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Finding Your Funding - Part II

by Robert Avsec

Fire Department chiclet article type logo labelEmergency Medical Services chiclet article type logo label

Setting up an NPO for Operating Your Fire and EMS Department

Once upon a time…with a beginning like that you just know this is going to be a good story, right? Well the good news is that it’s not a fairy tale. It is, however, the fictitious story of how a fictitious municipal fire department, the Cutting Edge County Fire and Rescue (CECFR) Department, created a non-profit organization (NPO) to provide financial support to its customer service efforts. It serves as a model for actual departments to follow.

The leadership of CECFR, which has a reputation for being a proactive and progressive department in the region, wanted to provide better customer service to its citizens with the following three planned programs:

   •   Ensure that every residential dwelling in Cutting Edge County has at least two working smoke detectors;
   •   Deliver public fire and injury prevention education programs twice per school year in all county schools;
   •   Develop a voucher program through local hotels and restaurants in the county for the 24-hour lodging of persons displaced by fire or other emergency.

Sounds like good stuff, yes? However, as in many localities across the USA, the governing body of Cutting Edge County was finding it more difficult to meet its financial obligations to its departments for their existing budgets because of declining tax revenues. The direction from the County Executive to all department heads, e.g., the Fire Chief, was that no new programs were to be initiated without an identified and sustainable funding stream in place up front.

That’s the bad news. The good news is that the Fire Chief for CECFR had completed her last class in the Executive Fire Officer Program (EFOP) at the National Fire Academy just a few months ago. In her class, one of the students had made a presentation to the class about how their department had created a non-profit foundation, separate from the organized fire department, as a funding source to support their department’s training and preparation activities. Bolstered by that knowledge, the Fire Chief met with her chief officers and… (To be continued).

What Does NPO Status Mean?

An NPO is an enterprise that is organized so that its rules prohibit any owners from receiving profits. That doesn’t mean that NPO is a synonym for “poor organization.” NPOs can earn profits, that is, spend less money than they take in during any particular year; it’s just that those “profits” have to be reinvested in the organization, not find their way into someone’s pocket.

What are the Benefits of Being an NPO?

All corporations in the USA are required to pay federal corporate income taxes on their net earnings, so this is where the IRS comes into the picture for an NPO. When an NPO receives 501 (c) (3) tax status from the IRS, it means two BIG things for an organization:

1. The organization does not have to pay taxes on any of the profits that it earns during the tax year (which means all monies can go towards the stated purpose of the NPO).
2. Anyone who donates money to said organization can claim a charitable tax deduction on their individual or corporate tax return. (This is very important to most individual donors and especially for donations from private trusts or foundations. More on this later, so keep reading!)

But we’re a municipal fire department, not a volunteer fire department, so we can’t be an NPO, right?

That’s correct, your department can’t be an NPO, but you can form a separate and autonomous NPO, following the same rules and regulations as any other NPO. Once you’ve formally established that NPO, you can then apply to the IRS for the 501 (c) (3) tax-exempt status. The key is to establish your NPO first and then apply for the tax-exempt status; doing it that way ensures that you’ll have all the information necessary to complete the IRS tax-exempt status application and enhance the likelihood that the IRS will rule favorably on your application.

CECFR Creates their NPO

(Continued from above)…began working on creating an NPO to support the new programs that CECFR had on the “drawing board.” See Related: How to Start a 501c3 Nonprofit Organization.

Step #1. First they created a purpose statement for their organization. Not the purpose of Cutting Edge County Fire Rescue, but the purpose of the new NPO. In this case they chose the Cutting Edge Phoenix Society (CEPS) as the name of the new NPO and its purpose is as follows:

The Cutting Edge Phoenix Society (CEPS) exists to be a proactive force in the prevention of injuries and death from preventable fires and accidents in Cutting Edge County. Further, CEPS strives to have a positive influence on the outcomes for those whose lives have been affected by fire or accident in Cutting Edge County.

(The purpose statement describes the overall purpose of the organization. It addresses the question "Why does the organization exist?" At this point, keep it to about one to two sentences.)

Step #2. They wrote the following description of activities that CEPS would be involved in to meet its purpose.

CEPS exists to serve the 35,000 full-time residents of Cutting Edge County, as well as those who come to Cutting Edge County for work or leisure, within the scope of our purpose statement. CEPS will function as the non-profit fundraising arm for the Cutting Edge County Fire Rescue Department. As such, CEPS will engage in fund-raising activities, seek and apply for applicable local, state, and federal grants, and actively solicit donations from private individuals and foundations. The funds raised through CEPS activities will be used to:
   •   Ensure that CECFR has the physical resources, e.g., smoke detectors and batteries, readily available on departmental vehicles as CECFR works to reach its goal of having every residential occupancy in Cutting Edge County protected by at least two functioning smoke detectors.
   •   Ensure that CECFR has the financial resources to provide public fire and injury prevention education programs twice per school year in all county schools.
   •   Fund a voucher program through local hotels in the county for the 24-hour lodging of persons displaced by fire or other emergency within the guidelines set forth by CEPS in conjunction with CECFR.

Step #3. They created a team to guide and assist them. In Cutting Edge County, they recruited and “hired” experienced for-profit business leaders and leaders of existing NPOs in the county. This group worked with the leadership of CECFR to take their work from Steps 1 and 2 and make it a reality. They also provided their own “seed money” for the program to pay for the initial fees for accounting and legal services to ensure that CEPS began life as a completely legal and legitimate non-profit organization.

See Related: Non-Profit Management

Just as with any for-profit organization, CEPS had to be set up to operate like any other legal business. That meant that it had to have business policies and procedures and practices in place for its operation that addressed:

   •   Bank accounts for checking and savings and investment;
   •   Ownership of productive assets of all kinds, i.e., an office building that generates monthly income from rentals;
   •   Sales income from fundraising activities, e.g., golf tournaments or fish fries;
   •   Charitable donations from individuals and corporations; and
   •   Grants from other nonprofit foundations.

Step #4. They obtained the services of an experienced accountant and lawyer, both of whom had experience working with NPOs, to assist with the startup phase for CEPS. Later those professionals continued to provide annual accounting compliance and ongoing legal support. (Laws and regulations that affect NPOs are constantly being reviewed, revised, etc., and it helps to have experienced and knowledgeable eyes watching out for your NPO’s best interests.)

Sources for Charitable Giving

CEPS already has a great start in securing charitable donations: the business and NPO leaders and their professional networks. In the United States, individual donors—either living or dead—account for more than three-quarters of all charitable giving. (Those donations from the dead are from foundations and trusts that those individuals set up prior to their demise.)

See Related: What's in Your Donor Dossier?

Recognized funding resources in the NPO world include, but are not limited to, the following sources:
   •   Private Foundations *
   •   Corporations
   •   Government Funders
   •   Individual Donors *
   •   Online/Virtual Fundraising.
*The sources for the 75 percent-plus in charitable giving previously mentioned.

See Related: Funding Resources

What Does CEPS Mean to CECFR?

Because CEPS is in existence and receiving charitable donations, it is now possible for the leadership of CECFR to “conduct business” with their separate and autonomous source of capital. It will be vitally important to the success of both organizations—remember, they are two different entities, right?—that leadership of CECFR and the management of CEPS maintain a strict business and financial relationship, especially when it comes to documentation.

For example, when CECFR needs to purchase more smoke detectors and replacement batteries to replace inventory that’s been distributed to fire stations, the transaction would look something like this:
   •   The Chief of Logistics at CECFR determines that the department needs to replenish its inventory of smoke detectors and replacement batteries used to support the residential smoke detector installation program;
   •   The Chief of Logistics obtains a price quote for the purchase of 100 smoke detectors and 200 9-volt batteries from Big Box Home Improvement Store and sends that along to the Finance Section at CEPS;
   •   The Finance Manager of CEPS approves the request—based on available funds in the CEPS checking account—and writes a check to Big Box Home Improvement Store, and sends the check and approved request back to the Logistics Chief at CECFR; and
   •   The Chief of Logistics sends the Logistics Technician to Big Box Home Improvement Store, along with the check, to make the purchase.


Establishing an NPO to support the goals and objectives of your Fire and EMS organization can be an important tool in these challenging financial times, but it is not a panacea. One of the key points to keep in mind is that you are setting up and running a business, and as such you need to provide the resources to run the business properly.

Looking back at CECFR following the start up of The Cutting Edge Phoenix Society, the key to their success has been that the original start up team that they recruited stayed on to become the Board of Directors for CEPS. The Board of Directors recruited a couple of key players to serve part-time pro bono as the General Manager, the Finance Manager, and the Donations Manager.

These individuals are running the daily operations of CEPS; they solicit assistance from members of the Cutting Edge County Fire Rescue department for ad hoc projects and assignments, e.g., personnel to staff a “Chili Cook-off” fundraising event. Together, CECFR and The Cutting Edge Phoenix Society are having a positive impact on the quality of life for the people of Cutting Edge County.

Related Links

IRS Frequently Asked Questions About Applying for Tax Exemption

National Philanthropic Trust Giving Statistics

501c3 Nonprofit Consultation Services

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