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.