Blog.
Most Recent Posts
Q&A #115 – Are nonprofit Board members required to be U.S. residents?
There is no requirement under the federal tax laws governing United States 501(c)(3) and other tax-exempt organizations that Board members be U.S. residents or U.S. citizens. Similarly, I am not aware of any state nonprofit corporation statute that imposes such a requirement. However, since the organization will be based in the U.S., it would be prudent to have at least some Board members and officers who maintain a permanent residence in the U.S. to deal with operational and compliance matters.
Q&A #114 – What happens if a nonprofit fails to hold regular Board meetings?
Failure to hold regular Board meetings as required in the organization’s Bylaws is a problem but usually does not trigger immediate consequences by itself. However, this is often a sign of deeper neglect or compliance failures inside the organization and will not reflect well on the Board members in the event of an internal dispute, lawsuit, government investigation, or financial statement audit.
Q&A #113 – What happens when a nonprofit Board vote is tied?
Unless an organization’s Articles of Incorporation or Bylaws provide otherwise, a tie or deadlocked vote simply means that the proposed motion failed to reach the required level of approval to pass. Some organizations provide a mechanism in their Bylaws to resolve matters that are deadlocked (such as designating one or more persons to break the tie), but this is unusual. Thus, the result of a tie is generally no different than if a majority voted against the motion.
Q&A #112 – Can a chairperson unilaterally suspend a nonprofit organization’s Bylaws?
As discussed in Q&A #49, a nonprofit organization’s Bylaws generally cannot be “suspended,” but rather must follow the formal process for “amendment” set forth in the Bylaws themselves, the organization’s Articles of Incorporation, and the applicable state nonprofit corporation statute. It is possible, but extremely unlikely, that state law and your organization’s governing documents would permit the Bylaws to be amended unilaterally by the chairperson.
Q&A #111 – How should nonprofits fill out the Form W-9?
The Form W-9 does not provide an option that clearly describes the tax classification applicable to most nonprofit organizations. I recommend checking the box for “Other” and writing in “tax-exempt nonprofit corporation” or something similar, except in the relatively rare cases in which an organization is structured as a trust or does not have a federal income tax exemption.
Q&A #110 – Are small nonprofits required to provide paid interns with health insurance?
As discussed in Q&A #108, paid interns usually must be treated as employees. Whether a particular employee is required to be offered coverage under an organization’s group health insurance plan is determined first and foremost by the eligibility rules set forth in the plan document and summary plan description (SPD). For small-staffed organizations that do not meet the definition of an “applicable large employer” under the Affordable Care Act, the main consideration will be how the terms of the plan are drafted.
Q&A #109 – Can Board members insist that meeting minutes reflect their dissent?
The right of Board members to insist that their dissenting positions be reflected in the Board meeting minutes is ultimately determined by the organization’s Bylaws and the applicable state nonprofit corporation statute. Your state’s nonprofit corporation statute may provide Board members with a right to have their dissenting vote reflected in the meeting minutes, but there is generally no requirement that meeting minutes articulate the reasons for the dissent.
Q&A #108 – Can interns be paid as independent contractors?
While nonprofit organizations are usually afforded more latitude than for-profits to have unpaid volunteer interns, the decision to pay interns a stipend in lieu of employee wages raises difficult issues. Most paid interns would not fit the criteria for independent contractor treatment under the applicable laws. This means that paid interns must generally be treated as W-2 employees subject to minimum wage laws, payroll tax and withholding laws, and other requirements applicable to employees.
Q&A #107 – Should a majority of a nonprofit’s Board members be independent?
While it is not necessarily a bad thing to have some non-independent members on the Board of Directors of a nonprofit organization, it is important for both perception and governance reasons to ensure that a majority of the Board members are “independent” as defined in Part I, Line 4 and Part VI, Line 1b of the Form 990.
Q&A #106 – Should a finance committee vote to approve monthly financial reports?
No, a nonprofit organization’s finance committee should not vote to approve interim monthly financial reports. Finance committees use information within financial reports but do not have the direct responsibility, time, or resources to check the financial reports for accuracy and compliance. Thus, while it is common for finance committees to receive and review monthly financial reports and discuss the reports with staff, it is neither proper nor a best practice for finance committees to “approve” these reports.
Q&A #105 – Can an exception to a contractual requirement be approved without signing an amendment?
Approving an exception to a contractual requirement, such as a specified deadline, essentially means that your organization is choosing not to enforce (or “waiving”) the particular requirement. It is generally not necessary to have both parties sign an amendment to the agreement every time a requirement is waived, but it may be advisable to do so if the exception is something that could repeat or impact other obligations.
Q&A #104 – Does indemnification language in a contract apply only to third party claims?
Indemnification language in a contract is traditionally understood to apply only to third party claims and not to “direct” claims between the parties themselves. Many courts will presume this interpretation unless the parties clearly express an intent for indemnification to apply to direct claims. However, courts differ on this issue, so it is important to clearly state that indemnification only applies to third party claims if that is the interpretation your organization wants.
Q&A #103 – What does an “entire agreement” clause mean in a contract?
The purpose of “entire agreement” language in a contract (sometimes called an “integration” or “merger” clause), like the example you mentioned, is to avoid misunderstandings and disputes about terms that may have been discussed during negotiations but were never included in the final agreement. When drafted properly such a provision should generally prevent one party from seeking enforcement of promises outside of the written terms of the contract.
Q&A #102 – Do in-kind contributions of property count toward the $50,000 per year limit for Form 1023-EZ eligibility?
Yes, in-kind contributions of property (such as donated supplies) should be counted when determining whether your organization is within the $50,000 per year threshold for Form 1023-EZ eligibility. While the Form 1023-EZ instructions do not say this explicitly, the instructions use language that is very similar to the Form 990, and in that context “gross receipts” clearly include contributions of supplies and other property.
Q&A #101 – What does it mean to sign a contract in counterparts?
Executing a contract in counterparts is a very common practice that simply means that each party signs their own separate duplicate copy of the agreement rather than signing together on the same page of the same document.