Nonprofit Legal Check Up Helping Nonprofit Organizations: Understanding Their Legal Issues Presented by: SoRelle Brown - Employment Special Counsel, Sutherland.
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Nonprofit Legal Check Up
Helping Nonprofit Organizations: Understanding Their Legal Issues
Presented by:SoRelle Brown - Employment Special Counsel, Sutherland
David Zimmerman – Corporate Partner, Sutherland Matthew Gries - Tax Partner, Sutherland
Jim Johnson - Intellectual Property Counsel, Sutherland
Worker Classification Employees vs. Independent Contractors
Some factors: √ Actual or “right to” control√ Skill/independent judgment required√ Source of instrumentalities/tools√ Services rendered integral part of principal’s business
Worker Classification Employees vs. Independent Contractors (cont.)
Compliance and maintaining independent relationship√ Written agreement√ Payment by project, rather than per hour (if possible)√ Allow IC to control details and schedule/provide equipment√ Avoid IC doing similar jobs as regular employees√ Periodic review for compliance
Employment Taxes Federal & State Employment Taxes, FICA, SUTA, not FUTA
http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Section-501(c)(3)-Organizations-FUTA-ExemptionPersonal liability for Responsible Parties including board members
Personal Liability for Responsible PartiesIncluding for board members
Board Policies and ProceduresConflicts of Interest
Recusals & Written disclosuresEthics and Business Conduct CodesWhistleblowerRecord Retention Financial & Internal Control PoliciesExecutive Compensation
Nonprofit status – state law concept Separate Internal Revenue code requirements to be tax-exempt
Many Categories – common types include: (c)(3) “charitable” organizations (c)(4) social welfare organizations (c)(6) business leagues (trade associations) (c)(7) social clubs
Today’s presentation will cover the “501(c)(3)”. Benefits include exemption from federal income tax, eligibility to receive charitable contributions, state and local tax benefits, postal rate reductions.
All clients participating today are recognized by the IRS under §501(c)(3) of the Internal Revenue Code
The “501(c)(3)” Organization Exempt Activities – charitable, educational, religious, scientific,
literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety
Charitable: includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency
Political Activities May not support or oppose a political candidate running for public office. Any amount of political activity can result in loss of tax-exemption Face of Organization – involvement in political activities
Excessive Lobbying“Legislation” is action by Congress, state legislature, local council or similar
governing body, or the public in a referendum, initiative, constitutional amendment or similar procedure.
An organization is lobbying when it engages in either: Direct Lobbying (“Dear Congressman, please vote no on HR 2000”):
√ Communication refers to specific legislation (i.e., legislation that has already been introduced or a specific legislative proposal);
√ Communication reflects a view on such legislation (“oppose HR 2000”); and√ Direct communication with any member or employee of a legislative body or
government official who may participate in the formulation of legislation. Grass Roots Lobbying (“Please contact your Congressman and tell him to oppose
HR 2000”):√ Communication refers to specific legislation (i.e., legislation that has already been
introduced or a specific legislative proposal);√ Communication reflects a view on such legislation (“oppose HR 2000”); and√ Communication encourages the recipient to take action with respect to such Legislation
(“Call to Action”) (“Please contact your Congressman”).
Permitted for a public charity so long as it is not engaged in “substantial lobbying.”
Private Inurement Insiders prohibited from receiving benefits greater than she
or he provides in return (e.g., excessive compensation, loans at below market rates, etc.)
Insiders = founders, officers, directors, anyone with control/influence over organization during the past 5 years, and certain family members and affiliated companies
“Intermediate Sanctions” for violationsExcess Benefit Transaction involving an insiderRebuttable presumption of reasonableness
Substantial Private BenefitA tax-exempt organization must serve a public not private
interest Organization cannot benefit a charitable class that is too small
Can apply to disinterested or interested parties Incidental private benefit Examples of Potential Substantial Private Benefit
Co-Venturer agreements (§43-17-6 Charitable Solicitation Act)Other arrangements with individuals or taxable entitiesContracts with Professional Fundraisers/Grantwriters
Income Taxable Activities - UBI Unrelated Business Income
Trade or business Regularly carried on; and Not substantially related to mission
Exceptions and Exclusions to UBI Volunteers, Contributed Property, Benefit of members Royalties (affinity cards and mailing lists), Dividends Qualified Corporate Sponsorships
Name, logo, tagline Insubstantial return benefit
Issue for Nonprofits trying to be creative with fundraising Form 990T/ Georgia 600T
Annual Tax Information Return – Form 990 Federal Filing Requirement
Small: If gross receipts < $50,000 file Form 990-N (e-Postcard) Medium: If gross receipts < $200,000, and total assets <$500,000 file Form 990-EZ Large: If gross receipts gross receipts > $200,000 OR total assets >$500,000 file
Form 990 Due Date – 15th date of 5th month after accounting period ends (if calendar
year, then May 15th) Form 990 must be made available to the public
No social security numbers on Form 990 – cannot be redacted
Penalties (for failure or incomplete or incorrect filings) Normal - $20 per day (capped at lesser of $10,000 or 5% of gross receipts) >$1Million gross receipts - $100 per day (capped at $50,000)
Failure to File Rule - If fail to meet annual filing requirements for 3 consecutive years, IRS will revoke tax-exempt status
Exempt – Certain organizations (most notably churches) are exempt from filing requirement
State – in Georgia, must (i) file IRS Form 990 with Georgia Dept. of Revenue, and (ii) file GA Form 600-T (along with IRS Form 990-T) if have unrelated business taxable income
program or organization names)Trademarks should be searched prior to useRights vest in those that use the trademarkRights can be registered at the federal and/or
state level (but not always necessary)Notice = TM or SM or ® once registered at PTO
Without a Search, the Client can get Into an Expensive and Burdensome Infringement Dispute and may be Forced to Re-brand
Federal Registration Most Useful if the Client Operates in Multiple States (otherwise Common Law Rights from Usage or State Registration may be Enough)
Creator of materials and website owns the copyright by default (need IP assignment provision in dev agreement)
Owner of website / domain name (deal with in agreement)Inclusion of logos from other businesses w/o permissionText copied from other organizations without permissionUse of songs, photos, etc. without permission (don’t assume fair use,
public domain or ok with attribution)Use of another’s name or likeness (Right of publicity/privacy)
Best Practice is to buy, license or create own content on websites and all other materials
Exclusivity, Territory, Scope of Rights, Assignment, Payment, Audit Rights, Post-Termination Rights (Inbound and Outbound Licenses)
Quality Control - for TM’s (e.g. among affiliates)√ “Naked Licensing” w/o QC Can Result in Loss of TM Rights√ Not Just A Legal Requirement, But Can be a PR Problem for
Nonprofits (Need to Avoid Scandals and Damage to Reputation)
User Agreements and Privacy Policies to Reduce Various Liability Risks (e.g. donor info)Must Follow These PoliciesFully Disclose How PII is Used Limit liability for Content and Other ActivitiesMake Users Responsible for Their Own Content