Transcript PowerPoint
NAEYC Affiliate Leadership Day
Association Tax and Legal Primer
NAEYC Office of General Counsel
November 2015
Lakshmi Sarma Ramani, General Counsel
Introduction
• NAEYC’s General Counsel since January 2014
• Advise on all Association matters, including accreditation and
governance
• Overview of relevant matters, not intended to be legal advice
• Hope to provide additional resources for Affiliates
What we’ll cover today:
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Legal Overview
Governance Overview
Tax Overview
Governance Best Practices
Legal Overview
• What is a 501(c)(3) public charity
• What is a non-profit corporation
• What is the difference between the two?
Legal Overview
• A 501(c)(3) public charity is a designation granted by the Internal
Revenue Service. Refers to federal income tax exemption.
Various forms of exemption ((c)(3), (4), (5), (6), etc))
• A corporation receives a nonprofit designation from the state in
which it is incorporated.
• Nonprofit corporations don’t need to be tax-exempt for federal tax
purposes.
Legal Overview
• Public Charity, determined by IRS.
• Nonprofit corporation and fiduciary duties, determined by state of
incorporation.
• Overlaps seen on tax forms and corporate filings
Fiduciary Duties
• Generally apply to Board members and Officers of a corporation
• Developed through common law and case law
• Each state has specific rules that guide these duties, following is
an overview only
Fiduciary duties: Duty of Care
Exercise ordinary and reasonable care in the performance of
duties, exhibiting honesty and good faith.
Act in a manner which you believe to be in the best interests of
the association, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would
use under similar circumstances.
Obligation to protect confidential information
Fiduciary duties: Duty of Loyalty
Duty of faithfulness to the association.
Undivided allegiance to the association when making
decisions affecting the association
No conflicts of interest—the interests of the association come
before personal interest
No competition with the Association
Fiduciary duties: Duty of Obedience
Board members must act in accordance with the mission,
articles of incorporation, bylaws and other governing
documents, as well as all applicable laws and regulations.
No willful ignorance or intentional wrongdoing
Tax Overview
501(c)(3) public charities are held to different standard than
other tax-exempt organizations
private foundations
501(c)(6) trade associations
Tax Overview
Tax exemption can be at risk for various reasons:
Mission implementation/drift
Private inurement: conflicts/excess compensation
Private Benefit/excess unrelated business income
Improper political campaign activity
Tax Overview
Private Inurement
No use of charitable assets for personal gain
Look at relationships and position of influence
Financial relationships with Board members strictly
scrutinized
Tax Overview
Private Benefit
No windfall to for-profit/individual
Minimize income from unrelated activities
Tax Overview
Attempting to influence legislation
No “substantial part” of 501(c)(3) activities used carrying on
of propaganda or otherwise attempting to influence
legislation
501(h) elector
Grassroots v. Direct Lobbying
Tax Overview
Political campaign activity
Absolute prohibition: no political campaigning allowed by
501(c)(3) public charities
Political campaigning, generally giving of support for the
election or defeat of a candidate for office
“candidate” is broadly defined
Governance Best Practices
Sarbanes-Oxley
Whistleblower Protection
Records retention and destruction
Other provisions incorporated into IRS 990 tax return
Conflicts policy
Audit Committee
Financial Disclosures
Certified/Audited Financials
Governance best practices
State laws
State charity and consumer protection laws
Apply to fundraising, which is a regulated activity
State tax requirements, different from federal
Corporate requirements
Questions?
Thank you!
Reference/Source materials
Spacone, Andrew C. & Stolzman, Robert I., “Implementing Practical Risk Management: A
Guide for 501(c)(3) Nonprofits, Rhode Island Bar Journal, Vol. 62, No. 4, (March/April 2014).
Venable, LLP, “Legal Duties of Association Board Members.” www.venable.com.
Mosher & Wagenmaker, LLC, “Not-for-Profit Directors’ and Officers’ Liabilities.”
www.mosherlaw.com.