Nonprofits and Executive Compensation

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”

Developing Open Source Software Not an Exempt Purpose

You may be familiar with open source software. If you are, you know it is software people can modify and share because its design is publicly accessible. Would efforts to develop open source software qualify as an exempt purpose under tax law? It’s not commercial and it benefits the public, right?

Not according to the IRS. Continue reading “Developing Open Source Software Not an Exempt Purpose”

Amateur Sports League’s Tax Exemption Revoked

It’s common this time of year to see amateur baseball teams facing each other in a game full of rivalry and friendly competition. Amateur sports teams are often organized as nonprofits and may qualify for tax exemption. In a recent case the IRS revoked the 501(c)(3) tax exempt status of an organization that operated an amateur baseball league for adults (“League”) (PLR 201717044, April 28, 2017).  The IRS concluded that the League was not organized or operated for exempt purposes.To qualify for exemption under Section 501(c)(3) an organization must be organized and operated for exempt purposes.  Exempt purposes include educational and charitable activities. Continue reading “Amateur Sports League’s Tax Exemption Revoked”

One Size Does Not Fit All: What Type of Criminal Background Check Are You Using?

Criminal background checks are a necessity for every nonprofit organization or church serving children, and many others as well. Although this involves extra work and expense, the potential benefits are exponential. For those organizations that work with children, the screening process serves two purposes: it protects children from potential predators and helps insulate the organization from liability for negligent selection or retention in the event that a child is harmed by someone inside the organization. Background checks should be done on any person interacting with the public, including employees, independent contractors, and volunteers.

Continue reading “One Size Does Not Fit All: What Type of Criminal Background Check Are You Using?”

Attention Non-Profits (and Social Enterprises): Are Your Charitable Registrations in Order?

The executive director of a national charity contacted our office with a question about charitable registrations. She served on the board of a non-profit corporation called “Socks for Everyone,”[1] and her board actively solicited charitable contributions in every state. She explained that Socks had filed for authorization to do business in every state, but had registered to solicit only in Illinois—its state of incorporation. She had been informed that Socks did not need to register in the other 49 states since it was already authorized to do business in all of them. Continue reading “Attention Non-Profits (and Social Enterprises): Are Your Charitable Registrations in Order?”

IRS Decides Bitcoin is “Property.” What Does this Mean for Nonprofits?

Nonprofits should be aware of some recent developments in the IRS treatment of Bitcoin. The IRS recently decided Bitcoin would be treated as property under US tax law. What does that mean for nonprofits who want to receive contributions of Bitcoin? And what does it mean for donors wishing to make contributions in Bitcoin? Continue reading “IRS Decides Bitcoin is “Property.” What Does this Mean for Nonprofits?”

Volunteers and Independent Contractors May Be Entitled to Protection under the Fair Credit Reporting Act

Editor’s Note: Most churches make extensive use of volunteers in their children’s ministries. Churches need good policies to guide in the selection and supervision of volunteers. A good policy will mandate background checks for all volunteers.

John Doe pastors a growing congregation by the name of Growing Church (“GC”). GC operates a host of programs, including men’s and women’s bible studies, a ministry to the teenagers, and a thriving children’s ministry. Recently, one of the church members approached Pastor John and suggested that GC start doing criminal background checks on all the volunteers who interact with the church’s teenagers and children. Pastor John along with the elders agreed, and GC immediately took steps to implement screening procedures on all of its volunteers. Continue reading “Volunteers and Independent Contractors May Be Entitled to Protection under the Fair Credit Reporting Act”

Freedom from Religion Foundation v. Lew: Is the Ministerial Housing Allowance Unconstitutional?

UPDATE :  The Seventh Circuit Court of Appeals avoided the constitutional question posed in Freedom From Religion Foundation, Inc. v. Lew[1] (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[2] and Dan Barker.[3] They claimed that the Defendants, the Secretaries of the Treasury Department and Commissioner of the Internal Revenue Service[4], 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?”

Board Term Limits – Pro and Con

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”

Social Enterprise Part II: Business Entities and Hybrids

This is the second installment of a two-part series for nonprofit organizations looking to generate earned income from social enterprises. Here, I will offer advice for deciding what kind of entity is best suited for a particular organization’s needs.

The first part in the series covered unrelated business income tax. I recommend organizations begin here because the tax consequences are the best way for organizations to choose between starting: Continue reading “Social Enterprise Part II: Business Entities and Hybrids”