MSN Law Office

Nonprofit Governance
Columbus, Ohio

Entity Formation and  Structuring
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Nonprofit Governance
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Formation and Governance

PRACTICE AREAS

Nonprofit Governance

Every nonprofit organization must keep an eye on its governance and compliance obligations in order to maintain its tax exempt status and its goodwill with both funders and the community. As an experienced nonprofit attorney, my team can help both newer and more established nonprofit organizations meet their compliance obligations. And along the way, we’ll make sure that your organization is up to date on nonprofit governance best practices.

Nonprofit Governance Checklist
If you’re looking for the “short version,” here’s a quick and handy list of what your organization’s governance committee or board of directors should be keeping an eye on:

  • Update the Articles of Incorporation if necessary to refresh the purpose language.
  • Update the organization’s statutory agent or the agent’s address.
  • Review and update the nonprofit’s bylaws on a regular basis. Read more: Nonprofit Bylaws Checklist
  • Conduct board meetings in a manner consistent with the bylaws. Keep through minutes of all board meetings in accordance with the nonprofit’s document retention and destruction policy
  • File the organization’s annual report with the Ohio Attorney General’s Charitable Division.
  • File the nonprofit’s annual 990 return with the IRS.
  • Review programs and operations to make sure they don’t jeopardize the organization’s tax-exempt status.
  • Review how workers are classified (employees vs. independent contractors). If workers are (or should be) classified as employees, work with a payroll service provider to make sure employment taxes are being withheld and paid.
  • Provide written acknowledgments to donors who contribute $250 or more. There are also numerous requirements for other types of donations, i.e. vehicles, charitable auctions, noncash contributions, etc.
  • Make the nonprofit’s annual returns (any Form 990s) and exemption application (any Form 1023 or 1024) publicly available for inspection and copying. Returns should be available for 3 years from the return’s due date.
  • Report any changes to the IRS. Form 990 can be used to report most changes, but the IRS also has forms available for reporting name or address changes.
  • Finally, if the nonprofit is being dissolved, then the termination must be reported to the IRS when the organization files its final annual return (generally, the 15th day of the 5th month after the termination).

What Can Jeopardize a Nonprofit Organization’s Tax Exempt Status?
The IRS can revoke a nonprofit’s tax-exempt status if:

  1. The IRS determines that the organization is no longer being operated exclusively for its tax-exempt purpose.
  2. The organization fails to file its annual 990 for three consecutive years.

Is Your Organization Operating Exclusively for its Tax Exempt Purpose?
In order to maintain your nonprofit’s tax-exempt status, the organization’s primary activities must accomplish its exempt purpose(s). This is why it’s so important that the organization maintain consistency among (a) the purpose clause in the Articles of Incorporation, (b) the organization’s bylaws, (c) what the organization told the IRS it would do when it applied for tax-exempt status, (d) how the organization describes it current activities in its annual 990 information “return, and (e) what the organization actually spends its time and money doing. According to the IRS, nonprofit organizations cannot spend more than “insubstantial” time or money on activities that don’t further the nonprofit’s exempt purposes.

In short, while there are many good things your organization probably could do, you have to stay focused on the primary mission.

In addition, there are a few red flags that will, in many cases, jeopardize your nonprofit’s tax-exempt status because they strongly suggest the organization is not being operated “exclusively” for a tax-exempt purpose:

  • Participating in political campaigns for candidates running for office
  • For charitable 501(c)(3) organizations, engaging in lobbying activities that are more than “insubstantial.” Read more about nonprofit lobbying and how it can be done correctly.
  • Using nonprofit funds to benefit private individuals or operating in a way that benefits the private interests of the founder(s) (including people or entities related to or affiliated with the founders).
  • Operating a business (including a social enterprise) unless it’s clear that doing so is substantially related to the organization’s exempt purpose.
  • Engage in illegal activities or activities that violate fundamental public policies. (For example, you probably can’t start a cannabis-related nonprofit as long as marijuana remains illegal under federal law.)

Not only can these activities jeopardize the organization’s tax-exempt status, but they can also result in the IRS charging excise taxes on improper transactions. Often, the directors or officers responsible for the improper activities are held personally liable for such excise taxes.