Non-Profit Legal Matters

The Blog of the Law Firm for Non-Profits®

Will the Real Directors Please Stand Up

ex officio directorsThere is a lot of confusion among nonprofits with regard to ex officio directors. Who are they and how are they different from other directors?

The term ex officio comes from Latin and means “from the office.” Thus, an ex officio director is a member of the board because he or she holds a specific office or position. For example, if an organization’s bylaws state that the Executive Director is an ex officio member of the board of directors, then the person who holds that office is automatically a director. But does an ex officio director have all the rights of any other director, including the right to vote?

In 2009, the California legislature attempted to clarify the law. That year, an amendment to the law held that ex officio directors were required to be treated as all other directors, including having the right to vote. This was true regardless of whether the articles or bylaws of an organization specifically stated that ex officio directors were non-voting. But rather than providing clarification, the amendment left many nonprofits even more confused.

In 2014, the legislature took another stab at clarifying the law. A new amendment (effective January 1, 2015) provides that a person who is a member of the board by reason of occupying a specific position has all the rights and duties of every other member of the board, including the right to vote, so long as the articles or bylaws do not limit that person’s voting rights. Stated another way, if a person is a member of the board based on his or her position and the articles or bylaws limit that person’s right to vote, then that person is not a director regardless of his or her title.

This means that only persons who have voting rights on a board are statutory directors regardless of title. A nonvoting ex officio “director” could be invited to attend board meetings, but would not have the right to vote at such meetings and would not have any other rights or obligations of directors.

Still confused? We’re here to help. Please contact us with any questions your board has about ex officio directors or corporate governance in general.

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Congressional Watchdog Releases IRS Report Card

WatchdogHow are the recent congressional budget cuts affecting the IRS’s exempt organizations division? With growing concern about the effectiveness of IRS oversight of exempt organizations, the U.S. Government Accountability Office (GAO), an independent, non-partisan congressional watchdog, was asked to prepare a report to the Senate Committee on Homeland Security and Governmental Affairs about the division’s effectiveness. The GAO did just that – reviewing and analyzing IRS data and documents and interviewing IRS and Department of Justice officials, regulators, and specialists.

What did the GAO find? Sadly and not surprisingly, the agency determined that the decreased budget led to fewer employees in the exempt organizations division, which led to fewer exempt organizations being examined by the IRS (.81% in 2011 to .71% in 2013). The GAO also determined that due to the need to safeguard taxpayer data, the IRS has trouble sharing its information with state regulators to assist them with building cases against suspect charities. Finally, because many exempt organizations do not e-file, there is less digitized data available to ascertain analytics and it costs more in labor for the IRS to wade through the data received.

Based on its findings, the GAO made two recommendations to the IRS:

  1. Develop goals and performance measures to be used in assessing the impact of enforcement activities; and
  2. Clearly communicate to state regulators how they are able to use IRS information when examining charities.

Separately, the GAO is recommending that Congress consider expanding the requirement for exempt organizations to electronically file their returns so that more organizations are forced to do so.

The IRS agrees with the GAO’s recommendations. Do you? Read the whole report here.

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Former Executive Director Embezzles $900K from Charity

The former Executive Director of We Stay-Nos Quedamos, a South Bronx housing and social services nonprofit, recently pleaded guilty to diverting nearly $900,000 from the organization. How did she do it?

According to the New York Attorney General’s office, Yolanda Gonzalez paid her personal expenses, such as payments on her new car and trips to department stores, nail salons, and movie theaters, using the organization’s money. She brazenly wrote checks to herself or to cash, made ATM withdrawals, and used the organization’s credit cards.

It helped that Gonzalez didn’t work alone. She and the former CFO of the organization worked together to falsify financial reports, balance sheets, and financial statements to conceal her theft before submitting them to the board of directors and the Attorney General’s office.

Gonzalez was finally removed by Nos Quedamos’ board of directors after serving the organization for 6 years when they noticed the financial irregularities and became uncomfortable with her hiring her relatives. The board then alerted New York Attorney General Eric Schneiderman of the suspicious activity. Perhaps partially to blame was the trust the board placed in Gonzalez as the daughter of the founder of the organization, who passed away in 2005.

Gonzalez is set to be sentenced in January for grand larceny and criminal tax fraud. She faces up to 4.5 years in prison. The organization’s former CFO is set for sentencing in February and is expected to face 6 months of house arrest and 5 years of probation for falsifying business records.

Are you surprised that it took the board 6 years to notice Gonzalez’s theft? What steps does your organization have in place to catch financial irregularities quickly?

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Girl Scout Cookies Go Digital

CookiesAfter years of prohibiting digital sales of its cookies, Girl Scouts of the USA is moving the organization into the digital age with its “Digital Cookie” platform. Why did it take so long?

The national organization, which sets policy regarding sales of cookies by the individual councils, was concerned that online sales would not teach the girls the entrepreneurial skills that are the whole point of the cookie sales, such as interpersonal skills, handling money, and delivering a product.

But after three years of development and testing, the national office has figured out how to incorporate education into the online platform. The organization’s director of the digital cookie effort explained that girls will “learn vital entrepreneurial lessons in online marketing, application use and e-commerce.” The girls will also learn digital order tracking and have the option to hand deliver orders received online.

The national office is also concerned about the safety of its scouts. To gain access to a girl scout’s web page, users will have to receive an emailed invitation from the scout. In addition, no identifying information about scouts may be posted so that it is publicly visible.

The Digital Cookie is starting this month in limited areas and will go nationwide in January for the start of the cookie sales season.

What changes has your organization made to “compete” in the digital age?

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Proposed SUN Act Requires Increased Nonprofit Transparency

Senator Jon Tester (D-Mont.) recently introduced the Sunlight for Unaccountable Nonprofits Act (The SUN Act), which would require that already public information about nonprofits (specifically, that included on their annual information returns) be made available to the public at no charge in an open, searchable format. The Act specifically would require the information provided be “easy to find, access, reuse, and download in bulk.”

The SUN Act would also require disclosure of large donors (those who give $5,000 or more) to exempt organizations engaging in political activities. This would include an organization that indicates on its exemption application that it intends to spend money attempting to influence the selection, nomination, election or appointment of a person to a public office or that states on an information return that it has participated in, or intervened in, a political campaign on behalf of, or in opposition to, any candidate for public office.

Opponents of the SUN Act are concerned that such a disclosure requirement would chill free speech. But supporters of the Act point to the growing trend of “dark money” support of political campaigns, primarily meaning money from tax-exempt social welfare organizations that are not required to identify their donors.

The Act has been assigned to a congressional committee, which will consider it before possibly sending it on to the House or Senate as a whole.

Do you think the Act goes too far or not far enough with respect to nonprofit transparency?

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What’s in a Name?

Maybe a better question is, What is a name worth? If you’re the family of Avery Fisher and New York’s Lincoln Center, a name is worth at least $15 million … and perhaps $100 million or more.

For years, Lincoln Center has wanted to renovate Avery Fisher Hall, which is infamous for its subpar acoustics and poor sight lines. The project is expected to cost about a half billion dollars. Lincoln Center believes that an angel donor will be needed to kickstart the project, and that the Angel donor will want naming rights for the hall. As might be expected, Avery Fisher’s family has threatened to sue if Avery Fisher Hall is renamed.

Avery Fisher was an electronic pioneer whose $10.5 million donation allowed Lincoln Center to renovate the New York Symphony’s concert hall, which now bears his name. So why has Lincoln Center agreed to pay Fisher’s family $15 million? To give up its claim on the name of the hall. Indeed, Lincoln Center expects that the naming rights can fetch a donation of $100 million or more, the amount donated by David H. Koch to the New York State Theater, now known as the David H. Koch Theater.

Does it surprise you that Lincoln Center is willing to pay the Fisher family more than the amount Avery Fisher donated in the first place? It certainly has surprised the nonprofit legal community. The details of the deal have yet to be released. Perhaps the payment is a settlement to the Fisher family in order to avoid litigation. Indeed, threatened lawsuits in the last several years against universities that tore down or renamed buildings funded with donations from as far back as the Civil War era have resulted in major payouts by the universities.

Nowadays, donations with naming rights and other rights to donors come with detailed contracts that specify the period in which the donee may not change the name and the rights the donor or successors receive if the name is changed or the building is damaged.

If you’re concerned about a donation that includes naming rights or other perks for the donor, whether you are a donor or the recipient nonprofit, please contact us. The Law Firm for Non-Profits has deep experience in this area.

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IRS Top Tips for Year-End Charitable Donations

IRS tipsAs individuals and businesses get ready to make their year-end charitable donations, the IRS provides its top tips about giving:

1. If you are making a charitable contribution of clothing and household items (e.g., furniture, furnishings, electronics), they must generally be in good used condition or better to be tax-deductible. Donors must get written acknowledgments from charities for all gifts worth $250 or more, which must include a description of the items contributed.

2. A donor must have a bank record or a written statement from the charity to which it is contributing in order to deduct any monetary donation, no matter the amount. A written statement or acknowledgment must include the name of the charity, the date of the contribution, and the amount of the contribution.

3. Contributions are deductible in the year they are made. Donations by credit card are deductible in the year charged, not necessarily in the year paid. Checks are deductible in the year mailed.

4. Always check that a charity is eligible. Only donations to eligible organizations are tax-deductible. The IRS Select Check is a great place to start your search.

The IRS provides more year-end tax tips here. Happy donating!


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One Week Until Giving Tuesday!

Giving TuesdayRemember when we told you about Giving Tuesday last year? By now the familiar #GivingTuesday hashtag has probably started reemerging on all your favorite social media sites as it is being held on December 2, 2014. Over the Thanksgiving holiday, Giving Tuesday wants you to remember the event as an alternative to shopping events such as Black Friday and Cyber Monday.

According to Kathy Calvin, President and CEO of United Nations Foundation, one of the founders of the event, in just three years, “it has become one of the largest initiatives dedicated to giving back.” It has more than 13,000 partners around the world organizing campaigns to “get out the give.” The event encourages each person to “find a way for your family, your community, your company or your organization to come together to give something more.”

With just one week to go, Giving Tuesday is providing a free webinar on best practices to measure the impact of your Giving Tuesday campaign and a twitter conversation with the Family Dinner Project, a nonprofit focused on educating the public about the benefits of family dinners. Forbes is also broadcasting a live discussion with Kathy Calvin about Giving Tuesday.

Do you have a campaign planned for Giving Tuesday? If so, let us know what it is in the comments section below!

Have a happy and healthy Thanksgiving!

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GuideStar Looks Toward Second Revolution

GuideStarAfter 20 years in business, GuideStar wants a facelift. The nonprofit information database (which you probably know as the place to find an organization’s Form 990) wants to execute a new strategic plan that it calls Guidestar 2020. GuideStar calls it the organization’s second revolution: “nonprofit transparency that drives nonprofit effectiveness.”

The new plan includes the development of new data innovation, collection, and distribution tools. The tools are aimed at making the website more effective for both nonprofits and for users of the site. One tool would enable nonprofits to create one profile to use across multiple online-giving platforms. Another would enable users of GuideStar to search nonprofits by their causes.

GuideStar also hopes to create a tool that will allow nonprofits to report program outcomes so that users could get a better picture of each nonprofit’s effectiveness.

GuideStar currently has almost 3 million registered users and information on 1.5 million 501(c)(3) organizations. 98% of its website visitors access basic information on nonprofits for free.

GuideStar chief executive Jacob Harold says the organization wants to raise $10 million to implement its strategic plan. The Bill and Melinda Gates Foundation has pledged $3 million over three years to get the revolution started. The foundation’s senior program officer, Victoria Vrana, describes GuideStar as one of the few central sources of information on nonprofits and acknowledges that updating the information on the site will be an enormous task.

How often do you use GuideStar?

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UnKoch My Campus

Students at almost 30 colleges are holding protests, demanding: “UnKoch My Campus!” They want more transparency from their colleges about the academic influence they feel billionaire brothers Charles and David Koch have “bought” with their sizable donations to the schools. Since 2005, the brothers have donated nearly $50 million to 254 colleges nationwide according to an interactive database published by Greenpeace.

The largest college recipient so far is George Mason University, which has received $24 million from Koch organizations since 2005. Student protestors at the university are demanding to know what departments and programs have received that funding.

The university’s president maintains that donors are not allowed to sway academic decisions.

Students at schools supported by the Koch brothers have a reason to be suspicious. There is a history of Koch-backed colleges accepting requirements of academic influence that come along with the money. In 2011, Florida State University revealed that a donation to the university’s economics department came with a donor-approved advisory board that could veto hiring decisions.

Most of the Koch brother’s donations to colleges are for hiring professors, building economic research centers, or supporting research about libertarian politics. Although college officials could certainly reject a donation if it doesn’t further the educational purposes of the school, according to Forbes, no school has yet publicly turned down a Koch gift.

Has your organization been offered a donation from the Koch brothers? Did it come without explicit or implicit requirements? If your organization was offered a donation with requirements such as these – whether from the Koch brothers or otherwise – would it accept it?

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