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Q&A #18 – Is it reasonable to use the same CPA firm to do our audits for more than 6 years?
This is a very common and important question that must be considered on a regular basis. The key to the answer is defining and establishing what is the “regular basis” in your governance related financial statement audit management practices.
Q&A #17 – Is it a conflict of interest to make a grant to another nonprofit founded by one of our Board members?
This is not the type of conflict of interest that is the main concern of the rules applicable to 501(c)(3) organizations, but there are a few good reasons to approach this situation carefully regardless.
Q&A #16 – Should I take over a dormant 501(c)(3) rather than form a new organization?
I have seen numerous people try this approach over the years, but it is almost always a bad idea. The main problem is that you are going to have a very difficult time keeping the previously inactive organization’s status as a 501(c)(3) “public charity” (as opposed to a “private foundation,” which is a type of 501(c)(3) organization that is subject to less favorable rules).
Q&A #15 – Is it a good idea to switch to filing the Form 990-EZ to save costs?
I have gotten this question a lot over the years and not just during a protracted downturn. The simple short-term answer could be yes, but the longer-term impact might not be what you wanted or expected.
Q&A #14 – Can a nonprofit organization have non-Directors on its standing committees?
It is quite common for nonprofit organizations to have non-Directors on their standing committees, but whether this is permitted is a surprisingly complicated question. The answer depends on the applicable state nonprofit corporation statute, and these laws are often more restrictive on this subject than you might think.
Q&A #13 – What are the eligible expenses that EIDL funds can be used for?
There are some important restrictions on the permissible uses of Economic Injury Disaster Loan (EIDL) funds, especially for organizations that have received a PPP loan.
Q&A #12 – What is the deadline to submit the application for PPP loan forgiveness?
There is not one hard deadline that applies to all organizations. For practical purposes, you want to submit the PPP loan forgiveness application before any repayments are due (though you should keep a close eye on whether your lender has their own requirements about when loan forgiveness applications must be submitted).
Q&A #11 – Can my 501(c)(6) organization get in trouble for receiving a PPP loan?
Yes, there are risks for accepting a Paycheck Protection Program loan when the organization was not eligible to receive it. It is clear from the text of the CARES Act statute and from prior SBA guidance regarding eligibility for the “Section 7(a)” loan program (of which the PPP is one type) that the only nonprofit organizations eligible for PPP loans are 501(c)(3) and 501(c)(19) organizations. I do not see a credible argument that any other types of nonprofits (such as 501(c)(6) organizations) were ever eligible to receive a PPP loan.
Q&A #10 – Is now a good time to start a 501(c)(3) subsidiary?
This question surfaces a lot from 501(c)(6) entities and other non-501(c)(3) nonprofit organizations. The answer is almost always a strong yes. Even during this crisis, organizations should not hesitate to pursue this strategy as it will open doors to new opportunities and funding not previously available.
Q&A #9 – Is the Executive Committee allowed to cut programs and terminate staff without consulting the full Board?
It is common for Executive Committees to have fairly wide latitude to make operational decisions without consulting the full Board, usually in collaboration with the Executive Director. This can include operational decisions like cutting programs and terminating staff. Whether or not this is legal in your case will depend on your organization’s Bylaws (or perhaps the Executive Committee charter or authorizing resolution).
Q&A #8 – Should my organization create a separate bank account for PPP funds?
The answer is that you do not need a separate bank account to hold PPP funds. Having a separate bank account for PPP funds is not required and not particularly helpful. Your main priorities should be proper and concise documentation of eligible transactions, which can be achieved just as well through good accounting practices and processes.
Q&A #7 – Can my 501(c)(6) organization provide funds to help struggling businesses?
A 501(c)(6) organization is allowed to provide support to struggling businesses, but there are important restrictions and limitations to be aware of.
Q&A #6 – Are there legal restrictions on my company’s ability to raise money for charity?
The main issue to consider is compliance with State “charitable solicitation registration” laws.” These laws, which have been enacted in about 40 States, are basically consumer protection laws aimed at protecting the public against being scammed by fraudulent fundraisers or illegitimate charities. These laws generally apply to anyone raising money for charitable purposes (with a few exceptions).
Q&A #5 – Is my nonprofit organization allowed to extend Board terms during a crisis?
The simple answer is that you cannot violate your Bylaws with a simple Board resolution to extend Board terms (even on a temporary basis and even during a crisis). You should review your Bylaws and the laws of your State of incorporation closely to see what options may be permitted. There may be some flexibility built into your Bylaws that will allow you to retain the desired continuity.
Q&A #4 – What options does my organization have related to restricted funds for a project that we’ve had to put on hold due to the pandemic?
Restricted funds, of course, cannot be used for purposes outside of the restrictions agreed to unless the donors/grantors consent to modify the restrictions (or, alternatively, the modifications are approved by a court). However, there are several steps you can take to get a better sense of how narrow or flexible the restrictions actually are, and to work with your donors and grantors to seek the appropriate modifications that will benefit your organization.