When to Change Your Nonprofit's Mission and How to Make it Legal
Summary: Sometimes, mission statements do need to be changed to better reflect what the charity actually does or to catch up with a changing environment. However, there are reporting requirements and considerations around charitable donations that must be noted.
Mission statements can get stale or irrelevant
Your mission statement should be revisited periodically to see if it still works for your organization. It is also imperative that you reconsider the mission statement as part of any new planning you may do, such as putting together a strategic plan.
Many times organizations "morph" as the realities of actually operating sink in, or as the external environment changes. Your original mission statement may need to be tweaked or even completely rewritten, depending on the circumstances.
An example of a changing environment occurred when polio was obliterated in the U.S. by the Salk vaccine. The March of Dimes had been set up specifically to serve polio victims and search for a cure. As polio was gradually beaten back, the March of Dimes faced an evolving identity crisis.
Should they go out of business or change the mission? The organization chose to change the mission, a wise decision since there was a robust infrastructure in place. The March of Dimes re-focused on preventing birth defects, premature birth, and infant mortality.
Stan Hutton and Frances Phillips, in their Nonprofit Kit for Dummies, recommend that organizations ask the following three questions when revisiting their mission statements:
- Is the problem we set out to solve still a problem?
- Should we make the mission statement more specific, or should we broaden it?
- Is the mission statement flexible enough to allow the organization to change and grow?
A mission statement is your organization's touchstone for everything. Always, as you develop programs, apply for grants, and pursue your goals, ask yourself if what you're doing fits with your mission. Will this help us accomplish our mission?
What happens when you do change your mission statement? Should it be reported to the IRS?
Emily Chan of attorneyfornonprofits.com points out the legal considerations when a charity changes its mission statement.
For instance, an organization must have one or more qualifying exempt purposes to be eligible for 501(c)(3) tax-exempt status. The exempt purpose should be embodied in a mission statement, which may be found in an organization’s bylaws and its articles of incorporation.
Amendments to an organization’s mission statement will usually not jeopardize the organization’s 501(c)(3) tax-exempt status so long as the mission statement remains consistent with a tax-exempt purpose and the change is disclosed to the IRS on Form 990 or 990-EZ along with the amended organizational document.
If the organization is not required to file an annual return, it may report the change to the EO (Exempt Organizations) Determinations Office.
How a change in the mission might affect donations
A related consideration is the charitable trust doctrine. The charitable trust doctrine requires that a gift accepted by a charitable corporation must only be used for the expressly declared charitable purposes of the charitable corporation at the time of the acceptance.
This restriction applies regardless of whether the donor expressly imposed such restriction or the corporation later changes its purpose, transfers those assets or dissolves.
Therefore, if the change to the mission statement is substantial, use of the charitable contributions received and perhaps even revenues generated before the change may be limited to furthering only the pre-amended mission statement.
What to do if changing the mission involves a name change
An organization files articles of incorporation with the Secretary of State in its state of incorporation for a relatively modest fee. The name on the articles of incorporation is the business name kept on file with the state.
Thus, any subsequent legal name change should be appropriately amended on the articles of incorporation and filed with the state for a small fee. An organization operating in foreign jurisdictions must also update its registrations in those jurisdictions.
The organization must report the name change to the IRS on Form 990 or 990-EZ and attach a copy of the certified articles of incorporation reflecting the name change. If the organization is not required to file an annual return, it may still report the change to the EO Determinations Office.
It is also advisable, but not required, for the organization to request an updated determination letter showing the organization’s new name.
If an organization seeks instead to use a fictitious business or 'doing business as' name for purposes of operating under an alternative name, this will not result in a legal name change of the organization.
In such a situation, the organization must file the appropriate paperwork with the state for registering a fictitious business name. The organization must also disclose the alternate name to the IRS on Form 990. If the organization is not required to file a Form 990, it may still report the alternate name to the EO Determinations Office."
This communication was not written or intended to be used, and may not be used, by any taxpayer for the purpose of (i) avoiding any tax-related penalty under the Internal Revenue Code, or (ii) promoting, marketing or recommending a tax-related transaction described herein.