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Q&A #162 – Can nonprofit volunteers deduct the value of their services as a charitable contribution?
The value of a volunteer’s time for in-kind services donated to a nonprofit organization is not tax deductible, and an organization should never state the dollar value of a volunteer’s services in an acknowledgment letter. However, it may be appropriate to provide volunteers with an acknowledgment letter that generally describes the services they provided so that volunteers can deduct certain eligible unreimbursed expenses.
Q&A #161 – Can a foreign nonprofit organization qualify for 501(c)(3) status?
Charities formed outside of the United States may qualify for 501(c)(3) status so long as they satisfy the requirements that apply to 501(c)(3) organizations under U.S. law. This status makes it easier for foreign organizations to receive grants from U.S. private foundations and mitigate or avoid U.S. income tax on revenue received from U.S. sources. However, donors generally cannot use the charitable deduction under U.S. tax law for contributions made to organizations formed outside of the U.S., so many foreign organizations form affiliated “friends of” organizations in the U.S. for this reason.
Q&A #160 – Are nonprofit organizations subject to the Fair Labor Standards Act (FLSA)?
Many nonprofits are technically not subject to federal Fair Labor Standards Act (“FLSA”) wage and hour law requirements due to rules that limit FLSA applicability to organizations that meet certain “enterprise coverage” or “individual coverage” thresholds. However, this is often a moot point since nonprofits are usually subject to state wage and hour laws, many of which are built upon federal FLSA definitions and exemptions. Consequently, most nonprofits must monitor changes in federal FLSA rules carefully as these may have state law compliance implications.
Q&A #159 – Should a nonprofit hire an investment advisor?
While nonprofit organizations are not legally required to use a professional investment advisor to help guide the organization with their investment management, most nonprofits correctly choose to work with a professional investment advisor. Delegating management of the investment portfolio to Board members is not a wise choice because this unnecessarily exposes the organization and its Board members to fiduciary risks related to potential compliance failures and performance shortfalls.
Q&A #158 – What happens if a fraudulent Form 1023-EZ is filed for my organization?
Despite what some unscrupulous service providers may tell you, there are potentially serious penalties for submitting a Form 1023-EZ application for an organization that is clearly ineligible to do so. In addition to revocation of 501(c)(3) status, this can include criminal fines and even prison pursuant to the Internal Revenue Code’s fraud and false statements provisions (26 U.S.C. § 7206). However, if a Form 1023-EZ was fraudulently filed without your knowledge, approval, or participation then these criminal sanctions very likely will not apply.
Q&A #157 – What are the legal limits of an Executive Committee’s authority?
Executive Committees are often granted wide-ranging authority to the to act on behalf of a nonprofit organization and exercise the powers of the Board of Directors in between Board meetings. Absent additional, clarifying language in the Bylaws, committee charter, or Board resolutions, there are generally few legal limitations on an Executive Committee’s authority. However, there are some explicit and implicit limits that are important to consider
Q&A #156 – Who is considered a family member under nonprofit conflict of interest rules?
Extended family members such as aunts, uncles, and cousins generally fall outside of the technical definition of “family members” under the federal tax code provisions governing conflicts of interest involving 501(c)(3) nonprofit organizations. However, these types of relationships can certainly lead to the perception that there is a conflict and should be treated as such to avoid the risk of damaging your organization’s reputation.
Q&A #155 – Can a nonprofit convert to 501(c)(3) status from another tax-exempt status?
An organization that was previously recognized as tax-exempt under another subsection of 501(c), such as 501(c)(4) or 501(c)(6), generally may convert to 501(c)(3) status by making the necessary amendments to its Articles of Incorporation and submitting a Form 1023 application to the IRS. However, there may be complications to this process if the organization’s activities have not been consistent with 501(c)(3) status.
Q&A #154 – Are nonprofits required to have a document retention and destruction policy?
Sections 802 and 1102 of the Sarbanes-Oxley Act generally prohibit all persons, including nonprofit organizations, from destroying, falsifying, or otherwise modifying records to obstruct a federal proceeding or investigation. There is no specific requirement under federal law to have a document retention and destruction policy (sometimes called a record retention policy), but having one is a recommended best practice to prevent violations of this law and to demonstrate the organization’s commitment to transparency and accountability.
Q&A #153 – Are nonprofits required to have a whistleblower policy?
Section 1107 of the Sarbanes-Oxley Act prohibits all persons, including nonprofit organizations, from knowingly retaliating against certain whistleblowers. There is no specific requirement under federal law to have a whistleblower policy, but having one is a strongly recommended best practice to prevent violations of this law and to demonstrate the organization’s commitment to transparency and accountability.
Q&A #152 – What happens if a 501(c)(3) public charity exceeds the 501(h) lobbying limits?
501(c)(3) public charities are permitted to engage in “lobbying” up to certain limits. Organizations that make the “501(h) election” are subject to a more concrete set of limits based solely on expenditures made by the organization for lobbying purposes. If an organization exceeds these limits in any one tax year it will have to pay a 25% tax on the excess. A 501(h)-electing organization’s tax-exempt status will not be revoked unless its lobbying expenditures exceed 150% of the limits over a 4-year period.
Q&A #151 – Who should nonprofits name as their principal officer at the top of the Form 990?
The Form 990 instructions state that for purposes of Item F at the heading of the Form 990, the “principal officer” is the person who “regardless of title, has ultimate responsibility for implementing the decisions of the organization's governing body, or for supervising the management, administration, or operation of the organization.” Application of this definition will vary depending on the organization, and this will not necessarily be the same officer who signs the Form 990 at the bottom of page 1.
Q&A #150 – Can a nonprofit change its mission without IRS approval?
A 501(c)(3) public charity is generally permitted to change its mission and purpose and undertake new program areas that were not described in its Form 1023 application so long as these changes are consistent with 501(c)(3) status and properly disclosed in the organization’s Form 990. Advance IRS approval is not required, although significant changes in mission, purpose, and programs can affect an organization’s ability to rely on the IRS determination letter approving 501(c)(3) status.
Q&A #149 – Can a nonprofit use a DBA or trade name?
Like any other business or entity, nonprofit organizations are permitted to conduct their activities under a “trade name” (often referred to as a fictitious name, “doing business as,” or “DBA”) so long as the name is properly registered in the relevant states and reported on the Form 990, charitable solicitation registrations, and other required filings, and the name is available to use without infringing on the trademark rights of others.
Q&A #148 – How far in advance must Board meeting materials be sent to Board members?
In most cases there are few explicit requirements regarding when meeting materials must be provided to Board members (such as the agenda, minutes of the last meeting, executive director and committee reports, financial reports, and proposed resolutions). Any specific requirements are typically found in an organization’s Bylaws, policies, or meeting guidelines, if at all. State nonprofit corporation statutes do not usually have strict requirements on this issue but check applicable state laws to be sure.