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Ready Reference Pages

Plain-English summaries of essential nonprofit law

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Does ability to receive private foundation grants offset limits on lobbying and electioneering?
New organizations must file electronic Form within 60 days of formation
Growth and concentration of wealth has spawned concern and efforts to change tax treatment
Proactive review can reduce the risks of waking up to adverse publicity and loss of trust
Form 990 is an organization’s most important public relations document because it is instantly available to the world on the Internet at any moment
Form requires substantial additional disclosures, still retains numerous traps for the unwary
The "pros" outweigh the "cons" in most cases where a charity engages in significant advocacy
Many returns fail to separate contributions and other amounts because nonprofits fail to keep adequate records
Only organizations expecting less than $50,000 a year may use it; Critics are concerned about lack of specific data and possible abuse
Harvard Business Review article undercuts its challenge to charities by bad analogies to business and an unrealistic view of the sector
Proposals extend beyond tax regulation to give IRS, Tax Court authority over traditional state law concepts of fiduciary duty
Panel promises additional recommendations later; Grassley praises effort as beneficial
Sen. Grassley looks at contribution deductions as means to slice away at difference between taxes due and taxes paid
Report generally opposes additional federal regulation being considered by Congressional committees and the IRS
Donor Advised Funds and Supporting Organizations would face new restrictions to make them more “accountable”
Big changes made for DAFs, SOs and general accountability; IRA rollover allowed for some direct gifts to charity
Act reduces standard of liability to gross negligence, flagrant indifference
Compromise bill allows small business to seek to enjoin unrelated commercial activity, imposes new financial accountability requirements
Accountants have been confused by state’s adoption of statute which permits trustees to set income as a percentage of fund value
Nonprofits can reduce the risk of liability by avoiding questions that suggest illegal discrimination in hiring.
Federal statutes set forth employment-related records which must be preserved and the period for retention.
Employees often fail to realize that “deleted” messages can be recovered and attorneys on the other side can use them as evidence of the “smoking gun”
The IRS has listed 20 factors in determining whether a worker is an employee or an independent contractor, but, in the final analysis, control is the key
The risks of legal action by a complainant, the accused, or a third party can be reduced by a thorough and effective inquiry and convincing documentation of the process
FASB recommendation to distinguish between permanently and temporarily restricted has no basis in law
Says mail has multiple purposes and Congress could not live with charity restrictions
Here are some things to think about when planning how to get through an economic crisis
Consensus seems to support additional funding for IRS to enforce present regulations
Senator complains about lack of reporting standards,country club dues, and ‘billions of dollars in tax breaks’
A simple one-page document can formalize the relationship, help reduce potential for liability, and give a graceful way to decline help from problem people.
Proposed changes would expand factors to be considered for standard of care, would allow donors to enforce restrictions, and ease process of removing restrictions in certain cases
Fiscal agents can serve their community well if they carefully follow the rules and accept full responsibility
Both public charities and private foundations should take special precautions to avoid tax, criminal penalties
Welter of new and revised rules make it difficult to know how to comply with governmental expectations
Act expands prudent investment standards, changes authority to spend portions of endowment
Revised Uniform Commercial Code clarifies some of the rules
All plans must have a written plan document but will not necessarily be subject to ERISA
Title VII requires reasonable accommodation that does not impose undue hardship on business
Final regulations permit switch to fixed percentage payout in certain situations outside the control of the trustee, and give one-time option for reformation
Planning testamentary disposition of non-qualified deferred compensation can provide a virtually no risk technique for younger donors
Offering potential donors simple ways to make relatively small commitments may encourage them to make more significant gifts when they do their estate plans
Miscalculations can create both legal and public relations problems if development officers fail to find the right balance for gifts with restrictions
Key to taxability of income is the amount of time participants spend on actual instruction and education
Payments will be considered charitable contributions where there is no arrangement that the sponsor will receive 'any substantial return benefit in exchange for the payment'
Many in-kind contributions may be deducted as ordinary business expenses; certain gifts of inventory qualify for enhanced deduction above cost basis.
Fundraisers report surprising interest in IRA rollover, but won’t generally face new responsibilities until January
Regulation of corporate governance demands as much care and thought as the Constitution of a country
State laws and IRS require certain provisions; including additional terms is primarily a matter of style
Head of NYSE compensation committee is also charged with breach of fiduciary duty for failing to advise Board on entire package
Report shows personal acrimony, failure to follow approved policies, And failure to exercise basic oversight responsibilities in many years
Both parties should understand the ethical limitations on the attorney’s conduct when wearing two hats in board deliberations.
Single member limited liability companies, as "disregarded entities," have instant exemption; joint venture LLCs may qualify if all members are charities
Courts have frequently permitted creditors to impose liability on a parent organization for actions of a subsidiary when "fairness" requires the disregard of separate entities.
Creation of a separate foundation to hold reserve assets provides protection and flexibility for new programs
Minutes document formal Board actions and provide collective journal of corporate history
Varied perspectives can improve fundamental management decisions
Arbitrary end of service assures that organizations lose some of their best talent
Although Sarbanes-Oxley rules apply only to publicly traded businesses, nonprofits are beginning to look to its standards for "best practice" guidelines.
In addition to protecting against embarrassment and loss of contributions, policies can provide protection against possible excess benefits tax violations
Assessment can help improve board performance and transition ineffective members; the important thing is not worrying about doing it perfectly, but just doing it
Board members face potential liability for their own actions in causing injury to others, or in breaching a fiduciary duty to the organization.
Nonprofits come in many different shapes and sizes; they will be more effective if their governing instruments reflect the constituencies which must be represented to make them work
Grants outside service area, improper political activity, and misinformation to accountants are basis for criminal charges
Increased emphasis on transparency and accountability requires more formal attention to governance and administration
Public has right to same-day access upon request at office; organizations may satisfy obligation by placing information on the Internet
Charities can utilize tax return to showcase programs and avoid embarrassment if they take the reader’s perspective
As returns become instantly available online, more standardized and reliable data will help the public compare organizations to see if contributions are being used effectively
Charities would do well to review tax return from the point of view of prospective donors before filing
Standards given for foundation grants to SOs, applicability dates, disaster relief funds, and scholarships
IRS issues Regs for new requirements; groups with revenue up to $50,000 may file Form 990-N
It still offers an important public relations opportunity, but many Boards will have to adopt new policies to look good
Form Requires substantial additional disclosures Still retains numerous traps for the unwary
New Revenue Procedure covers four options, including ways to obtain retroactive reinstatement
Pension Protection Act imposed new limitations but absolute control of foundations has costs and other limits
The process of thinking through the preliminary questions is critical for obtaining legal and public approval and benefiting the community after the sale of charitable assets.
Section 501(c)(3) charities are divided between private foundations and public charities; Section 509(a) sets the rules for qualification as publicly supported Section 509(a)(1) limits portion of gifts counting as public support; Section 509(a)(2) exclud
If foundations are going out of business, they may distribute their assets to certain public charities; if they want to continue, they might become publicly supported themselves
Organizations which are not publicly supported but use most of their assets and income in the active conduct of their charitable activities avoid some private foundation limitations.
Private foundations may be subject to tax if they and their disqualified persons hold too much stock in a business functionally unrelated to the purpose of the foundation
Private foundations may make grants to groups which are not public charities if they exercise "expenditure responsibility" in approving, monitoring grants
Disqualified persons and foundation managers can be personally liable for excise taxes for certain transactions even where it is clear that the foundation has suffered no loss
Test is now based on five-year rolling average and reporting is on same basis as other accounting
Congress considers legislation to curb the secrecy that results when nonprofit funds avoid federal election campaign laws
Certain nonprofits must either report or pay tax if they go beyond issue advocacy to electioneering
Although the Tax Code permits insubstantial lobbying activity, it provides an absolute prohibition on participation in election campaigns
Public charities may spend up to $1 million on lobbying activity if it does not exceed the percentage limits established by the law
The "pros" outweigh the "cons" in most cases where a charity engages in significant advocacy.
IRS says answers will reduce need for follow-up and speed decisions on applications for exemption
Entities must be formed for the exclusive purpose of acquiring property, collecting income, and remitting it to exempt organizations.
Continuing education text says most current rules will be extended but offers little specific guidance on emerging issues
A “central organization” can add or subtract subordinates annually from the group of organizations it certifies to the IRS as qualified for exempt status
Income generating activity is "unrelated" if it does not "contribute substantially" to the exempt purpose
Benefits not reported as compensation when paid will be treated as excess even though total compensation is reasonable
Service will make judgment call based on “all relevant facts and circumstances” By Eric Vieland Montgomery McCracken
Intermediate Sanctions statute imposes tax on "disqualified persons" who receive more from a transaction with a nonprofit than they give in return.
Nonprofits will lose tax exempt status if they do not have control over whole hospital joint ventures with for-profit organizations
Neither the Tax Code nor the Regulations provides a definition; The IRS uses a 14-point set of guidelines, plus the other limitations of Section 501(c)(3)
An organization will not qualify for charitable exemption if it provides private benefit which is not quantitatively and qualitatively incidental to the public benefit of its activities.
20 states and District of Columbia have specific requirements for registration or regulation of commercial co-venturing
Deadline extended until October 15 to retain exempt status automatically lost by not filing tax returns
Many schools don’t realize that they, and their related foundations, are required to register, or apply for exemption, under a lot of state laws
By Carol Henn, Lehigh Valley Community Foundation
The right to appoint and remove directors and veto any amendments to governing documents is critical to control of the organization
Automatic revocation for failure to file returns catches 275,000 nonprofits, though many defunct
Pension Protection Act of 2006 imposed significant new limitations on activities
From preparation, through running the event, and reporting the results careful lawyering can reduce the risks of liability and embarrassment
Report says present rules on deductions, payout rates, and time when gifts are complete are all appropriate
This Ready Reference Page Covers: Purchase of Assets, Acquisition of Stock, Substitution of Directors, Merger or Consolidation, Representations and Warranties
Information gained in the process will help you know what you are getting into and may help structure the form of the transaction to protect what you have
Service has promoted educational efforts to avoid uncertainty for charities during election cycles
There are many ways to advocate for public policy goals without going beyond the limitations of the Tax Code
As charities anticipate billions of dollars passing between generations, many are beginning to consider planned giving programs. Here are some basics.
90% of schools examined underreported taxable income, all of smaller exam group underreported compensation of executives
Evidence shows workers struggling to define limits, not Administration effort to target political foes
Members are protected from individual liability for obligations of the association
Their little-used power to make program related investments offers opportunity for creative financing of projects
Donors must obtain acknowledgment from charity for gifts worth $250 or more, must file Form 8283 for gifts of property over $500, with appraisal over $5,000
Donors may deduct only the amount of the payment in excess of the value of the goods or services received
Terminology obscures distinctions that are critical to understanding the rules that apply to organizations
Attempt to define “candidate-related political activity” leaves key issues unresolved, draws fire from left and right

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