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Q&A #17 – Is it a conflict of interest to make a grant to another nonprofit founded by one of our Board members?
This is not the type of conflict of interest that is the main concern of the rules applicable to 501(c)(3) organizations, but there are a few good reasons to approach this situation carefully regardless.
Q&A #16 – Should I take over a dormant 501(c)(3) rather than form a new organization?
I have seen numerous people try this approach over the years, but it is almost always a bad idea. The main problem is that you are going to have a very difficult time keeping the previously inactive organization’s status as a 501(c)(3) “public charity” (as opposed to a “private foundation,” which is a type of 501(c)(3) organization that is subject to less favorable rules).
Q&A #15 – Is it a good idea to switch to filing the Form 990-EZ to save costs?
I have gotten this question a lot over the years and not just during a protracted downturn. The simple short-term answer could be yes, but the longer-term impact might not be what you wanted or expected.
Q&A #14 – Can a nonprofit organization have non-Directors on its standing committees?
It is quite common for nonprofit organizations to have non-Directors on their standing committees, but whether this is permitted is a surprisingly complicated question. The answer depends on the applicable state nonprofit corporation statute, and these laws are often more restrictive on this subject than you might think.
Another Crisis-Driven Pitfall: Vacation Accruals
As nonprofit organizations continue to adjust to each new twist and turn this crisis throws at them, sometimes basic steps such as updating vacation accruals can catch you by surprise.
Q&A #13 – What are the eligible expenses that EIDL funds can be used for?
There are some important restrictions on the permissible uses of Economic Injury Disaster Loan (EIDL) funds, especially for organizations that have received a PPP loan.
Q&A #12 – What is the deadline to submit the application for PPP loan forgiveness?
There is not one hard deadline that applies to all organizations. For practical purposes, you want to submit the PPP loan forgiveness application before any repayments are due (though you should keep a close eye on whether your lender has their own requirements about when loan forgiveness applications must be submitted).
Q&A #11 – Can my 501(c)(6) organization get in trouble for receiving a PPP loan?
Yes, there are risks for accepting a Paycheck Protection Program loan when the organization was not eligible to receive it. It is clear from the text of the CARES Act statute and from prior SBA guidance regarding eligibility for the “Section 7(a)” loan program (of which the PPP is one type) that the only nonprofit organizations eligible for PPP loans are 501(c)(3) and 501(c)(19) organizations. I do not see a credible argument that any other types of nonprofits (such as 501(c)(6) organizations) were ever eligible to receive a PPP loan.
Now Is a Good Time to Reassess Your Nonprofit’s Governance Practices
The current pandemic has ushered in a very tenuous period of hyper-change and disrupted planning for most nonprofits. This crisis has required organizations to be laser focused on survival, continuity, and operating with maximum efficiency. For many organizations, these challenges have shed light on old or outdated governance practices that may have been taken for granted in years past and most likely should have been changed years ago.
Q&A #10 – Is now a good time to start a 501(c)(3) subsidiary?
This question surfaces a lot from 501(c)(6) entities and other non-501(c)(3) nonprofit organizations. The answer is almost always a strong yes. Even during this crisis, organizations should not hesitate to pursue this strategy as it will open doors to new opportunities and funding not previously available.
Q&A #9 – Is the Executive Committee allowed to cut programs and terminate staff without consulting the full Board?
It is common for Executive Committees to have fairly wide latitude to make operational decisions without consulting the full Board, usually in collaboration with the Executive Director. This can include operational decisions like cutting programs and terminating staff. Whether or not this is legal in your case will depend on your organization’s Bylaws (or perhaps the Executive Committee charter or authorizing resolution).
![EBOOK: Glossary of Financial and Accounting Terminology [SUBSCRIBERS-ONLY]](https://images.squarespace-cdn.com/content/v1/5e6ccadfb4659c1d51df14d5/b959c1f0-3087-4488-b5b7-07dd2272dcb7/joanna-kosinska-1_CMoFsPfso-unsplash.jpg)
EBOOK: Glossary of Financial and Accounting Terminology [SUBSCRIBERS-ONLY]
This 16-page reference provides basic definitions and explanations of key financial and accounting terminology relevant to nonprofit organizations, including terms and concepts related to general accounting principles, financial statements, budgets, tax-exempt status and Form 990, nonprofit policies and procedures, and audits, compliance, and governance.
Q&A #8 – Should my organization create a separate bank account for PPP funds?
The answer is that you do not need a separate bank account to hold PPP funds. Having a separate bank account for PPP funds is not required and not particularly helpful. Your main priorities should be proper and concise documentation of eligible transactions, which can be achieved just as well through good accounting practices and processes.
Q&A #7 – Can my 501(c)(6) organization provide funds to help struggling businesses?
A 501(c)(6) organization is allowed to provide support to struggling businesses, but there are important restrictions and limitations to be aware of.
Picking Between Mission and Financial Health and Sustainability: Which Comes First?
In the short-run you must pivot to favor financial health over mission so you can make it to the long-run and deliver more on mission in the future. Ensuring your organization will be around a long time will be the single most important factor to sustaining and then increasing delivery on mission.