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Q&A #153 – Are nonprofits required to have a whistleblower policy?
Section 1107 of the Sarbanes-Oxley Act prohibits all persons, including nonprofit organizations, from knowingly retaliating against certain whistleblowers. There is no specific requirement under federal law to have a whistleblower policy, but having one is a strongly recommended best practice to prevent violations of this law and to demonstrate the organization’s commitment to transparency and accountability.
Q&A #152 – What happens if a 501(c)(3) public charity exceeds the 501(h) lobbying limits?
501(c)(3) public charities are permitted to engage in “lobbying” up to certain limits. Organizations that make the “501(h) election” are subject to a more concrete set of limits based solely on expenditures made by the organization for lobbying purposes. If an organization exceeds these limits in any one tax year it will have to pay a 25% tax on the excess. A 501(h)-electing organization’s tax-exempt status will not be revoked unless its lobbying expenditures exceed 150% of the limits over a 4-year period.
Q&A #151 – Who should nonprofits name as their principal officer at the top of the Form 990?
The Form 990 instructions state that for purposes of Item F at the heading of the Form 990, the “principal officer” is the person who “regardless of title, has ultimate responsibility for implementing the decisions of the organization's governing body, or for supervising the management, administration, or operation of the organization.” Application of this definition will vary depending on the organization, and this will not necessarily be the same officer who signs the Form 990 at the bottom of page 1.
Q&A #150 – Can a nonprofit change its mission without IRS approval?
A 501(c)(3) public charity is generally permitted to change its mission and purpose and undertake new program areas that were not described in its Form 1023 application so long as these changes are consistent with 501(c)(3) status and properly disclosed in the organization’s Form 990. Advance IRS approval is not required, although significant changes in mission, purpose, and programs can affect an organization’s ability to rely on the IRS determination letter approving 501(c)(3) status.
Q&A #149 – Can a nonprofit use a DBA or trade name?
Like any other business or entity, nonprofit organizations are permitted to conduct their activities under a “trade name” (often referred to as a fictitious name, “doing business as,” or “DBA”) so long as the name is properly registered in the relevant states and reported on the Form 990, charitable solicitation registrations, and other required filings, and the name is available to use without infringing on the trademark rights of others.
Q&A #148 – How far in advance must Board meeting materials be sent to Board members?
In most cases there are few explicit requirements regarding when meeting materials must be provided to Board members (such as the agenda, minutes of the last meeting, executive director and committee reports, financial reports, and proposed resolutions). Any specific requirements are typically found in an organization’s Bylaws, policies, or meeting guidelines, if at all. State nonprofit corporation statutes do not usually have strict requirements on this issue but check applicable state laws to be sure.
Q&A #147 – Must a Form 1099 be issued for expense reimbursements paid to Board members and volunteers?
IRS guidance suggests that reimbursements paid to Board members and volunteers for expenses properly incurred in connection with organization functions are generally not required to be reported on Form 1099 if the expense reimbursements are made pursuant to a reimbursement arrangement that qualifies as an “accountable plan.” This is similar (but not identical) to the rules that apply to employee expense reimbursements and Form W-2 reporting.
Q&A #146 – Is IRS approval required to become a supporting organization?
According to the IRS instructions for Schedule A of the Form 990, an organization that previously used the public support tests under sections 170(b)(1)(A)(vi) or 509(a)(2) of the Internal Revenue Code is not required to receive an IRS determination that it qualifies as a “supporting organization” under section 509(a)(3) before treating itself as supporting organization in Schedule A. However, some organizations may wish to request such an IRS determination using Form 8940.
Q&A #145 – Does an annual fundraising event trigger unrelated business income tax (UBIT)?
Unrelated business income tax (UBIT) is not typically owed from the type of annual fundraising events that many nonprofit organizations traditionally hold because most once-per-year events are not considered to be “regularly carried on.” However, the analysis may be more complex for annual events that involve significant efforts and related activities throughout the year.
Q&A #144 – What is the year-end charitable deduction deadline for donations made via credit card?
According to Internal Revenue Service guidance, donations made via credit card are eligible for the charitable deduction in the year in which the charge is made on the donor’s credit card, regardless of when the donor pays the credit bill or when the nonprofit ultimately receives the funds. See IRS Revenue Ruling 78-38 and Publication 526.
Q&A #143 – Should a nonprofit include the audited financial statement in its annual report?
You can choose to include the audited financial statement in an organization’s annual report provided to members, donors, funders, and the public, but it would not be a wise choice. Audited financial statements, although important, are very long and designed to meet generally accepted accounting principles (GAAP) and other compliance purposes. They do not work as well to “brag” about the organization’s accomplishments.
Q&A #142 – Can a home address be used when incorporating a new nonprofit?
Virtually all states requires that nonprofit corporations designate a street address (and not a P.O. box) as their principal office in the state and/or the office of their “registered agent.” It is generally permissible to use a residential address for this purpose, although some jurisdictions may have special permitting or zoning requirements. However, there are several disadvantages to consider.
Q&A #141 – Does a grant recipient’s lobbying count towards the grantor’s lobbying limits?
A grant to an organization that engages in lobbying may count towards the grantor’s lobbying limits, depending on how the grant is structured and the tax-exempt status of the grantee. In summary, grants to a 501(c)(3) organization generally do not count towards the grantor’s lobbying limits unless specifically earmarked for lobbying activities, while grants to a non-501(c)(3) organization do not get this treatment unless structured to meet the requirements of a “controlled grant.”
Q&A #140 – How do nonprofits report a name change to the IRS?
A formal name change must be reported on the organization’s next Form 990 or 990-EZ by checking the “name change” box in Column B on the left side at the top of page 1 and including a state-certified copy of the amendment to the organization’s Articles of Incorporation. Form 990-N filers must instead send a letter or fax with this supporting documentation to the IRS Exempt Organizations Division.
Q&A #139 – Does a nonprofit name change require an amendment to the governing documents?
A nonprofit organization may generally change its name either by amending its Articles of Incorporation and other governing documents, or, alternatively, by registering a “trade name” in the applicable states, often referred to as a fictitious name, “doing business as” name, or “DBA.” While amending the governing documents is not required, it is usually the recommended approach to minimize confusion.