Association Myths and Misunderstandings

A quick quiz for volunteer leaders. Test your knowledge of associations - which of the following statements are true?

#1	"We need to spend some of our money. Too much money in reserves might lose us our tax exempt status with the IRS."            True           False Well, it would have been true prior to 1969 when it was repealed - at that time there was a specific provision in the IRS Code that revoked the tax exemption for some non-profits if they had accumulated reserves that were "unreasonable in amount or duration in order to carry out their charitable, educational, or other purpose or function constituting the basis for exemption". So, currently, except for private foundations, there are no statutory or regulatory provisions that directly address the accumulation of reserve funds by exempt organizations, and, in fact, this issue hasn't received much attention from the IRS. That said, public charities are subject to more scrutiny than professional associations - many of the national watchdog organizations have standards that specify the level of reserves they find acceptable. (The BBB Wise Giving Alliance, for example, suggests that charities should not have more than three years' expenses in reserve.) But associations often, and prudently, put money away to be prepared for a calamity - a major conference that can't be held, a sudden drop in membership, or an expensive legal or legislative battle on behalf of the members. So, don't worry about having too much money in the bank because of the IRS - do what's appropriate for the association and its members. For more information on this, or any other association topic, click here. Good Answer! Well, this was actually correct prior to 1969 when it was repealed - at that time there was a specific provision in the IRS Code that revoked the tax exemption for some non-profits if they had accumulated reserves that were "unreasonable in amount or duration in order to carry out their charitable, educational, or other purpose or function constituting the basis for exemption". So, currently, except for private foundations, there are no statutory or regulatory provisions that directly address the accumulation of reserve funds by exempt organizations, and, in fact, this issue hasn't received much attention from the IRS. That said, public charities are subject to more scrutiny than professional associations - many of the national watchdog organizations have standards that specify the level of reserves they find acceptable. (The BBB Wise Giving Alliance, for example, suggests that charities should not have more than three years' expenses in reserve.) But associations often, and prudently, put money away to be prepared for a calamity - a major conference that can't be held, a sudden drop in membership, or an expensive legal or legislative battle on behalf of the members. So, don't worry about having too much money in the bank because of the IRS - do what's appropriate for the association and its members. For more information on this, or any other association topic, click here.
#2	"This is a service for our members. If they're not a member, they can't buy it. Or else we should mark it up so the difference is equal to what their dues would be."            Right          Wrong Sorry. Don't shoot the messenger. Although it might seem that since your association's services and programs are developed by volunteer member committees, are funded by the association's budget, and are a "hook" for getting people to join, they should be restricted to members only. Why would you offer these services to those who don't support the association, or let people who aren't members attend your programs? In a nutshell: because you have to. Associations by their very nature are groups of competitors who are coming together, hence they are subject to stringent anti-trust and restraint of trade laws. For the most part, association services must be made available to non-members, in the same way that membership cannot be denied to those who compete with members and could receive an economic benefit from joining. The only services that can be denied to non-members are those that do not confer an important economic or competitive benefit. And marking up a service or program by an amount approaching the amount of the membership dues is, in effect, denying services to non-members by providing coercion to join. Sorry! For more information on this, or any other association topic, click here. You are so right. Although it seems to some people that since your association's services and programs are developed by volunteer member committees, are funded by the association's budget, and are a "hook" for getting people to join, they should be restricted to members only. Why would you offer these services to those who don't support the association, or let people who aren't members attend your programs? In a nutshell: because you have to. Associations by their very nature are groups of competitors who are coming together, hence they are subject to stringent anti-trust and restraint of trade laws. For the most part, association services must be made available to non-members, in the same way that membership cannot be denied to those who compete with members and could receive an economic benefit from joining. The only services that can be denied to non-members are those that do not confer an important economic or competitive benefit. And marking up a service or program by an amount approaching the amount of the membership dues is, in effect, denying services to non-members by providing coercion to join. For more information on this, or any other association topic, click here.
#3	"One of the biggest benefits I receive from my membership is discussing how to calculate what I charge for my services. What's wrong with that?"            Nothing      Lots Wrong! Discussions at association meetings - whether a board meeting, a committee meeting, an annual conference - should never, ever cover this topic. As discussed elsewhere on the PMA site, there is a long history of court and agency opinion on discussions that are appropriate and those that are illegal in a meeting sponsored by a trade or professional association. Generally speaking, members should avoid discussions that include prices, costs, profits, terms, deliveries, capacity, sales volume, market share, decisions to quote or not to quote, sales territories, or distribution methods, among others. For more information on this, or any other association topic, click here. Great Response! Discussions at association meetings - whether a board meeting, a committee meeting, an annual conference - should never, ever cover this topic. As discussed elsewhere on the PMA site, there is a long history of court and agency opinion on discussions that are appropriate and those that are illegal in a meeting sponsored by a trade or professional association. Generally speaking, members should avoid discussions that include prices, costs, profits, terms, deliveries, capacity, sales volume, market share, decisions to quote or not to quote, sales territories, or distribution methods, among others. For more information on this, or any other association topic, click here.