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Q&A #51 – How can a 501(c)(3) organization change its public support test?
It is not uncommon for organizations to switch to a different public support test due to evolution in their programs and funding sources. Switching between the 170(b)(1)(A)(vi) test (sometimes also called the 509(a)(1) test) and the 509(a)(2) test can be done simply by checking the appropriate box and filling out the applicable parts in your next Form 990, Schedule A. However, this change will not be reflected in the IRS records or tax-exempt organization database, which may cause some confusion with your grantors or donors if additional steps are not taken.
Q&A #50 – What are the duties of a corporate secretary?
The secretary is the officer who is generally in charge of the corporate records. The time commitment of any Board or officer position varies widely depending on the particular organization and how much staff support and outside assistance the organization can afford. However, while the secretary is a very important role, it fair to say that the secretary role is usually the least time intensive of the three main officer positions (president or chair, treasurer, and secretary).
Q&A #49 – Can a nonprofit Board of Directors vote to temporarily suspend a provision in the Bylaws?
The short answer is that the Board of Directors generally does not have the power to vote to suspend a provision in the Bylaws apart from the formal Bylaws amendment process (although you should check the applicable state nonprofit corporation statute to be sure). The Bylaws are binding and must be followed, even under extenuating circumstances. However, there are creative approaches you could explore to avoid making the amendment more permanent than is desired.
Q&A #48 – Are nonprofits that received PPP funds eligible to receive employee retention credits?
The Consolidated Appropriations Act of 2021 (P.L. 116-260), which was signed into law on December 27, 2020, included a significant expansion of the employee retention credit (ERC), so it is true that your organization may indeed be eligible to receive both Paycheck Protection Program (PPP) loan forgiveness and ERC. However, there are important limits nonprofits that received PPP funds must be aware of.
Q&A #47 – Is my nonprofit permitted to record volunteer services as in-kind contributions?
While the Form 990 does not allow inclusion of in-kind gifts of services as revenue, whether volunteer services can be recorded as in-kind contributions under generally accepted accounting principles (GAAP) is a separate issue that is governed by the Financial Accounting Standards Board (FASB), specifically, FASB’s Accounting Standards Codification found at ASC 958-605-25-16, discussed further below. However, regardless of whether these volunteer services can be recorded in the financial statements, tracking and documenting in-kind contributions of goods and services is always important and beneficial to a nonprofit organization.
Q&A #46 – What are the downsides of using the Form 1023-EZ instead of the Form 1023?
True to its name, the Form 1023-EZ is certainly an easier, faster, and cheaper way to apply for 501(c)(3) status for organizations that meet the eligibility criteria (mainly, organizations that are not projecting more than $50,000 in gross receipts in any of their first 3 years and do not currently have more than $250,000 in assets, among other requirements). But there are some downsides that should be considered, especially since both the Form 1023 and Form 1023-EZ are public documents.
Q&A #45 – What donor incentives were included in the COVID-19 relief legislation that was enacted in December 2020?
You are referring to the Consolidated Appropriations Act of 2021 (P.L. 116-260), which was signed into law on December 27, 2020. In addition to many other provisions (the law is over 5,000 pages long), there are three main donor incentives: (1) the reestablishment (and slight modification) of the $300 “above the line” charitable deduction; (2) the extension of increased limits on deductible contributions for corporations and individuals who itemize; and (3) a special increased deduction limit for certain disaster relief contributions made by corporations.
Q&A #44 – Should a Board member personally own a nonprofit organization’s trademarks and website URL?
I have not seen guidance from the IRS directly addressing this situation, but I think it is problematic for a founder or Board member to personally own a nonprofit organization’s trademarks, website URL, social media accounts, and other types of intangible assets. While one could make an argument that there is no harm if the nonprofit is allowed to use these assets for free (or for a fee that is no more than fair market value), there are problems with this situation that become increasingly apparent over time.
Q&A #43 – Should a nonprofit conflict of interest policy address non-financial conflicts?
You are correct that perceived or actual conflicts of interest can arise in a variety of different contexts and not all of them involve financial transactions. However, it is generally best to keep your conflict of interest policy focused on financial conflicts, while addressing concerns about non-financial conflicts in other ways.
Q&A #42 – When must an Executive Director obtain Board approval for a transaction?
This is one of those questions that is both extremely common and unusually difficult. Whether or not a transaction should (or must) have Board approval depends on the individual organization and the particular transaction. In some cases, the answer is clearly yes, such as with the sale of a major asset like a building. However, there are many cases where the answer is not so clearly defined.
Q&A #41 – How should new nonprofits acknowledge donations received prior to approval of 501(c)(3) status?
This question is one that is shared by virtually all new nonprofits that are seeking 501(c)(3) status. You are correct that an acknowledgment letter will be required in order for your donors to use the charitable deduction for their donations (assuming the donations exceed $250). And yes, donations made prior to the organization receiving 501(c)(3) status should retroactively qualify for the charitable deduction if and when 501(c)(3) status is approved (assuming the Form 1023 was correctly prepared and timely submitted). Your main question regarding how to handle the donation acknowledgment letter requires a bit more explanation.
Q&A #40 – How should nonprofits acknowledge donation checks received after December 31?
The short answer is that donors are permitted to treat a charitable contribution as made on the date it is placed in the mail via U.S. Postal Service, even if the check is not delivered or cashed until the following year, see Treas. Reg. § 1.170A-1(b). While it is not the charity’s responsibility to establish the date of delivery in the acknowledgement letter, you want to be as helpful as you can be to your donors. This can lead to some tricky situations.
Q&A #39 – How should a small-staffed nonprofit address audit findings on segregation of duties?
Addressing segregation of duties findings in an audit is a common challenge for small-staffed nonprofits, and this issue can best be mitigated by proactive front-end outreach and communications with your independent auditors and audit committee, and by submitting a formal written Management Response to be included in the auditor’s Management Letter before the final draft is issued.
Q&A #38 – Is a nondisclosure agreement better than a confidentiality policy?
A nondisclosure agreement (“NDA”) would very likely be more protective than your employee handbook and Board policies. Employee handbook and Board policies addressing confidentiality are helpful because they establish the understanding, culture, and expectation that sensitive information must be kept confidential. However, the remedies for a violation of a confidentiality policy are quite limited.
Q&A #37 – Should my nonprofit use a Consent Agenda for Board meetings?
There is not one uniform answer to this question for all nonprofits, but the consent agenda is used and recommended by many organizations and nonprofit consultants. The consent agenda is a powerful tool that can save precious Board meeting time and keep the focus on strategic matters where Board discussion is most needed. However, a consent agenda can be tricky to implement, so it is important to be thoughtful about this practice.