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Q&A #66 – Must a charity’s donation acknowledgement letter reflect the value of a celebrity’s presence?
The Treasury Regulations related to “quid pro quo” contributions (summarized in IRS Publication 1771) generally require that charities include in the acknowledgment letter a good faith estimate of the fair market value of goods or services provided to a donor in exchange for the donation, and only the portion of the donation that exceeds this fair market value is eligible for the charitable deduction. However, these regulations provide that a celebrity’s presence generally does not need to be taken into account when determining fair market value.
Q&A #65 – Is it legal to implement a “use it or lose it” annual PTO policy?
Whether an organization is allowed to implement a “use it or lose it” policy for annual paid time off (PTO), under which employees would forfeit unused PTO by the end of each year, depends on the state laws applicable to where the employees work. This can be a difficult question with respect to PTO policies that combine vacation and sick leave, as some states have different rules for each type of leave. In general, it is usually permissible to have a limit on the carryover of unused leave or a cap on maximum leave accrual, but it is important to think through the details and carefully review the laws of all applicable states.
Q&A #64 – Is it appropriate to take an official action in executive session?
Whether it is appropriate to take an official action during executive session depends on what your organization and Board understands executive session to mean. “Executive session” generally refers to a private meeting of the Board (and perhaps select other invitees), which is intended to provide a space where Board members can hold candid discussions on sensitive or confidential matters. Executive session is a useful and appropriate format for some issues, but it is important to be clear about whether executive session is intended to be “off the record,” as official Board actions must ultimately be documented in the meeting minutes.
Q&A #63 – Are grants from foreign charities subject to the 2% limit when calculating public support on the Form 990, Schedule A?
This is a common question that has lacked a clear answer for a very long time. Most practitioners have concluded that grants from foreign charities meeting certain requirements should qualify to be counted in full for public support test purposes, and not subject to the 2% limitation, However, there is some risk that the IRS could disagree with this position.
Q&A #62 – Are Board members allowed to pursue funding opportunities for other organizations?
This question raises difficult issues under the “corporate opportunity doctrine,” which is rooted in the fiduciary duty of loyalty. Under the corporate opportunity doctrine, a corporation’s Board members must avoid diverting to themselves opportunities which in fairness ought to belong to the corporation (such as leasing or purchase of property, funding opportunities, mission-based activities, or other business opportunities that could be advantageous the organization).
Q&A #61 – Are Board members allowed to vote by email?
This question raises two distinct, but related, issues: whether the Board can take action by written consent in lieu of a meeting, and if so, whether this written consent can be provided by email. The answers are determined by your organization’s governing documents and the applicable state nonprofit corporation statute. Most states allow nonprofit Boards of Directors to take action by written consent in lieu of a meeting if 100% of the Board members approve the proposed action in writing, so long as this is not prohibited by the organization’s Articles of Incorporation or Bylaws. The question of whether this can be accomplished by email is often a more difficult one.
Q&A #60 – When are pledges enforceable?
This answer to this complicated question depends largely on the applicable state law, as courts in different states have somewhat different approaches to the issue. Most courts have taken a favorable view of the enforceability of pledges, holding donors liable for pledges on the basis of public policy or various traditional contract law principles. However, nonprofit organizations are well-advised to bolster the enforceability of pledges through carefully drafted written agreements.
Q&A #59 – What policies are recommended for a newly formed nonprofit?
For new nonprofit organizations, Part VI, Section B on page 6 of the Form 990 is a good starting point to look for basic guidance related to which governing policies should be adopted in the organization’s early start-up phase. While some of these policies may not be relevant, most new organizations should start, at a minimum, with a conflict of interest policy, whistleblower policy, and document retention and destruction policy. Additionally, I recommend that new organizations consider adopting a code of ethics policy.
Q&A #58 – Are amendments to a nonprofit organization’s Bylaws required to be filed with the government?
A nonprofit organization is not required to file Bylaws amendments with the state or federal government in order for the amendments to go into effect. This treatment is different than amendments to the Articles of Incorporation, which are not considered official until submitted and approved by the state government.
Q&A #57 – Should Board policies be included in a nonprofit organization’s employee handbook?
A good general rule of thumb is that any Board policies that affect the duties of an organization’s staff should be reflected in the employee handbook. How you reflect these policies in an employee handbook is largely a matter of style, preference, and efficiency. There are several different common and acceptable methods.
Q&A #56 – Who should fill out an organization’s annual conflict of interest disclosure statement?
Processes for applying and monitoring conflict of interest policies vary widely for different nonprofits, but the Form 990 is a good starting point for basic guidance. As a practical matter, you want to ensure that the annual conflict of interest disclosure statement is at least filled out by all directors, officers, and “key employees,” as these terms are defined for purposes of Part VI, Line 12b on the Form 990. As a technical matter, all employees and volunteer leaders who are (or could be) “disqualified persons” as defined in Treas. Reg. § 53.4958-3 should also be required to disclose conflicts of interest, so it is prudent to err on the side of distributing the annual conflict of interest disclosure statement more widely.
Q&A #55 – What Board members are considered independent for purposes of reviewing executive compensation?
The key guidance addressing independent review and approval of executive compensation for Form 990 purposes is set forth in Treas. Reg. § 53-4958-6. The key principle is that the persons reviewing and approving executive compensation should not be in a position to economically benefit from the compensation and should not be family members of the person receiving the compensation or otherwise have a business or employment relationship with this person.
Q&A #54 – What comparability data must a small 501(c)(3) organization review when determining executive compensation?
For small organizations, the rule for reviewing comparability data when determining compensation amounts is relatively easy to satisfy. This Form 990 question is based on Treasury Regulations issued under the “intermediate sanctions” rules. Treas. Reg. § 53-4958-6 provides that organizations with less than $1 million in annual revenue (averaged over the three prior tax years) can satisfy this standard by reviewing “data on compensation paid by three comparable organizations in the same or similar communities for similar services.”
Q&A #53 – How should a nonprofit provide a copy of its Form 990 to the Board before filing?
Virtually all organizations check “Yes” to Part VI, Line 11a on page 6 of the Form 990, to affirm that they provided a complete copy of the Form 990 to all members of their governing Board, and failure to check “Yes” can negatively impact an organization’s reputation and appearance to honor transparency (and for publicly supported charities, affect their rating on charity watchdog websites). However, organizations should put careful thought into what it means to satisfy this standard.
Q&A #52 – Is it better to provide combined PTO or have separate vacation and sick leave policies?
In evaluating whether to provide combined PTO vs. separate vacation and sick leave policies, there is no one answer that applies to all organizations. Both approaches have pros and cons. The choice involves weighing which pros and cons best match your organization’s priorities and capabilities. In general, combined PTO policies are easier to administer, while separate vacation and sick leave policies potentially have lower financial burdens on the organization.