As discussed in our prior article, use of a copyrighted work by a nonprofit organization will not usually qualify as a fair use. However, several statutory provisions of the Copyright Act (17 U.S.C. § 101 et seq.) allow certain nonprofit organizations to use copyrighted works without obtaining the copyright owner’s permission. Most of those provisions have very technical requirements and apply to limited circumstances. Before relying on one of those provisions, the nonprofit organization should review all statutory requirements to make sure its use qualifies. One of the more useful provisions allows a nonprofit organization to perform a nondramatic literary or musical work at fundraisers. In order to qualify for this provision, no admission fees can be charged at the showing, those performing the work must do so at no charge, and all proceeds from the performance, such as donations, must be used exclusively for charitable purposes.Continue reading “Special Copyright Provisions for Certain Nonprofits”
An early decision founders of new non-profit organizations must make is where to incorporate. A U.S. charitable, religious, or educational organization has its choice of incorporating in any of the 50 states as well as the District of Columbia. With this many choices, founders may ask if it is advantageous to incorporate in one state over another. When it comes to for-profit companies, it is common for them to incorporate or organize in Delaware due to tax or regulatory issues. We recently ran across an article advising non-profits to incorporate in Delaware. We thought it would be helpful to address if non-profits derive any advantage from incorporating in Delaware or another state in particular.Continue reading “Where to Incorporate?”
Navigating the Possibility of Incurring UBTI
UPDATE: The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively repealed the tax on employee parking benefits for nonprofit employers by striking paragraph 512(a)(7) from the Internal Revenue Code. An organization that paid the tax may be eligible for a refund. To claim a refund, the organization needs to file an amended 990-T, as further explained by the IRS here.
Nonprofit organizations that provide employee parking benefits may be surprised to learn that they may be subject to incur unrelated business taxable income (UBTI). In addition, organizations with no UBTI may now be required to file form 990-T.
The Tax Cuts and Jobs Act (Act) amended Section 274 of the Internal Revenue Code (IRC) to disallow for-profit employers from deducting certain expenses related to transportation fringe benefits provided to their employees. The Act added IRC Section 512(a)(7) to what constitutes UBTI for nonprofits and other tax-exempt entities. The Act states that tax-exempt entities are required to increase their UBTI by expenses related to transportation fringe benefits provided to their employees. The transportation fringe benefits subject to this tax include expenses associated with:
Don’t be complacent.
Each year tax-exempt organizations in the United States receive hundreds of millions of dollars in donations. Donors contributing to 501(c)(3) organizations are able to deduct their own contributions from their taxes, subject to IRS limitations. Recently, a higher standard deduction has been put in place through the Tax Cuts and Jobs Act. This will likely diminish the number of taxpayers and donors who itemize their deductions, making it tempting for charities to assume that receipting donations is no longer important. However, charities should continue to exercise care in receipting donations for the benefit of the donor. Continue reading “Receipting Donations”
Does Your Church Need Both?
Sometimes when we analyze governance issues for our clients, we discover that they have two sets of governing documents: a constitution and bylaws. “Constitution” is the title most commonly associated with the governing document of an unincorporated association, whereas “bylaws” govern a corporation.
One of the main reasons churches have both documents is tradition: “It’s always been that way.” However, it is not legally necessary to have both, and in practice, it can lead to confusion, unclear answers, and unintended outcomes when the organization makes decisions. To prevent these problems, it is best if the organization has one set of governing documents that addresses all of the relevant governance issues. Continue reading “Constitution and Bylaws”
Is Your Church a Religious Corporation or a Not for Profit?
In Illinois there are two corporation laws that can be used to form churches: the Religious Corporation Act of 1872 and the Not for Profit Corporation Act of 1986. Most lawyers practicing in the state of Illinois have probably heard of the latter statute, but relatively few may have heard of the former one.
Churches typically function with little awareness of their underlying corporate structure until they need to engage in some sort of commercial transaction–such as the purchase of real estate or obtaining a commercial loan–then the corporate structure becomes a matter of some attention.
Both kinds of corporations can function in the modern world of commercial transactions, but one type functions more easily than the other. Care to guess which one? Continue reading “The Legal Status of a Church”
How to Properly Use Music and Images During Worship Service
Churches today use a variety of intellectual property during worship services, such as music, photographs, quotes, and video clips. These materials can be important to a worship service by increasing engagement, illustrating a point, or adding extra meaning to the service. However, most materials are protected by copyright laws.
Using intellectual property without the permission of the copyright owner or other legal authority is copyright infringement and can result in significant monetary damages. Churches need to know the legal issues that apply to using intellectual property so they can take steps to get permission when needed and avoid copyright infringement. Continue reading “Avoid Copyright Infringement”
Nonprofit organizations are often surprised that their executive compensation practices can be subjected to Internal Revenue Service (IRS) scrutiny. Executive compensation is more than an executive’s salary, compensation includes an executive’s retirement plan, any deferred compensation, and other fringe benefits. Over the past several years, the IRS has increasingly investigated the executive compensation practices of nonprofit organizations. In addition, nonprofit executive compensation is a common risk-area flagged for audit by the IRS. IRS scrutiny of excessive executive compensation is not just a concern of large nonprofits with substantial resources but for small nonprofits as well. Continue reading “Nonprofits and Executive Compensation”
UPDATE : The Seventh Circuit Court of Appeals avoided the constitutional question posed in Freedom From Religion Foundation, Inc. v. Lew (described in the original story below), by vacating, for lack of standing, a lower court’s ruling that the ministerial housing allowance violates the U.S. Constitution. The case was brought by the Freedom From Religion Foundation, Inc. (“FFRF”) and its co-presidents Annie Laurie Gaylor and Dan Barker. They claimed that the Defendants, the Secretaries of the Treasury Department and Commissioner of the Internal Revenue Service, respectively, violate the Establishment Clause of the First Amendment and the Equal Protection component of the Fifth Amendment. Continue reading “Freedom from Religion Foundation v. Lew: Is the Ministerial Housing Allowance Unconstitutional?”
We have had a number of clients ask about whether it is mandatory to include term limits in their nonprofit bylaws. The arguments for and against term limits are equally valid, and we suggest that each board must make its own decision about whether term limits are essential to the board’s governance function.
Those who argue for term limits typically cite the need to bring “new blood” onto the board. New directors bring a freshness of insight, and changes in the operating climate may require new skill sets. A systematic rotation on and off the board lessens the likelihood that a board becomes tired and loses vitality. Continue reading “Board Term Limits – Pro and Con”