What to Consider When Changing Your Mission Statement

Posted by Casey Foulk, CPA

446538765_bfa89f9875_nA wise person once said, “The only thing that is constant in life is change.” This principle lends itself well to the world of nonprofit organizations. A variety of factors cause nonprofit organizations to change. From regulatory changes to changes in demand for services to changes in leadership and administration, adaptation is a skill necessary for survival. At times, the evolution of an organization requires a nonprofit to change its mission. A mission statement describes a nonprofit’s purpose, what they intend to do, and whom they intend to serve. Most importantly, a nonprofit’s approved exempt activities must be embodied in its mission.

Below are two common reasons nonprofits may need to change their mission statement, as well as factors that need to be considered in doing so.

1. To better articulate the goal of the existing programs. The programs of the organization have not changed, but the mission statement could be rewritten to better reflect your current operations.

a. Upon approval of the new mission statement by the organization’s board, the bylaws and articles of incorporation should be evaluated to determine if they need to be updated. In addition to the possibility of amending corporate documents, the organization should update its website, marketing materials, etc.

b. Changes to the mission statement must be reported to the IRS on the organization’s Form 990 annual information return. Update Part 1 Line 1 and Part III Line 1 which ask for a description of the organization’s mission. If corporate documents including bylaws were updated, the organization should also mark “yes” to Part VI Line 4 which asks if any significant changes to governing documents have been made since the prior Form 990 was filed (an explanation should be reported on Schedule O).

2. Changes to a program or development of a new program. In addition to the steps listed above, if the mission statement needs to be updated because the operations of the organization are changing in some way, they have two options to communicate the changes to the IRS.

a. Tell the IRS. If the organization is confident that the changes to their programs or addition of a new program is in line with their approved tax-exempt purpose as specified in Section 501(c)(3) of the Internal Revenue Code, they can inform the IRS by answering “yes” to Part III Line 2 of the Form 990, which asks if the organization undertook any significant program services during the year which were not listed on the prior Form 990 (an explanation should be reported on Schedule O).

b. Ask for approval. If the changes to an organization’s program or addition of a new program are not within the scope of their original tax-exempt purpose as described on the original Form 1023 application, they should ask for approval from the IRS by requesting a private letter ruling in accordance with Revenue Procedure 2014-4. A sample format for a letter ruling request can be found here. The IRS charges an applicable user fee for the processing of a private letter ruling in accordance with Revenue Procedure 2014-8.

As always, it is best to consult your CPA for guidance on tax compliance matters.

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