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Q&A #81 – Must a Form 1099 be issued for a need-based grant made to an individual?
In general, amounts granted to an individual solely out of the payor’s “detached and disinterested generosity” are treated as “gifts” that are excluded from tax under section 102 of the Internal Revenue Code. The IRS has confirmed that a payment made by a charity to an individual that responds to the individual's needs (in order words, is motivated by charitable intent rather than any moral or legal duty) qualifies for this exclusion, and consequently is not subject to Form 1099 reporting. See Revenue Ruling 2003-12.
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Optimizing the Use of Restricted Funds Through an Annual Inventory and Assessment [SUBSCRIBERS-ONLY]
Nonprofit organizations can receive restricted funds unexpectedly or they can appear after many years of acquisition efforts. They can be fresh (just arrived) or mature (been sitting around for years). Spending patterns for restricted funds is also constantly changing. Consequently, it is important to periodically pause and take an “inventory” of restricted funds in order to assess the timing and future use of this valuable resource.
Q&A #80 – What’s the difference between a motion and a resolution?
As with many matters of nonprofit governance, opinions vary as to the meaning of terms like “motion” and “resolution,” which are sometimes perceived to be similar. While there is no single universal set of definitions, the term “motion” is generally understood to mean the proposal of a Board action, while a “resolution” refers to a type of formal Board action that is used when careful written language is desired.
Periodically Check Key Performance Indicators (KPIs) to Keep Them Relevant
Nonprofit organizations are doing a better job at embracing change, evolving programs, and adapting operations in response to changing conditions. However, many nonprofits are not updating their assessment tools at the same pace as they are implementing change. Organizations generally use key performance indicators (KPIs) to assess performance and monitor progress, but too often they fail to check whether these assessment tools are still relevant and meeting the needs of the Board and management.
Q&A #79 – Can an expense reimbursement policy allow small purchases to be reimbursed without receipts?
It is possible to allow exceptions to the requirement to provide receipts for certain small purchases as part of a clear and detailed expense reimbursement policy for all employees (full and part-time staff and senior management) that is equally disseminated and enforced. However, there should be no blanket exceptions based on a specific dollar amount threshold. Rather, you could include an exception that will allow expense reimbursements to be processed in situations where receipts for small purchases are very difficult to obtain.
Q&A #78 – What’s the difference between a private operating foundation and a private non-operating foundation?
Private operating foundations are a special type of private foundation that generally devote most of their earnings and assets to running charitable programs directly, in contrast to standard private foundations that mainly make grants (technically referred to as “private non-operating foundations”). Private operating foundations are generally subject to more favorable rules than other types of private foundations, so this status is usually preferable if your organization qualifies.
Q&A #77 – Should every contract have indemnification language?
Whether indemnification language is desirable and appropriate depends on the specifics of each contract as well as each party’s bargaining leverage and tolerance for risk. It is important to think carefully about the risks that could arise from each contract and pay close attention to how the language is phrased. Depending on the circumstances, indemnification language may not be necessary, and, if drafted improperly, could cause more harm than good.
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Matching Gifts Bring Financial Opportunities and Planning Challenges [SUBSCRIBERS-ONLY]
New significant contributions with matching gift components can be a game-changer for nonprofit organizations. However, do not let a potential financial windfall cloud your judgment and decision-making. A matching gift that is not completely understood and optimized will lead to missed opportunities and even to possible negative consequences.
Q&A #76 – Is Form 990, Schedule B donor information required with my organization’s state charitable solicitation registrations?
The answer should be no, for now. This past summer, the Supreme Court invalidated California’s requirement to include unredacted Form 990, Schedule B donor information as part of its charitable solicitation registration law in Americans for Prosperity Foundation v. Bonta, No. 19-251 (July 1, 2021). Prior to this decision, California was one of a handful of states that required this donor information, along with New York, New Jersey, and Hawaii. All except for Hawaii have since explicitly suspended this requirement in response to Bonta, and Hawaii has not yet clarified its position.
![Supercharge Your Nominations Committee [SUBSCRIBERS-ONLY]](https://images.squarespace-cdn.com/content/v1/5e6ccadfb4659c1d51df14d5/1709990601713-3UAX2OFJJ05F58CMJ20U/pexels-google-deepmind-17485632.jpg)
Supercharge Your Nominations Committee [SUBSCRIBERS-ONLY]
The typical nonprofit organization nominations committee is active for only a short period of time with a single objective: to assemble a list of recommendations for nominees to replace open and expiring officer and director positions. We need to break out of this mode and supercharge our nominations committees by having them meet throughout the fiscal year and broaden and reprioritize their service objectives.
Q&A #75 – Are there advantages to 501(c)(4) status compared to 501(c)(6) status?
Both 501(c)(4) and 501(c)(6) organizations are permitted to engage in unlimited amounts of lobbying so long as the lobbying is consistent with the organization’s tax-exempt purposes. The main advantage of 501(c)(4) status as compared to 501(c)(6) status is that there is more flexibility with regard to the organization’s governance structure. However, there are some downsides that should also be considered.
Reporting the Total Number of Volunteers on the Form 990
Nonprofits have only a few touchpoints where a lasting impression can be made in the blink of an eye. These opportunities must be given careful thought so they can be optimized and leveraged before they disappear. The total number of volunteers reported on Page 1, Line 6 of the Form 990 is one of those key touchpoints that most organizations take for granted.
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.
Key Takeaways from the 2021 ASAE Annual Meeting
My expectations and experiences from the virtual 2021 ASAE Annual Meeting were different from last year because I thought for sure we would be meeting in-person this year, which, of course, turned out not to be the case. This simple statement was confirmation that the world around us has changed for the long term. Three observations hit home that made a deep impression related to nonprofit organization management practices: listen with purpose, stop using outdated contract templates, and take a fresh look at policies.
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.