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					  Marquette Legal Initiative for
Nonprofit Corporations (M-LINC)

            N ON PROFIT LAW 101
            NOVEM BER 10, 2010
    N ON PROFIT CEN TER OF M ILW AU KE E




                             With support from the
                             Helen Bader Foundation


                                       H
                          M-LINC

 M-LINC is the Marquette Legal Initiative for Nonprofit
    Corporations
   Housed at Marquette University Law School
   Launched in September 2008
   Karin Holmberg Werner, JD, is the director of M-LINC
   Currently serving as a resource for Wisconsin nonprofits
    with legal questions
   M-LINC coordinates FREE legal advice and educational
    programs on legal issues important to small and mid-sized
    nonprofits
                     Disclaimer

 The information included in this presentation is
 intended as a general overview of the law and does
 not constitute legal advice or opinion. The
 information is not intended to address specific
 factual situations or individual problems or issues.
 You are encouraged to seek professional legal advice
 before making any decision based on the topics
 discussed in this outline.
                   Who are you?

 Board members?
 Employee?
 Area of expertise?
 Legal knowledge?
                       Warning

 We will move quickly today.
 This program is intended to be a self audit to identify
  potential issues.
 Please follow up with M-LINC after program for
  further analysis/discussion of particular issues.
                              Pop Quiz

 What process does your organization follow when approving
    compensation or insider transactions?
   What type of documentation does your organization send donors,
    particularly those who received some goods or services in return for
    their charitable contribution?
   Has your organization adopted a conflict of interest policy (with
    annual written disclosure statements) and educated its board of
    directors and employees about the parameters of this policy?
   Which IRS Form 990 does your organization complete? Who reviews
    the form prior to submission to the IRS?
   Does your organization lobby? If so, what lobbying rules is it subject
    to? Is the organization registered to lobby in Wisconsin?
   Has your organization adopted a whistleblower policy and a
    document retention and destruction policy?
                         Pop Quiz – Part II

 Does your organization make loans to directors, officers or employees?
 Has your organization adopted an expense reimbursement policy and
    have the organization’s employees been educated regarding the parameters of
    the policy?
   Has your organization drafted and implemented personnel policies, such as
    vacation, maternity leave, health insurance, evaluation and overtime
    compensation?
   Does your organization sell items? If so, does it collect sales tax?
   Does your organization purchase items? If so, does it have a sales tax
    exemption certificate?
   Has your organization updated its bylaws in the past five years?
   Does your organization have any intellectual property that should be protected
    via trademark or copyright registration?
   Does your organization correctly classify its volunteers, employees and
    independent contractors?
   Does your organization produce income that may be taxable?
              What Will We Cover Today?

 Procedure for Approving Compensation
 Required and Suggested Documentation to Donors
 Handling Conflicts of Interest
 Transparency and Governance – IRS Form 990 and Governance
    Policies
   Lobbying Restrictions and Registration Requirements
   When an Organization Must Collect Sales Tax
   Protecting Intellectual Property
   Classifying Employees, Independent Contractors and Volunteers
   Registering to Fundraise
   Unrelated Business Income Tax
      Procedure for Approving Compensation

 Rebuttable presumption of reasonableness (IRC
    4948)
   Shifts burden of proof to IRS
   Comparables (three for small organizations)
   Approval in advance by board members without
    conflicts of interest
   Document the decision– generally in minutes of
    meeting
   Also use this procedure for transactions with insiders
    (employees, officers, board members, etc.)
    Required and Suggested Documentation to Donors

 New requirements for acknowledgements to donors under the Pension
    Protection Act of 2006.
   All Contributions: A donor must have a bank record or written
    communication from a charity for any monetary contribution before
    the donor can claim a charitable contribution on his/her federal income
    tax return.
   Contributions of $250 or more: A donor is responsible for obtaining a
    written acknowledgment from a charity for any single contribution of
    $250 or more before the donor can claim a charitable contribution on
    his/her federal income tax return.
   Contributions where goods or services are received in exchange: A
    charitable organization is required to provide a written disclosure to a
    donor who receives goods or services in exchange for a single payment
    in excess of $75.
   Note: special rules for contributions of cars, boats or airplanes.
                             All Contributions

 A donor must have a bank record or written communication from a
  charity for any monetary contribution before the donor can claim a
  charitable contribution on his/her federal income tax return.
 A bank record includes a canceled check, bank statement or credit card
  statement.
 A written communication from the nonprofit should include:
     Name of nonprofit;
     Date of contribution; and
     Amount of contribution
 Old rule permitted any reliable written record and donors often kept
  diaries or notes from the time of donation. Those types of records are
  no longer sufficient.
 TIP: To assist donors, nonprofits may wish to begin substantiating all
  cash charitable gifts with a letter or other form of written receipt.
                         $250 or More

 A donor is responsible for obtaining a written acknowledgment from a
  charity for any single contribution of $250 or more before the donor
  can claim a charitable contribution on his/her federal income tax
  return.
 TIP: An annual summary may be used to substantiate several single
  contributions of $250 or more.
 Acknowledgments may be provided via an email addressed to the
  donor.
 Separate contributions of less than $250 each will not be aggregated
  (e.g., a church need not provide this type of acknowledgment to a
  parishioner who contributes $50 each week, even though total annual
  contributions are $250 or more).
            What to Write and When to Send

 The written acknowledgment MUST include:
     Name of organization;
     Amount of cash contribution;
     Description (but not value) of non-cash contribution;
     Statement that no goods or services were provided by the organization in return for the
      contribution, if that was the case;
     Description and good faith estimate of the value of goods or services, if any, that an
      organization provided in return for the contribution; and
     Statement that goods or services, if any, that an organization provided in return for the
      contribution consisted entirely of intangible religious benefits, if that was the case.
 Generally, nonprofits send acknowledgments no later than January 31
  of the year following the donation.
 The law requires the acknowledgment be received by the earlier of (i)
  the date the donor files his/her tax return or (ii) the date the tax return
  is due (including extensions).
               Goods or Services in Exchange

 A charitable organization is required to provide a written disclosure to
  a donor who receives goods or services in exchange for a single
  payment in excess of $75.
 The disclosure must:
     Inform the donor that the amount of the contribution that is deductible for federal income
      tax purposes is limited to the excess of money contributed by the donor over the value of the
      goods or services provided by the organization; and
     Include a good faith estimate of the value of such goods or services.
 The written disclosure must be furnished during the solicitation of the
  contribution or the receipt of the contribution.
 The statement must be in writing and must be made in a manner that is
  likely to come to the attention of the donor. For example, a disclosure
  in small print within a larger document might not meet this
  requirement.
                Handling Conflicts of Interest

  Adopt a policy now.
        Appendix A of the instructions to Form 1023
        Procedure for disclosure – annual statement
        Plus mandatory disclosure as situations arise
        Recusal – i.e., leave room during vote
        Resignation – appropriate in situations where continuing, pervasive and important
         board function is affected by the conflict of interest. The conflict is one that cannot
         easily be isolated to allow for recusal.
        Meeting minutes should document disclosure and recusal where appropriate
        Point: Need a general procedure for handling and documenting conflicts of
         interest as they arise.
 Note: Policy not required by law but now asked about on page four of
  Form 1023 (application for tax exempt status) and page six of Form
  990 (annual filing for larger nonprofits).
 Note: more stringent self-dealing rules for private foundations
              Transparency and Governance

 IRS Form 990
    What Form 990 does your organization complete?
    Who reviews this form prior to submission?
    Note: This is a public document often reviewed by potential
     donors and journalists.
 Governance Policies
    What governance policies does your organization have?
    Governance policies to consider:
        Material Diversion of Corporate Assets; Loans to Offices, Directors,
         Trustees and Employees; Monitoring of Investments; Travel and Expense
         Reimbursement; Executive Compensation; Disclosure of Corporate
         Records; Whistleblower; Minutes of Board of Director and Committee
         Meetings; Affiliates; Records Retention and Destruction; Review of Form
         990
     Lobbying Restrictions and Registration Requirements


 IRC 501(c)(3) defines organizations with “no substantial part” lobbying
  requirement.
 What does no substantial part mean? Unclear.
 Other rules under 501(h).
   Elect to be under 501(h) by filing IRS Form 5768.

   Test essentially allows 20% or exempt purpose expenditures to be on
    lobbying for small organizations.
   Note: lobbying by volunteers won’t be considered under this test.

 Absolute ban on political activity. (e.g., no contributions to candidates,
  public support of candidates, soliciting contributions for candidates)
   E.g., Politician making a political speech from a church pulpit.
   But, can publish unbiased voter guides and conduct nonpartisan
    voter registration.
                                  Sales Tax

 Default rule: sales tax must be collected and remitted to the state for
  otherwise taxable sales of goods and services.
 Exception for nonprofit organizations’ exempt occasional sales.
 To qualify must meet all three requirements below:
   Not engaged in a trade or business (i.e., must exceed both 20 days
    and $25,000 in receipts)
   No entertainment at an admissions event.
         Entertainment is defined as spending more than $500 in aggregate per
          event.
         Admissions can be suggested donations.
   Organization does not otherwise have a sales permit
 Examples: booster club concession stand, musical organization sale of
  instruments, and gala
 For more information, see WI Department of Revenue Publication 206
              Protecting Intellectual Property

 Trademarks
    Consider state, federal or international filing to protect name,
     logo, or slogan (e.g., Susan G. Komen Foundation - Race for
     the Cure slogan)
 Copyright
    Consider state, federal or international filing to protect a work
     such as a training manual, essay, toolkit
 Website privacy policies and terms of use
    Protect organization with proper language on website
    Mandatory electronic signature of new users
    Review policies of social media websites
Classifying Employees, Independent Contractors and
                    Volunteers

 Employees
   Paid reasonable compensation
   Under the direction and control of employer

   Employer withholds taxes and sends a W2 at the end of tax year

 Independent Contractors
   Paid reasonable compensation

   Less direction and control of employer
   Often multiple employers at one time or during course of year

   Employer does not withhold taxes and sends a 1099 at end of tax year
 Volunteers
   Unpaid

   May be reimbursed for expenses

   Liability protection for volunteer under state and federal statutes

   Consider how to protect organization from liability via screening techniques
    (application, interview, reviews, policies) and insurance
                         Registering to Fundraise

 Generally must register in each state where you fundraise.
 Usually de minimus exception.
    $5,000 or $50,000 in one community in Wisconsin
 Required disclosures for all professional fundraisers and volunteer fundraisers:
   The name and location of the organization;

   The fact that the organization’s financial information is available upon
     request; and
   A clear description of the primary charitable purpose for the solicitation.

   A professional fundraiser must also disclose his or her name and
     professional fundraiser status.
 What about a website where contributions can be received? Is that
  fundraising? (Charleston Principles say organization should register in nonprofit’s home state (i.e.,
    Wisconsin) and register in states where residents are specifically targeted or if the nonprofit receives
    donations from residents of the state on a repeated and ongoing basis or a substantial basis; or sends
    email messages or contacts them in other ways to promote its website. )
   What if you need to register in many states? Universal registration for many
    but not all states.
             Unrelated Business Income Tax

 Gross income from a trade or business;
     For example, soliciting, selling, and publishing commercial advertising is a trade or
      business even though the advertising is published in an exempt organization’s
      periodical that contains editorial matter related to the organization’s exempt purpose.
 Trade or business is regularly carried on by the nonprofit; and
     For example, a hospital auxiliary’s operation of a sandwich stand at a state fair for
      two weeks would not be the regular conduct of a trade or business. The stand would
      not compete with similar facilities that a nonexempt organization would ordinarily
      operate year-round.
 The trade or business is not substantially related (other than
  producing income) to the nonprofit’s exempt purposes (i.e., feed
  the poor)
     Income must contribute importantly to exempt purposes.
 Exemptions for volunteer workforce, donated items and for
  convenience of members, etc.
                                    UBIT or Not?

 Cafeteria in an art museum
 University travel tour #1: A tax exempt university alumni association provides
  travel tours for its members and their families. No formal educational program
  conducted with these tours and they do not differ from regular commercially
  operated tours.
 University travel tour #2: A tax exempt university operates a tour that involves
  5 to 6 hours of organized study per day, preparation of reports, lectures,
  instruction, and recitation by the students with examinations at the end of the
  tour. Academic credit is awarded for tour participation.
 Folk art museum gift shop: Each line of merchandise must be considered
  separately to determine if sales are related to the exempt purpose.
     Sale of greeting cards that display reproductions of works from the museum’s collections.
     Sale of scientific books and souvenir items of the city where the museum is located
 Thank you for coming today.
                 Contact Information

                    Karin Holmberg Werner, JD
Director of the Marquette Legal Initiative for Nonprofit Corporations
                  Marquette University Law School
                     Eckstein Hall, Office 138D
                   karin.werner@marquette.edu
                           (414) 288-5536

                             M-LINC
                       www.nonprofitlinc.org
                          (414) 288-6631
                       mlinc@marquette.edu

				
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