Continuing our resource theme from our Feb. 9, 2011 nonprofit compliance workshop, this is the first of a two-part series written by guest blogger Christine DeMarea, Partner at Husch Blackwell and workshop host and presenter.
As any Executive Director and nonprofit board member will tell you running a Nonprofit Organization is challenging. There are many issues that must be addressed and considered on a daily basis.
Amending Bylaws - Corporate Governance: The nonprofit's formation documents provide the blue print by which the nonprofit operates. If you are operating in a manner that is contrary to your Bylaws / Articles / Trust Agreement then you are breaching your duty to the organization. In addressing this issue, we strongly suggest that the nonprofit reviews its formation documents and if a change is needed, properly amend the documents. The steps that should be taken include:
1. Make sure your organization complies with your bylaws:
3. If you are required to file a Form 990/Form 990EZ, make sure you satisfy the reporting requirements for reporting changes made to the organizing or governing documents on the 990.
State Open Meeting Laws:
1. What are they? Some states have laws known as "sunshine laws" that require groups to open their meetings to the public. However, these laws only apply to governmental or quasi-governmental groups. Unless the nonprofit is a governmental entity, there is no obligation to open board meetings to the public. In limited situation, your nonprofit might be subject to the nonprofit laws.
2. In the current nonprofit governance environment, it is important that nonprofit boards and their directors to be mindful of the factors affecting the nonprofit organization's potential disclosure requirements.
Excess Benefits / Self-Dealing Transactions
1. Private Inurement. The prohibition on private inurement is absolute. Even one dollar of private inurement could result in loss of tax exemption. Because of the harshness of the penalty, private inurement was infrequently involved. As a result, most acts of private inurement were not penalized. The offending nonprofit continued to operate without punishment.
2. Excess Benefit Transaction. To address this enforcement disparity, Congress enacted sanctions under the Excess Benefit Transaction statute under Section 4958 in 1996. These rules paralleled and overlapped the private inurement rules.
a. Section 4958 imposed intermediate sanctions on any excess benefit transactions.
b. Anytime a nonprofit enters into a transaction with a person that has had substantial influence over the nonprofit at any time over the last 5 years (or is a family member of such a person), the excess benefit rules could apply.
c. Penalties: Failure to comply may subject the recipient of the excess benefit and the board to penalties.
Examples:
Christine H. DeMa
rea
Partner, Husch Blackwell
Christine is highly regarded in business and estate planning, and charitable planned giving. She counsels clients on estate planning and tax-exempt organizations, assisting in administrative, legal, tax and compliance matters.
As any Executive Director and nonprofit board member will tell you running a Nonprofit Organization is challenging. There are many issues that must be addressed and considered on a daily basis.
Amending Bylaws - Corporate Governance: The nonprofit's formation documents provide the blue print by which the nonprofit operates. If you are operating in a manner that is contrary to your Bylaws / Articles / Trust Agreement then you are breaching your duty to the organization. In addressing this issue, we strongly suggest that the nonprofit reviews its formation documents and if a change is needed, properly amend the documents. The steps that should be taken include:
1. Make sure your organization complies with your bylaws:
- Restate or Amend? If you operate as a nonprofit corporation, changes could be made as an amendment to the section or a restatement of the entire document. This decision is usually based on how many prior amendments there have been and how many changes are being made to the document.
- If your organization operates under a trust agreement, there are more formalities that will need to be followed. This is a different body of law.
3. If you are required to file a Form 990/Form 990EZ, make sure you satisfy the reporting requirements for reporting changes made to the organizing or governing documents on the 990.
State Open Meeting Laws:
1. What are they? Some states have laws known as "sunshine laws" that require groups to open their meetings to the public. However, these laws only apply to governmental or quasi-governmental groups. Unless the nonprofit is a governmental entity, there is no obligation to open board meetings to the public. In limited situation, your nonprofit might be subject to the nonprofit laws.
2. In the current nonprofit governance environment, it is important that nonprofit boards and their directors to be mindful of the factors affecting the nonprofit organization's potential disclosure requirements.
Excess Benefits / Self-Dealing Transactions
1. Private Inurement. The prohibition on private inurement is absolute. Even one dollar of private inurement could result in loss of tax exemption. Because of the harshness of the penalty, private inurement was infrequently involved. As a result, most acts of private inurement were not penalized. The offending nonprofit continued to operate without punishment.
2. Excess Benefit Transaction. To address this enforcement disparity, Congress enacted sanctions under the Excess Benefit Transaction statute under Section 4958 in 1996. These rules paralleled and overlapped the private inurement rules.
a. Section 4958 imposed intermediate sanctions on any excess benefit transactions.
b. Anytime a nonprofit enters into a transaction with a person that has had substantial influence over the nonprofit at any time over the last 5 years (or is a family member of such a person), the excess benefit rules could apply.
c. Penalties: Failure to comply may subject the recipient of the excess benefit and the board to penalties.
Examples:
- Compensation
- Sale / Lease of Real Estate
Christine H. DeMa
reaPartner, Husch Blackwell
Christine is highly regarded in business and estate planning, and charitable planned giving. She counsels clients on estate planning and tax-exempt organizations, assisting in administrative, legal, tax and compliance matters.
Comments
Post a Comment