Board members of nonprofit organizations – or those responsible for the financial well-being of one – should become familiar with the Neighborhood Assistance Program and other state credit programs offered for contributions.
The purpose of a Neighborhood Assistance Program (NAP) is to encourage businesses, trusts and individuals to make donations to approved 501(c)(3) organizations for the benefit of low-income individuals. Programs vary by state.
For example, state income tax credits in Virginia are provided to businesses and individuals as incentives to promote contributions to an approved nonprofit group. Virginia has increased the tax credit percentage from 40 percent to 65 percent, and maximum tax credit limits have been increased.
It has become more advantageous for a qualified nonprofit to apply to become a NAP approved organization and provide these credits to its donors. The following situations show how nonprofit organizations have improved their cash flow by participation in such a program.
Many nonprofit organizations have unconditional promises to give, or pledges, on their books for contributions that have not been collected.
The organizations must determine each year whether to pursue collection of these receivables or to write them off. Sometimes these unpaid balances are from major supporters of the organization, and management has determined the receivable will eventually be collected.
One strategy to collect these pledges is to approach donors with the suggestion that they pay the pledge and receive enhanced tax savings provided from NAP credits.
In many cases, the donor will receive tax savings of 80 percent of the donation. One nonprofit employed this strategy and collected more than $400,000 in old receivables promoting this program to its donors. It attracted new contributions publicizing this incentive. The NAP credit benefit has also been used effectively to generate merchandise donations offered during a fundraiser.
Often organizations have an auction or a raffle for the benefit of the nonprofit. If auctioning a car, it improves cash flow to have the car donated as opposed to being consigned to the nonprofit. When soliciting for the contribution from a business, the nonprofit should be prepared to show the business owner the amount of tax savings available when receiving NAP credits in exchange for the donation – again up to 80 percent of the value of the donation.
The nonprofit will benefit by not having to pay the business for the merchandise, potentially increasing event attendance with valuable auction items and, as a result, obtaining higher bids to increase the event’s net proceeds.
These are just two examples in which participation in the NAP program can benefit nonprofit organizations’ cash flows.
In Virginia, the program has been very successful at subsidizing the economically disadvantaged and supporting nonprofits to fulfill their missions. There are annual filing requirements and procedures that must be followed to participate.