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Q&A #49 – Can a nonprofit Board of Directors vote to temporarily suspend a provision in the Bylaws?
The short answer is that the Board of Directors generally does not have the power to vote to suspend a provision in the Bylaws apart from the formal Bylaws amendment process (although you should check the applicable state nonprofit corporation statute to be sure). The Bylaws are binding and must be followed, even under extenuating circumstances. However, there are creative approaches you could explore to avoid making the amendment more permanent than is desired.
Q&A #48 – Are nonprofits that received PPP funds eligible to receive employee retention credits?
The Consolidated Appropriations Act of 2021 (P.L. 116-260), which was signed into law on December 27, 2020, included a significant expansion of the employee retention credit (ERC), so it is true that your organization may indeed be eligible to receive both Paycheck Protection Program (PPP) loan forgiveness and ERC. However, there are important limits nonprofits that received PPP funds must be aware of.
Repositioning for the Long Road of Recovery
We are on the doorstep of one year into a pandemic that no one saw coming. Nonprofits of all shapes and sizes had to move rapidly to respond to unexpected disruptions. Capacity, operations, and funding all were impacted and impacted quickly. As we watch mass vaccination centers come on-line and COVID-19 safety restrictions starting to be lifted, we can begin to look ahead to the long road of recovery and dream about the new normal somewhere in the future.
Q&A #47 – Is my nonprofit permitted to record volunteer services as in-kind contributions?
While the Form 990 does not allow inclusion of in-kind gifts of services as revenue, whether volunteer services can be recorded as in-kind contributions under generally accepted accounting principles (GAAP) is a separate issue that is governed by the Financial Accounting Standards Board (FASB), specifically, FASB’s Accounting Standards Codification found at ASC 958-605-25-16, discussed further below. However, regardless of whether these volunteer services can be recorded in the financial statements, tracking and documenting in-kind contributions of goods and services is always important and beneficial to a nonprofit organization.
Q&A #46 – What are the downsides of using the Form 1023-EZ instead of the Form 1023?
True to its name, the Form 1023-EZ is certainly an easier, faster, and cheaper way to apply for 501(c)(3) status for organizations that meet the eligibility criteria (mainly, organizations that are not projecting more than $50,000 in gross receipts in any of their first 3 years and do not currently have more than $250,000 in assets, among other requirements). But there are some downsides that should be considered, especially since both the Form 1023 and Form 1023-EZ are public documents.
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Strong Financial Health Opens the Door to Collaborations with Other Nonprofits [SUBSCRIBERS-ONLY]
There are many advantages to participating in joint ventures, coalitions, strategic alliances, or other types of collaborations with other like-minded nonprofit organizations. These types of formal and informal partnerships enable organizations to share programs, capabilities, and gain access to a wider array of members, constituents, and geographic regions. These opportunities multiply if your nonprofit has strong financial health.
Q&A #45 – What donor incentives were included in the COVID-19 relief legislation that was enacted in December 2020?
You are referring to the Consolidated Appropriations Act of 2021 (P.L. 116-260), which was signed into law on December 27, 2020. In addition to many other provisions (the law is over 5,000 pages long), there are three main donor incentives: (1) the reestablishment (and slight modification) of the $300 “above the line” charitable deduction; (2) the extension of increased limits on deductible contributions for corporations and individuals who itemize; and (3) a special increased deduction limit for certain disaster relief contributions made by corporations.
Q&A #44 – Should a Board member personally own a nonprofit organization’s trademarks and website URL?
I have not seen guidance from the IRS directly addressing this situation, but I think it is problematic for a founder or Board member to personally own a nonprofit organization’s trademarks, website URL, social media accounts, and other types of intangible assets. While one could make an argument that there is no harm if the nonprofit is allowed to use these assets for free (or for a fee that is no more than fair market value), there are problems with this situation that become increasingly apparent over time.
Q&A #43 – Should a nonprofit conflict of interest policy address non-financial conflicts?
You are correct that perceived or actual conflicts of interest can arise in a variety of different contexts and not all of them involve financial transactions. However, it is generally best to keep your conflict of interest policy focused on financial conflicts, while addressing concerns about non-financial conflicts in other ways.
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Now is the Time to Push for Changes to Non-Full Cost Funding Practices [SUBSCRIBERS-ONLY]
Our recent article on the Challenges of Accepting Non-Full Cost Funding prompted compelling and thoughtful comments on the universal problem of non-full cost funding in the nonprofit sector. Many commented that non-full cost funding is a systemic problem that fuels marginalization of the communities, causes, and peoples we serve. To right this wrong, we must draw attention to these problems and advocate for change. Indeed, real sustained effectiveness cannot be achieved if this harmful funding culture continues.
Q&A #42 – When must an Executive Director obtain Board approval for a transaction?
This is one of those questions that is both extremely common and unusually difficult. Whether or not a transaction should (or must) have Board approval depends on the individual organization and the particular transaction. In some cases, the answer is clearly yes, such as with the sale of a major asset like a building. However, there are many cases where the answer is not so clearly defined.
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The Challenges of Accepting Non-Full Cost Funding [SUBSCRIBERS-ONLY]
Most nonprofit organizations are confronted with an unfair choice each year: accept or not accept critical funding that is inherently designed to not cover the full cost of programs and activities for which the funding is provided. This reality has been around for a long time. Looking to the future, we must actively push funders to recognize that sustainability will be damaged if nonprofits continue to be forced to compete for, and pressed to accept, non-full cost funding.
Why and How Should a Nonprofit Form a Subsidiary?
The formation of subsidiaries is a consideration that surfaces during the lifetime of many nonprofit organizations as a strategy to expand operations, growth, and overall capacity to deliver more on mission. A subsidiary is a separate entity that is controlled (to some degree) by a parent organization, and subsidiaries are created by nonprofits for a wide variety of reasons.
Q&A #41 – How should new nonprofits acknowledge donations received prior to approval of 501(c)(3) status?
This question is one that is shared by virtually all new nonprofits that are seeking 501(c)(3) status. You are correct that an acknowledgment letter will be required in order for your donors to use the charitable deduction for their donations (assuming the donations exceed $250). And yes, donations made prior to the organization receiving 501(c)(3) status should retroactively qualify for the charitable deduction if and when 501(c)(3) status is approved (assuming the Form 1023 was correctly prepared and timely submitted). Your main question regarding how to handle the donation acknowledgment letter requires a bit more explanation.
Q&A #40 – How should nonprofits acknowledge donation checks received after December 31?
The short answer is that donors are permitted to treat a charitable contribution as made on the date it is placed in the mail via U.S. Postal Service, even if the check is not delivered or cashed until the following year, see Treas. Reg. § 1.170A-1(b). While it is not the charity’s responsibility to establish the date of delivery in the acknowledgement letter, you want to be as helpful as you can be to your donors. This can lead to some tricky situations.