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Q&A #122 – Why would a nonprofit, tax-exempt organization form a single-member LLC?
When properly formed, a single-member LLC (SMLLC) that is wholly owned by a tax-exempt organization protects the parent organization from liability for the SMLLC’s activities while providing the SMLLC with the benefits of the parent organization’s tax-exempt status for federal tax purposes. The SMLLC structure is also generally easier to establish and more flexible than a subsidiary corporation.
Q&A #121 – Is a nonprofit permitted to compensate Board members for their Board service?
Nonprofit organizations are generally permitted to provide reasonable compensation to Board members for their Board service, provided this is not prohibited by the organization’s Articles of Incorporation or Bylaws, and subject to certain provisions of the applicable state nonprofit corporation statute.
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Capital Campaigns and the Impact of Donor Fatigue [SUBSCRIBERS-ONLY]
Capital campaigns generate a lot of excitement and buzz for nonprofit organizations. Leveraging and harnessing this energy feeds hope for a brighter future. However, nonprofits must maintain a focus on protecting long-term financial health. At the conclusion of the capital campaign, the organization must be in a stronger position. One critical consideration is gauging the negative impact on current and future cash in-flows resulting from donor fatigue.
Q&A #120 – Can a program be transferred from a 501(c)(3) organization to a 501(c)(6) organization?
Internal Revenue Service rulings suggest that it is possible to transfer a program from a 501(c)(3) organization to a 501(c)(6) organization so long as the transfer is subject to certain restrictions that ensure the assets remain dedicated to proper 501(c)(3) purposes. However, the specific circumstances are likely to impact the analysis of this issue so retaining legal counsel to advise the organization on the transaction is highly recommended.
Three Steps to Simplify Monitoring the Balance Sheet
Balance sheets are part of standard nonprofit organization financial reporting. However, balance sheets are intimidating to most individuals and often misunderstood. Simplifying the monitoring process is key to improving engagement, enhancing understanding of the balance sheet, and helping individuals to fulfill their financial oversight roles and responsibilities.
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Use This Simple Question to Improve Board and Committee Member Engagement [SUBSCRIBERS-ONLY]
Keeping nonprofit organization Board and committee members engaged is often more art than science. The reason this task is so difficult is because of the delicate balancing act between gratitude and appreciation. It is relatively easy to show gratitude and thank volunteer leaders for attending meetings. It is another thing to make sure these volunteer leaders leave each meeting with a feeling that it was a good use of their time, that they were actively involved in discussions, and the organization appreciated and valued their input.
Q&A #119 – Are officers of a nonprofit required to be Board members?
Whether the officers of a nonprofit organization are required to be Board members is determined by the organization’s Bylaws. Many organizations specify in their Bylaws that officer positions such as the President, Secretary, Treasurer must be filled by Board members (hence the common but potentially misleading term “Board Officer”). However, it is also common to have Bylaws that allow officers to be appointed from outside of the Board such as from senior management staff positions.
CHECKLIST: Steps to Forming a 501(c)(3) Nonprofit Organization
This checklist outlines 19 key steps that apply to most new organizations to form a nonprofit corporation, apply for 501(c)(3) status, and stay in compliance with the rules governing tax-exempt organizations. The steps covered include drafting governing Articles of Incorporation, Bylaws, and basic corporate policies; obtaining a tax ID number, submitting the Form 1023 or Form 1023-EZ; and more.
VIDEO: Understanding the Public Support Test under § 170(b)(1)(A)(vi) | 5-Minute Lessons 4 Nonprofits
SE4N's Benjamin Takis provides a short lesson for 501(c)(3) nonprofit organizations on how to understand the calculation of "public support" under Internal Revenue Code sections 170(b)(1)(A)(vi) and 509(a)(1).
The Wrong Way to Add a Charitable Arm to a For-Profit Business
I often receive inquiries from entrepreneurs who are looking to add a philanthropic component to an existing for-profit business, such as by forming a nonprofit as a charitable arm or subsidiary of their business or starting a corporate foundation. These ideas are usually well-intentioned. However, mixing business and charitable activities too closely can make IRS approval of 501(c)(3) status an uphill battle.
Q&A #118 – What happens if an organization misses the 27-month deadline to submit the Form 1023?
The IRS generally will not approve retroactive 501(c)(3) status back to the date of the organization’s formation if the organization fails to file the Form 1023 (or Form 1023-EZ) within 27 months from the end of the month in which it was organized. In most cases, filing late means that 501(c)(3) status, if approved, will apply as of the date the application was submitted to the IRS. However, there are some important nuances in these rules to keep in mind.
Q&A #117 – How does a nonprofit transfer a program to another nonprofit?
Transferring a program from one nonprofit to another can be unexpectedly complicated, and the details will vary depending on the specific circumstances. In effect, the process is similar to a merger or acquisition, and requires extensive due diligence, identifying the assets associated with the program, executing a written agreement with the appropriate terms and conditions, and obtaining the necessary approvals by the respective Boards of Directors (and sometimes voting members, if applicable).
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Enhanced Management Strategies for Indirect Costs [SUBSCRIBERS-ONLY]
There are many aspects to consider when it comes to managing a nonprofit organization’s indirect costs. We often think first about compliance rules, which are naturally complicated and can vary by funding source and an organization’s own internal accounting policies and procedures. One aspect we tend not to emphasize enough is staff and their propensity to be disinterested and disconnected when it comes to considering and managing indirect costs.
Q&A #116 – Do restricted funds need to be kept in a separate bank account?
No, it is almost never required nor advisable for a nonprofit organization to keep restricted funds in one or more separate bank accounts, and this is not an accepted best practice. The reason is that using separate bank accounts for restricted funds makes managing these funds more difficult and does not enhance safeguards or strengthen internal accounting control systems. The opposite often results. Having unnecessary bank accounts can lead to operational inefficiencies and increased chances for errors.
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Three Steps to Be Better Prepared for Public Disclosure Requests [SUBSCRIBERS-ONLY]
How a nonprofit organization responds to public disclosure requests provides a clear window to its commitment to accountability and transparency. However, many organizations are insufficiently prepared to respond to requests for documents. This can lead to compliance failures and/or inadvertently sharing sensitive information that was not required to be disclosed.