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Q&A #93 – Are term limited Board members ever eligible to rejoin the Board?
The question of whether Board members are eligible to rejoin the Board after a period of time has lapsed is one of the most important issues that should be addressed in the Bylaws of any nonprofit that has term limits for its Board of Directors. If the Bylaws are truly silent to this issue and do not specify when term limited Board members become eligible to serve again, then the Bylaws should probably be interpreted as not allowing these Board members to rejoin. Amending the Bylaws to clarify this issue would be advisable.
Q&A #92 – Are nonprofit Boards required to have term limits?
Generally, there is no legal requirement for a nonprofit Board to have term limits. While it is true that some state nonprofit corporation statutes limit the number of years in a single Board term, there is typically no limit on the number of times a Board term may be renewed through re-election (unless specified in the Articles of Incorporation or Bylaws).
Q&A #91 – Does the Past President have voting rights on a nonprofit Board of Directors?
The question of whether the Past President has voting rights on a nonprofit organization’s Board of Directors does not have one universal answer, and ultimately depends on the organization’s Articles of Incorporation and Bylaws. If these documents truly do not address the issue and there is nothing in the Articles or Bylaws connecting the Past President position to a seat on the Board, then the Past President will not have voting rights on the Board.
Q&A #90 – What happens if a Board member’s term expires and no successor is elected?
The status of Board members whose terms have expired depends on the organization’s Bylaws and the applicable state nonprofit corporation statute. The law in many states is that unless the organization’s Articles of Incorporation or Bylaws provide otherwise, Directors continue to serve past the expiration of their term until a successor is elected and takes office. This often applies to Officer positions as well.
Q&A #89 – Are grants from donor advised funds subject to 2% limit when calculating public support on Form 990, Schedule A?
As of the date of this post, contributions received from a donor advised fund (DAF) are generally counted in full and not subject to the 2% limitation when calculating public support under section 170(b)(1)(A)(vi) of the Internal Revenue Code on Form 990, Schedule A. This favorable treatment currently applies regardless of whether the individual who holds the DAF account makes substantial contributions to the organization. However, this treatment has been under increasing scrutiny, so be aware that these rules could change significantly in the future.
Q&A #88 – Does theft or fraud need to be reported on the Form 990?
Whether theft or fraud must be reported on the Form 990 depends on the amount, and also on the role of the individual who committed the offense. Part VI, Line 5 of the Form 990 (on page 6) requires organizations to disclose whether they became aware of a “significant diversion of the organization’s assets.” Also, if assets were stolen by a “disqualified person,” this must be reported as an “excess benefit transaction” on Part IV, Lines 25a and 25b (on page 4) and Schedule L.
Q&A #87 – Who controls the remaining funds when fiscal sponsorship is terminated?
While the specific rights of each party would be determined by the specific fiscal sponsorship agreement at issue, it is very likely that the fiscal sponsor has retained the sole discretion and control (also known as “variance power”) over how to disburse the funds raised in furtherance of the charitable purposes of the project when the fiscal sponsorship is terminated.
Q&A #86 – Is a private foundation always required to obtain an equivalency determination opinion letter before making a grant to a foreign charity?
In general, a private foundation that wishes to make a grant to a foreign organization is required to either: (1) verify that the foreign organization has been approved by the IRS as a 501(c)(3) public charity; (2) exercise “expenditure responsibility” over the grant; or (3) make a good faith determination that the foreign organization is equivalent to a United States public charity (typically by relying on an opinion letter from a qualified tax practitioner). Thus, it is not always necessary to obtain an equivalency determination, but this is generally the safest option for a private foundation in the event the grantee organization has not received an approval letter by the IRS.
Q&A #85 – Are committees required to keep meeting minutes?
Check your state’s nonprofit corporation statute to be sure, but these laws generally require that Board committees keep minutes of their meetings, or at least records of all official actions taken by these committees. Further, the Form 990 inquires whether organizations contemporaneously document meetings held, or written actions taken by, committees authorized to act on behalf of the Board (see Part VI, Section A, Line 8b). Therefore, it is highly recommended, and may be required by applicable state law, to keep minutes of committee meetings.
Q&A #84 – Can a charitable assistance program be limited to people in a single neighborhood?
It is a long-recognized principle that individuals who receive assistance from a 501(c)(3) charitable organization must be part of a “charitable class” that is sufficiently large or indefinite, such that the assistance program benefits the community as a whole, rather than small, pre-selected group of people. See IRS Pub. 3833. Limiting benefits to residents of a single neighborhood would probably satisfy this requirement so long as this restriction doesn’t function to benefit a blatantly small or self-interested group of people, although the line can be difficult to discern.
Q&A #83 – What happens if my organization files Form 1023-EZ and then exceeds $50,000 in revenue?
The decision whether to use the Form 1023-EZ instead of the full Form 1023 is a one-time choice, so it is important to choose wisely. There is neither a requirement nor an opportunity to supplement the Form 1023-EZ later with a full Form 1023 if your organization exceeds $50,000 in revenue in one of the first three years. In the worst-case scenario, it is possible the IRS could audit the organization and retroactively revoke 501(c)(3) status if your initial financial projections are deemed to be a “misstatement of material information.” However, this result is unlikely if you can show that your financial projections were reasonable and made in good faith at the time the application was submitted.
Q&A #82 – Should a church file a Form 1023 for recognition of 501(c)(3) status?
It is true that churches, synagogues, temples, mosques, and other places of religious worship are not required to file a Form 1023 with the IRS to be considered tax-exempt under section 501(c)(3) of the Internal Revenue Code, unlike virtually all other types of nonprofit organizations. However, there are good reasons to consider filing a Form 1023 anyway to receive official documentation in the form of an IRS determination letter of 501(c)(3) status.
Q&A #81 – Must a Form 1099 be issued for a need-based grant made to an individual?
In general, amounts granted to an individual solely out of the payor’s “detached and disinterested generosity” are treated as “gifts” that are excluded from tax under section 102 of the Internal Revenue Code. The IRS has confirmed that a payment made by a charity to an individual that responds to the individual's needs (in order words, is motivated by charitable intent rather than any moral or legal duty) qualifies for this exclusion, and consequently is not subject to Form 1099 reporting. See Revenue Ruling 2003-12.
Q&A #80 – What’s the difference between a motion and a resolution?
As with many matters of nonprofit governance, opinions vary as to the meaning of terms like “motion” and “resolution,” which are sometimes perceived to be similar. While there is no single universal set of definitions, the term “motion” is generally understood to mean the proposal of a Board action, while a “resolution” refers to a type of formal Board action that is used when careful written language is desired.
Q&A #79 – Can an expense reimbursement policy allow small purchases to be reimbursed without receipts?
It is possible to allow exceptions to the requirement to provide receipts for certain small purchases as part of a clear and detailed expense reimbursement policy for all employees (full and part-time staff and senior management) that is equally disseminated and enforced. However, there should be no blanket exceptions based on a specific dollar amount threshold. Rather, you could include an exception that will allow expense reimbursements to be processed in situations where receipts for small purchases are very difficult to obtain.