSeidman,LLP(MemberNonprofitOperatingReservesInitiativeWorkgroup)

Everyorganizationshouldplanforitsreserves.Considerhowthefactorsbelowmightaffectyou.Yourboard,

withadviceofmanagement,shouldadoptaformalpolicyforthereservelevelitwishestomaintain,andreview

thatpolicyregularly.Ofcourseyoucannotjustmakereservesappearoncommand;itmaytakeanextended

periodtoaccumulatethedesiredlevel.

Followingisalistoffactorstobeconsideredbynonprofitorganizationsinmakingthatdecision.Inmanycases,

nooneofthesefactorswillbedeterminativebyitself;allapplicablefactorsshouldbeconsideredtogether.

Factorswhosepresencewouldindicatethatthe
organizationprobablyshouldtrytomaintainahigher*
levelofreserves
OperatingFunds[forfinancialsustainability]
Themainsourcesofexpendablerevenuemaybesubjectto
largeunexpectednegativefluctuations.1
Thenatureofouractivitiesissuchthatthereisahighriskof
therebeingsignificantunpredictabledemandsonour
resources.2
Ourregulardaytodayfluctuationsinincomeandexpenses
aresignificant.3
Ourgoverningboardtakesalongertermviewofprovision
ofservicesanditsattitudeistobeverysurethereare
alwaysresourcesavailable.
Ourgoverningboardsapproachtoplanningandbudgeting
isaconservativeandprudentone.Whiletheorganization
mayneverhavefacedaneventrequiringtheextendeduse
ofourreserves,theboardconsidersthisafundamentally
soundfinancialmanagementpractice.
Ourplanningandbudgetingprocesseshavehistorically
provedtobelessaccurateinforecastingfinancialresults.4
Adequatebackupsourcesofresourcesarenotinsight.
Theboardisnottryingtoexpandtheorganization.

BoardDesignatedFunds[foroptimalmission
accomplishment]
Thenatureofouractivitiesissuchthatthereisahigh
likelihoodthatunexpectedopportunitieswillcomeour
way,requiringadditional(available)resourcestotake
advantageoftheseopportunities.7
Thereisasensethatachangeinorganizationaldirection
maybeconsidereddesirableinthenotsodistantfuture.8
Factorswhosepresencewouldindicatethatthe
organizationcanlikelygetalongwithalower*levelof
reserves
Ourmainsourcesofrevenuearegenerallynotsubject
tolargeunexpectednegativefluctuations.
Itislesslikelythatsignificantunexpecteddemandson
ourresourceswilloccur.

Ourregulardaytodayfluctuationsarerelativelyminor.
Thegoverningboardbelievesitisofoverriding
importancethateverypossibleresourceisusedinthe
provisionofcurrentprogramservices.
Thegoverningboardisgenerallywillingtolivedayto
dayandtrustthatresourceswillbeavailablewhen
needed.Theboardbelievesitisofoverriding
importancethateverypossibleresourceisusedinthe
provisionofcurrentprogramservices.
Ourplanningandbudgetingprocesseshavehistorically
provedtobefairlyaccurateinforecastingfinancial
results.
Weareconfidentthatadequatebackupsourcesof
resourcesarelikelytobeavailableinapinch.5
Theboardistryingtoaggressivelyexpandthe
organizationandavailableresourcesaretobeusedfor
expansion,includingportionsofitsoperatingreserves6

Thenatureofouractivitiesissuchitisnotverylikely
thatsuchopportunitieswillcomeourwayrequiring
additional(available)resources.
Thereisnochangeinorganizationaldirection
anticipatedanytimesoon.
*Note:Noattemptismadeheretoquantifyhigherorlowerreserves.Thathastobedonebyeachorganization,takingintoconsideration
thewiderangeofcircumstancesthatimpacttheorganizationsbudgetandoperations.Areservelevelthatmightbeconsideredhighforone
organizationmaybecompletelyinadequateforanother.ITDEPENDS.

FOOTNOTEreferencesinthistablearedetailedonpage9.

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AppendixAITDEPENDSContinued

FOOTNOTEScorrespondingwithreferencesmadeinTableAonpage8.

1.Examplesmightinclude:Unexpected,unplannedeventsthatnegativelyaffectcharitablegivingandfeeincome;natural
disasterssuchasearthquakes,floodsandhurricanes;ablizzardthedayofyourbigannualgalafundraiser;generalpoor
economicconditionsorrisingcosts;organizationalproblemssuchasvolunteerandstaffmisdeedsorlawsuitsgenerating
unfavorablepublicitywhichturnsawaycustomersanddonors;overlyoptimisticbudgetingofanticipatedrevenue(very
common);dependencyononedonorfor10%ormoreoftheannualbudget;shorttermornonrenewableagreementssuch
assomecauserelatedmarketingcontractsandcorporatesponsorships;manyotherreasons.
2.Examplesmightagaininclude:Unexpected,unplannedeventsthatnegativelyaffectgivingand/orincreasedemandforour
services(economicdownturn,unusualweatherpatterns)Organizationsmostlikelyaffectedaredisasterorsituational
responseorganizationsforexampletheRedCross;UnitedWayorganizations,healthandhumanservicesorganizations
suchasfoodkitchens,homelessshelters.
3.Payrollshavetobepaideverypayday.Theelectriccompanyislikelytowantcash,notapromise,tokeepthepowerflowing.
Butincomeoftencomesinspurts,especiallycontributions.Alsotheremaybeseasonalfactors.Forexample,many
contributionsprobablyarriveinDecemberasdonorsdopersonaltaxplanning.Collegescollecttuitionatthebeginningof
eachsemester,andthenhavetoliveoffituntilnextsemester.Orchestrassellseasonticketsinthespringtopayfor
concertstobeputonoverthefollowingwinter.Ontheotherside,utilitycostsareprobablyhigherinthewinterand
summer(heatingandairconditioning),butlowerinbetween.Expensesofourannualconferencewillbebunchedaround
thetimeoftheconference.
4.Forexample,youhavehadnumerousinstancesofsituationssuchascostoverruns,or,Theprojectthateveryonethought
wouldsucceed,didnt.Thefoundationgrantthatyouthoughtwasinthebagwasnt.Thebigfundraisingeventfailedto
meetexpectations.
5.ThisisyourPlanB.Fornonprofitsthiscanbesomecombinationof:cashonhand,investmentsandsurplusassetsthatcanbe
sold,abanklineofcredit,afoundationorotherinstitutionalfunderthatyouknowwouldhelpifasked,someindividual
donorswhocouldbecountedonifthegoinggetsreallyrough,aplantocutexpensestoabareboneslevelforawhile.Ifan
organizationusesthistojustifynotestablishingareserve,theyshoulddefineinwritingthisPlanBwhichnamessources
(toinclude:heldassets,organizationsandindividuals)fromwhichfundswouldcome.
6.Forexample,theorganizationcouldbenewandtryingtoreachasustainablesizeorhaveaspecialopportunitythatwarrants
riskingaportionofitsoperatingreserves.
7.Forexample,recentlyanextremelyraremajordinosaurfossilbecameavailableatpublicauction.Museumsknewthatit
wouldsellforahighprice,anditdid.Ifyourmuseumwantedthisforitscollection,ithadtohaveresourcesavailableto
coverthecost.
8.Alongstandingprogramjustisntwhatsbestanymore.Communityneedshaveshifted.Resourceswillberequiredto
phaseouttheoldandbringinthenew.Theparallelhereistoseedcapitalinabusiness.

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AppendixBNONPROFITOPERATINGRESERVESINITIATIVEWORKGROUPMEMBERS

NonprofitOperatingReservesInitiativeWorkgroupmembersrepresentthemselvesandnottheiraffiliations.
Positionsonrecommendationsandissuesareestablishedonaconsensusbasis;somemembersmaydisagreeon
somepoints.Workgroupmembersareencouragedtoinviteotherstojoin.TheCenteronNonprofitsand
PhilanthropyatTheUrbanInstituteservesassecretariatfortheWorkgroup.

Workgroupcoordinators,identifiedwithan(*)inlistbelow,canbereachedatJames_Schmutz@ml.com,
qrlevis@aol.comandbessfoley@gmail.com.Workgroupdraftmaterialsandpaperscanbefoundat:
http://www.nccs2.org/wiki/index.php?title=Nonprofit_Reserves_Workgroup.1/13/09
RobBatarla,AmericanPhysicalTherapyAssociation
WendyBatkin,NonprofitConsultant
ElizabethBoris,CenterDirector,CNP,TheUrbanInstitute
MaryBuszuwski,ANA
GaleCase,RothsteinKass
GlendaCognevich,DCCentralKitchen
GailCrider,NationalArtsStrategies
LindaCrompton,BoardSource
CamiCumblidge,NebraskaCouncilofSchoolAdministrators
MaryAnndeBarbieri,deBarbieri&Associates
KeithDanos,JewishFederationforGroupHomes
TimDelaney,NationalCouncilofNonprofits
RickDorman,GWSCPA
PhyllisEdans,AmericanCollegeofEmergencyPhysicians
KenEuwema,UnitedWayofAmerica
(*)BessFoley,NonprofitFinance&AccountingConsultant
[WorkgroupCoordinator]
CarlosGomezMontes,UnitedWayofAmerica
FloGreene,CaliforniaAssnofNonprofits
WilliamHamm,InterimPresident,WartburgCollege
BobHawkins,concernedcitizen
MargeHeitbrink,WiseGivingAlliance,CBBB
GeorgeHergenhahn,SpecialOlympicsMaryland
DeborahHickox,GoodwillofGreaterWashington
MariaNellyJohnson,SpecialOlympicsDistrictofColumbia
LisaJunker,ASAE
FredLane,CenterforNonprofitStrategyandManagement,
BaruchCollege/CUNY
DickLarkin,BDOSeidman
(*)BillLevis,SeniorAssociate,NCCS,TheUrbanInstitute
[WorkgroupCoordinator]
ElaineLynch,AmericanAnthropologicalAssn
DawnMancuso,AssociationofAirMedicalServices
ChristineManor,QuickBooksforNPOs
JanMasaoka,BlueAvocado
CoreyMcIntyre,NationalAssociationofIndependentSchools
ChuckMcLean,VPResearchandDataQuality,Guidestar
RickMoyers,MeyerFoundation
PattyOMalley,Rubino&McGeehin
TomPollak,ProgramDirector,NCCS,TheUrbanInstitute
DennisRamprashad,MillerMusmar,[Chair,GWSCPAQRTask
Force]
CelesteRegan,NationalParkFoundation
SallyRudney,TheMontgomeryCountyCommunityFoundation
DanielSaat,TidesFoundation
SusanSanow,CenterforNonprofitAdvancement
(*)JimSchmutz,MerrillLynch[WorkgroupCoordinator]
JeffSchragg,Argy,Wiltse&Robinson
CathyStegmaier,AllianceofCambridgeAdvisors
SuzanneStone,SocietyforWomensHealthResearch
JanetteStout,SoutheasternUniversityResearchAssn
AlanStrand,CaliforniaAssociationofNonprofits
RussySumariwalla,GlobalPhilanthropy&Nonprofits
RussellWillisTaylor,NationalArtsStrategies
A.IreneTongelidis,AccountingandConsultingServices
TimWalters,AssociationforSmallFoundations
BennettWeiner,BBBWiseGivingAlliance
YonasWeldemariam,SocietyforWomensHealthResearch
BrianWilliams,StepAfrika!
JackZiegler,MovementAdvancementProject/LGBT
JoeZillo,DefendersofWildlife
SteveZimmerman,SpectrumNonprofitServicesLLC

10

Nonprofit Amicus Brief

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Nonprofit Amicus Brief

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Case: 13-31296

Date Filed: 06/19/2014

Zachary L. Wool (32778)

Date Filed: 06/19/2014

Date Filed: 06/19/2014

SUPPLEMENTAL STATEMENT OF INTERESTED PARTIES

Date Filed: 06/19/2014

Counsel for Amici Curiae

Date Filed: 06/19/2014

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INTERESTS OF AMICI CURIAE

They universally have an interest in

correcting some fundamental misunderstandings and misrepresentations made by

Date Filed: 06/19/2014

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misunderstandings and misrepresentations made by BP about the fundamental

BPs Misrepresentations and Misunderstandings of Corporations with

Date Filed: 06/19/2014

Not-for-profit organizations are not an odd form of business entity created

Rather, they are businesses organized under state law for a

public or charitable purpose that then apply for tax-exempt designation.

And to achieve that designation, corporations must meet two

requirements. First, the business must be incorporated. 3 When they incorporate,

Second, a corporation must be organized and operated exclusively for

religious, charitable, scientific, testing for public safety, literary or educational

Date Filed: 06/19/2014

businesses to report their income. Generally speaking, not-for-profits must file an

That return requires the organization to report revenue

As discussed infra, grants and contributions constitute a large portion

of that revenue generated by the central mission and business of a not-for-profit

Date Filed: 06/19/2014

B. Not-for-profit businesses do earn a profit/surplus through their

The study examined the finances of not-for-profit

Those same organizations had expenses of $1.94 trillion, with a

Nonprofit Finance Fund, Glossary of Financial Terms, (available at

Date Filed: 06/19/2014

The White Paper cautioned that not-for-profit corporations must

pursue financial stability by budgeting for and then actually achieving

Under the heading

Date Filed: 06/19/2014

Contrary to BPs assertions, not-for-profit corporations should and do, on a

placed at great peril when natural or man-made disasters strike, as discussed in

Date Filed: 06/19/2014

contributions and grants, amounting to approximately $369,477,749 in revenue. In

how can the Claims

Date Filed: 06/19/2014

example, in the aftermath of the Boston Marathon bombings, not-for-profits that

Date Filed: 06/19/2014

Support for One Fund Boston, the primary relief effort

Date Filed: 06/19/2014

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CERTIFICATE OF ELECTRONIC SERVICE

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2. Using the ratio to focus

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(Excluded from available

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The amount of accumulated unrestricted net

25 percent or 3 months of the annual expense