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Q&A #100 – Must Board meeting minutes be formally approved by the Board?
State nonprofit corporation law usually does not explicitly state that Board meeting minutes must be formally approved by the Board, however this is highly recommended and is widely considered a best practice. The minutes of all meetings of the Board and any committee with Board-delegated powers should be formally approved no later than the next meeting of that governing body. Failure to do so can cause numerous compliance and governance problems and reflect poorly on the organization.
Q&A #99 – Do non-spouse romantic relationships raise conflict of interest issues?
While a non-spouse romantic relationship would ordinarily fall outside of the scope of the conflict of interest rules in the federal tax code, and may or may not be addressed by your organization’s conflict of interest policy and applicable state nonprofit corporation statute, it would be prudent to treat this situation like any other conflict of interest. Regardless of the legal formalities, these types of relationships can certainly lead to the perception that there is a conflict and should be treated as such to avoid the risk of damaging your organization’s reputation.
Q&A #98 – When should nonprofits hold their annual Board meeting?
Nonprofit Boards are generally required to meet at least once per year. However, if the Bylaws do not specify when the annual Board meeting must take place, then the organization and its Board is free to decide the timing. In my experience, the question of when to hold the annual meeting should be based on three key considerations: consistency, alignment with your organization’s governance and operational cycles, and efficiency. Applying these three factors will help to enhance the effectiveness and timing of the annual Board meeting.
Q&A #97 – What to do when the Bylaws are ambiguous?
It is nearly impossible to eliminate all ambiguity from the Bylaws of a nonprofit organization, so sometimes interpretive questions will arise that truly do not have a clear answer. Fortunately, courts will often defer to the Board’s interpretation of ambiguous Bylaws if the Board can show that the interpretation was reasonable and made in good faith. While the level of deference will vary depending on the applicable jurisdiction, this is a good standard to aim for regardless.
Q&A #96 – Must a Form 1099 be issued for a grant made to a nonprofit organization?
Grants made to nonprofit organizations are usually not subject to Form 1099 reporting because nonprofit payees typically fall within certain exceptions under the Form 1099 rules. Specifically, Form 1099 reporting is generally not required with respect to payments made to corporations or tax-exempt organizations. In this case, both exceptions probably apply.
Q&A #95 – Can nonprofit parent and subsidiary organizations have identical Boards?
There is not a cut-and-dry answer to the question of whether nonprofit parent and subsidiary organizations with different tax-exempt statuses are permitted to have identical Boards. However, too much Board overlap could potentially increase the risks that one or both organizations will be perceived by the IRS to be violating the restrictions on their tax-exempt status. In the case of a parent 501(c)(6) chamber of commerce with a subsidiary 501(c)(3) organization, it is generally advisable to have at least one or two persons on the Board of the subsidiary who are not Board members of the parent.
Q&A #94 – How is a tax gross up calculated?
Grossing up a payment to offset the taxes the employee will owe on the payment is a relatively rare practice among nonprofit organizations, but can be appropriate under certain circumstances usually involving one-time payments such as reimbursement of relocation expenses. These calculations can be confusing because when you increase a payment to cover taxes, there is also tax on that increased amount. Therefore, a formula must be used to figure out the amount that is sufficient to pay the taxes on the original (pre-gross up) amount as well as the taxes on the increased amount.
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.