Nonprofit organizations face many risks that can damage an organization’s hard-earned reputation, deplete financial assets, and generally cause operational mayhem. One often-ignored risk is the possibility of an unexpected departure of the “chief staff” position (CEO, Executive Director, etc.). Organizations that have risk mitigation procedures and contingency plans in place will fare better than organizations that are caught off guard.

Just as the gauges on a car’s dashboard provide crucial information about its performance and physical condition, operating reserves serve as a vital indicator of a nonprofit organization’s financial health and as a measure of stability. Operating reserves give a clear view of an organization’s capacity to sustain its operations and weather financial uncertainties. By understanding and managing operating reserves, nonprofit leaders can navigate their organizations toward greater longevity and stability, ensuring they remain trusted and impactful stewards of their missions for years to come.

When issuing a Form 1099 (e.g., 1099-NEC), an organization is generally entitled to “reasonable reliance” on the information provided by a contractor or vendor in the Form W-9, provided the form was completely filled out, properly signed and dated, and not altered to remove required statements. However, an organization cannot rely on Form W-9 information the organization knows or has reason to know is incorrect. In that case, additional steps should be taken to verify the information.

In general, payments made by a nonprofit organization to consultants or contractors who qualify as “United States persons” under the Internal Revenue Code are subject to Form 1099 reporting, including U.S. citizens based abroad. Payments made to foreign persons are generally not subject to Form 1099 reporting but may be subject to withholding and reporting under Form 1042 and 1042-S.

Most treasurers for nonprofit organizations do not venture outside their traditional role of stewardship of the organization’s financial assets. Financial stewardship is important, but the perspective of the treasurer has value far beyond this singular role. Treasurers and the organizations they serve both need to correct this narrow perception and look for opportunities to expand the sphere of influence of this important officer position.

Despite common misconceptions, Treasury Regulations and Internal Revenue Service (IRS) guidance provide that most scholarship payments provided by nonprofit organizations are not required to be reported by the payor on Form 1099 (or Form W-2), regardless of whether the scholarship is a “qualified scholarship” or taxable to the recipient, so long as the primary purpose is to aid the student in pursuing their studies and not as compensation for past, present, or future services.

Most nonprofit organizations are required to submit a federal tax filing for their first partial or short tax year even if their tax-exempt status has not yet been approved, but there is no monetary penalty for failure to file if the organization qualifies to file the Form 990-N (e-postcard). Nonetheless, it is usually prudent to file Form 990-N for the first tax year anyway.

It is well-known that Board members are subject to fiduciary duties in their oversight and decision-making role, among other rules that apply to nonprofit organizations. However, the practical reality of how these requirements are scrutinized, applied, and enforced is less understood. This article provides a brief overview of some common ways that Board decisions and actions could be challenged in court.