Non-Profit Legal Matters

The Blog of the Law Firm for Non-Profits®

Are Nonprofits “Follow the Money” Obsessed?

Are Nonprofit follow the money obsessed?Have the leaders of nonprofits been overly incentivized to “follow the money,” resulting in a troubling shift in the composition of boards? The answer is yes according to a recent article in the Stanford Social Innovation Review. The trend may be “distort[ing] organization priorities” and may “dilute charitable values.”

According to the author, Garry W. Jenkins, nonprofits board are becoming overly reliant on financial industry executives. Among organizations surveyed in New York, they comprise just under 40% of board members, and between 44% and 56% of board officers. Anecdotal experience suggests this trend, while perhaps not as pronounced elsewhere, is national.

“Boards and board governance are inevitably shaped by the identify and background of those who make up the boards themselves.” Thus, the large portion of financial industry executives on boards has at least two effects feared by the author. Groupthink is dangerously prevalent among nonprofits boards according to some. As The Board Book suggests, lack of “industry diversity” among a nonprofit’s board squashes discussion. By way of example, it holds that the best boards “take care that there is ample inclusion and weighty voices of” diverse values “to ensure that those values are woven into the guts of the institution.

Groupthink exacerbates another alleged ill effect, a board that increasingly incorporates “finance practices” into decision making. These include “data-driven decision-making, an emphasis on metrics, prioritizing impact and competition, managing with three- to five-year horizons and plans, and advocating executive style leadership . . .”

As one who advises hundreds of nonprofits annually and also sits on boards, I see both merits and problems with Prof. Jenkins’ concern. I am a firm advocate that entrepreneurial thinking has a place in almost every nonprofit, especially when it comes to good management technique. Notwithstanding, too much emphasis on entrepreneurship, especially when it translates to building earned revenue programs rather than good management practice, can result in a emphasis on earning and raising money. A focus on recruiting finance executives (because of the money they presumably will bring to the organization) both overtakes the charitable purpose of the organization and can even threatened exemption.

Many factors are constantly shaping and reshaping the nonprofit sector. If the trend Prof. Jenkins and others report on is real, should we be concerned? Share your thoughts.

What has been your experience as a nonprofit board member, advisor, or otherwise? Is there overrepresentation of finance executives on nonprofit boards. Is that bad or good? Does it depend? And has the emphasize of some boards shifted too much from mission in order to “follow the money”?

Tagged , , , ,

Form 990 Due Friday!

IRS/Form 990Form 990 is due this Friday (May 15) for all nonprofits that have a January to December tax year (other than churches, which are not required to file). If your nonprofit is not able to file a version of Form 990 by Friday, be sure it files for an automatic three-month extension instead. Then be sure it files its Form 990 by the extended deadline.

Late filers can be penalized $100 per day until their returns are filed. Note that if you are a board member of a nonprofit that files late, in some states such as California you can be held personally liable for the late filing penalties! A nonprofit that fails to file Form 990, 990-EZ or 990-N three years in a row will have its tax-exemption automatically revoked.

Apply for Form 990 Extension

Extensions can be filed online at A fillable version of the form can be downloaded from the IRS website.

Remember that Form 990 and extensions for calendar year organizations must be filed or postmarked by Friday May 15. If a hardcopy is submitted, be sure to use certified mail or FedEx or UPS overnight or 2nd day air. Your receipt is the only proof acceptable to the IRS that the organization filed its return or extension on a timely basis.

Tagged , , ,

990s to Get Greater Scrutiny


IRS to Ferret Out Inconsistent and Error-Laden 990s

Late last month, the IRS announced enhanced electronic processing of Forms 990 that will result in their getting greater scrutiny to ferret out inconsistencies and missing information. According to IRS tax law specialist (and former Los Angeles-based colleague of The Law Firm for Non-Profits) Elaine Leichter, exempt organizations should fill out form 990 as completely as possible and according to the instructions in order to avoid being flagged by new automated processes that may result in an audit.

What is an organization to do to avoid having their 990 flagged? Simple – avoid inconsistencies. Also, filers are warned to not include or omit information the IRS can easily find on public websites.

The new scrutiny will apply to electronically filed 990s. However, Ms. Leichter assured filers that electronically filed returns will not automatically have a greater chance of being audited.

Given the IRS’ recent track record, do you trust the IRS to maintain a level playing field between paper and electronic returns? If your organization has filed an electronic return and been audited would love to know about it. Please add a comment telling us what happened.

Form 990 Filing Site Hacked

Form 990 Filing just got more complicated. The online service where 990s are filed electronically has recently been hacked.

The Urban Institute, which operates the online filing site for the annual returns nonprofits must file, announced that it “recently discovered that an unauthorized party or parties have gained access to the Form 990 Online and e-Postcard filing systems for nonprofit organizations.”

Form 990 Filing Site Hacked

On the FAQ pages of its website, it also noted that: “Based on current information, we believe no information from the filings themselves was compromised. These forms do not contain Social Security numbers or individual tax filer information, so such sensitive information was not available to the hackers.” The Urban Institute states that the information compromised was usernames, first and last names, email addresses, IP addresses, phone numbers, and passwords were accessed. Credit card and social security numbers were not obtained by the intruders.

Users of the system will be required to create a new password next time they log on. However, all users are urged to visit the website to create new passwords right away. Form 990 online filers can do so by clicking here. E-Postcard (990-N) filers can click here.

Many Form 990 and 990EZ filers must file online, as must all filers of the Electronic Postcard.


Tagged , , , , , , , ,

IRS Targets Nonprofit Self-Declarers

It’s official. IRS targeting of nonprofit self-declarers will begin this year.

Most organizations that qualify for federal tax-exemption other than non-church 501(c)(3) charities do not need to apply for tax-exemption. Whereas may do, they can simply self-declare that they are tax-exempt.

When such nonprofit organizations complete their Forms 990 they need only identify their 501(c) category. That will change in 2015.

Last week the IRS announced that starting next year, self-declIRS Targets Nonprofit Self-Declarersared exempt organization will be required to check a box on their Form 990 that they are self-declared. While the IRS is coy about what it will do with this information, it is likely they will use is to target organizations for possible audits. This seems to be a follow-up to an IRS study commenced two years ago.

Is your nonprofit organization’s exemption self-declared? Do you think this new rule will result in more organizations applying for tax exemption instead of self-declari

Tagged , , , , ,

WATCH OUT! Phishing Remains a Threat for Taxpayers

phishingThe IRS is warning taxpayers to watch out for fake emails and websites trying to steal personal information that can be used to commit identify or financial theft. The IRS is listing this type of “phishing” scheme on its list of the top tax scams for the 2015 filing season, the typical time when scams peak as people prepare their returns.

IRS Commissioner John Koskinen explains that the “IRS won’t send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise.” The IRS generally does not initiate contact with taxpayers by electronic communications, such as email, text message, or social media channels, to request personal or financial information.

If you receive an unsolicited email from the IRS, report it by sending it to Get more information about reporting phishing and other online scams here.

Tagged , ,

For-Profit College Converts to 501(c)(3)

In recent years we’ve converted a university and other 501(c)(3)s into for-profit corporations. But is the trend now reversing? Last year, the Law Firm for Non-Profits helped a for-profit private school become a nonprofit. And at the beginning of 2015, Herzing University, one of Wisconsin’s oldest and largest for-profit career colleges, was converted to 501(c)(3) status.

Why is this occurring? In the case of Herzing, it appears to be a combination of economics and changes in the law. For example, the federal rules now require for-profit colleges to demonstrate that they are preparing students for “gainful employment.” This includes setting a cap on annual student loan payments to the colleges at 20% of the student’s discretionary income or 8% of their total earnings. Failing to keep to these caps may result in a college being ineligible for federally funded student aid. Such aid is crucial to the financial success of most for-profit colleges.

It could have also helped that students of 501(c)(3) colleges in Wisconsin are able to tap into state financial aid that is not available to for-profit schools in that state.

Does Herzing’s conversion herald a new trend? For-profit colleges currently enroll 13% of all U.S. college students and take in more than a quarter of federal aid – over $30 billion a year. Unless the new law is reversed (it’s been challenged by the Association of Private Sector Colleges), we believe it will.

In the meantime, if your nonprofit school or college is considering converting to or from nonprofit status, call on the Law Firm for Non-Profits to successfully guide you through this process.

Tagged , ,

Telephone Townhall for Nonprofit Organizations

TownhallDo you have questions about the sales and use taxes that affect nonprofits organizations? Here is your chance to ask your questions directly to the California Board of Equalization.

On February 19, 2015 at 10AM, California Board of Equalization member George Runner and the California Association of Nonprofits are hosting a live telephone townhall titled “How Tax Laws Affect You.” The purpose of the townhall is to provide nonprofits with information about common tax concerns, including the sales and use tax issues that affect them. During the event, callers will have an opportunity to ask questions.

Get more information here and register online here. If you attend the townhall, let us know what you learn in the comments section below!

Tagged , ,

Biggest Donations of 2014 Announced

DonationsWhile the two biggest charitable donations in 2014 came from men over 80, the top 10 biggest donors reinforced young technology wealth as an important player in philanthropy. The list includes large donations from Nicholas Woodman, the founders of GoPro camera company, and his wife, and Larry Page, a co-founder of Google.

The top donation was a $1 billion bequest from Ralph Wilson, Jr., owner of the Buffalo Bills. The money went to a foundation in Wilson’s name with his heirs now in charge of fulfilling his charitable goals.

Although the combined top 10 biggest gifts of 2014 total $3.3 billion, about the same as that of 2013 ($3.4 billion), charitable giving by the ultra-rich has not yet recovered from the financial downturn. In 2007, the top 10 biggest gifts totaled $4.1 billion. But we have seen an upward trend from the years directly following the financial crises, when totals didn’t reach above $2.5 billion.

Most of the big donations went to colleges, research institutes, and foundations, with enormous capital campaigns leading the way. Harvard is aiming for a new capital campaign record with a $6.5 billion drive and received two of the donations on the top 10 list.

Check out the rest of the top 10 donors here and let us know which organizations topped your giving in 2014!

Tagged , ,

2014 Year in Review of the Non-Profit Legal Matters Blog

download (1)As you make your nonprofit’s resolutions for 2015, take a moment to look back on the year that was for nonprofits. To help you get started, here are some of our top blog posts on 5 of the most interesting issues facing nonprofits and the nonprofit sector in 2014.

  1. This was a tough year for Lois Lerner. In the wake of the tea party scandal, we watched her downfall.

House Releases Scathing Report on Lerner

Congress Votes to Hold Lerner in Contempt

Lerner Plays Victim in Exclusive Politico Interview

  1. In 2014, the IRS introduced its Short Form Exemption Application — Form 1023-EZ, which faced opposition from charity regulators and several nonprofit associations but helped the IRS get through hundreds of exemption applications in a very short period.

IRS Releases Short Form Exemption Application — Form 1023-EZ

Can Donors Trust 1023-EZ?

REJECTED! IRS Derails Hundreds of Forms 1023-EZ

  1. At the end of 2013, we blogged about the more than 1,000 nonprofit organization that reported a “significant diversion” of assets since 2008. In 2014, we saw embezzlement hit all types and sizes of nonprofits.

May is for Embezzlement Convictions

Nonprofit Embezzlement Finally Stopped After 40 Months

Ex-Charity Head Faces Allegations of $3.8M Embezzlement

  1. Many celebrity charities faced scandal in 2014. Did your favorite celebrity end up under the negative spotlight?

Lady Gaga Boosts New Tax Plan

Bernie Mac Foundation Joins List of Troubled Celebrity Charities

  1. Whether or not to take donations or grants from unsavory sources became a big topic in 2014 as the Koch brothers made sizable donations to schools around the country.

To Take Or Not to Take . . . (A Scandalous Donation)

UnKoch My Campus

It was a great year for all of us at The Law Firm for Non-Profits! Arthur celebrated his 18th anniversary of starting the firm and Jessica got married. We wish you a happy new year and a prosperous start to 2015!

Tagged ,

Contact The Law Firm for Non-Profits to learn more about how we can help in
launching, guiding or advising your tax-exempt, non-profit organization.