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Q&A #74 – How does simple majority voting differ from other types of Board voting?
A “simple majority” generally means more than half of the votes cast, but can also refer to approval by more than half of the Directors present at the meeting (a subtle but meaningful distinction). This is the most common type of Board voting, and many nonprofit organizations use simple majority voting as the default for most Board decisions in their Bylaws. A key distinguishing feature of simple majority voting is that it only counts votes cast or Directors present, in contrast with decisions that require approval of a majority or more of the entire Board of Directors (regardless of whether some Board members abstain or are absent), sometimes called “absolute majority” voting.
Q&A #73 – What provisions should be included in an MOU for a joint program?
The first step is to decide whether a Memorandum of Understanding (MOU) or formal contract (agreement) is most appropriate for your situation. An MOU is a good choice if the parties are still in the exploratory phase of the relationship, since MOUs should be used as non-binding documents that lay out the framework for a more formal agreement that the parties intend to sign later. The terms of an MOU vary widely depending on the relationship and project, but there are some provisions that are typically found in an MOU of this type.
Q&A #72 – What is required to meet the 10% facts and circumstances public support test?
It is common for 501(c)(3) public charities to rely on the 10% facts and circumstances test as an alternative to maintaining 33 1/3% public support that is generally required under Internal Revenue Code sections 509(a)(1) and 170(b)(1)(A)(vi). However, there are certain requirements that must be satisfied, and the Form 990, Schedule A requires organizations to explain how they meet these requirements.
Q&A #71 – What’s the difference between Model A and Model C fiscal sponsorship?
There are many different models of fiscal sponsorship. Model A and Model C are the most common. In Model A, the charitable project is carried out directly by the fiscal sponsor and the people who operate the project are employees or volunteers of the fiscal sponsor. The closely related Model B is very similar, except the people who operate the project are independent contractors of the fiscal sponsor rather than employees. In contrast, in Model C the fiscal sponsor has a more limited management role that is generally limited to receiving and disbursing grants in furtherance of the charitable project.
Q&A #70 – How Can I Explain the Bottom-Line Budget Impact of Multi-Year Grants?
The answer is to take a two-pronged approach. First, prepare financial schedules that show the anticipated annual usage of the multi-year grant for the life of the grant. Second, using this information, be thoughtful and assertive with your messaging to your Board. Communicating in a multi-year format will help to move attention away from the impact of a multi-year grant on any single-year budget.
Q&A #69 – Can a grant from a previous grantor be treated as an unusual grant?
Large grants are usually a reason to celebrate, but some grants are so large that they pose significant problems for an organization’s public support tests. The ability to exclude “unusual grants” from the public support test can be extremely helpful in these situations. The fact that a grantor or funder has made contributions in the past is a significant factor weighing against unusual grant treatment, but this by itself is not necessarily disqualifying.
Q&A #68 – What does it mean for a business activity to be “unrelated” for UBIT purposes?
In general, an activity triggers unrelated business income tax (UBIT) if it is: (1) “unrelated” to the organization’s tax-exempt purpose; (2) a “trade or business”; and (3) “regularly carried on.” It is a common misconception that using the revenue from a business activity solely for programs in furtherance of the mission is sufficient to make the activity “related” and thereby avoid UBIT. How an organization uses the funds is irrelevant for UBIT purposes, and a business is not considered “related” unless the activity itself has a substantial causal relationship to the achievement of the organization’s tax-exempt purpose.
Q&A #67 – When does sponsorship cross the line into advertising?
The difference between sponsorship (or more precisely, acknowledgment of your corporate sponsors) and advertising is addressed in the unrelated business income tax (“UBIT”) rules. While revenue from advertising typically triggers UBIT, revenue from sponsorship is shielded from UBIT if you adhere to specific rules. The key principle is that the acknowledgment of the sponsor must generally avoid qualitative or comparative descriptions of the sponsor’s business, products, or services.
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.