Non-Profit Legal Matters

The Blog of the Law Firm for Non-Profits®

Paid Sick Leave to be Required by Law

sick leaveDoes your organization provide paid sick leave to its employees? If it doesn’t now, it soon will have to. Effective July 1, 2015, California employers will be required to provide sick leave to most employees. Our friend Nicole Kamm from the law firm Lewitt, Hackman, Shapiro, Marshall & Harlan fills us in on what the new law means for California employers:

On Wednesday, Sept. 10th, Governor Jerry Brown signed the paid sick leave bill (Assembly Bill 1522) into law. This means that, effective July 1, 2015, California employers, regardless of size, must provide most employees paid sick leave. Eligible employees will be entitled to at least three paid sick leave days per year.

California is the second state to enact such a law (Connecticut was the first), but AB 1522 – the Healthy Workplaces, Healthy Families Act 2014 – is more expansive. According to the bill’s author, Lorena Gonzalez (D-San Diego):

We become the first state in the nation to guarantee paid sick days for every single private-sector worker in the state — no matter what industry they work in, no matter if they are part-time or seasonal, and regardless of the size of their employer…This means more than 6.5 million more workers in this state will be able to take up to three days off when they or their child is sick without fearing the loss of income, hours or their job.

Employers who already provide paid sick leave should review their policies in view of these new requirements to ensure compliance. And employers who currently do not provide paid sick leave will need to review the new law and implement a compliant sick leave policy.

For more details on the new law, read Nicole’s full blog. If you have questions about implementing the new law, contact Nicole or your organization’s employment attorney or HR professional for help.

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Katrina Money Wasted?

KatrinaFederal auditors claim that the University of New Orleans Research and Technology Foundation, a nonprofit created to support the University of New Orleans, failed to account for more than $19 million it received from the federal government to repair damage it sustained during Hurricane Katrina.

The Office of the Inspector General at the Department of Homeland Security (DHS), which conducts and supervises independent audits, investigations, and inspections of the programs and operations of DHS, recently issued an audit showing that, almost 9 years after Hurricane Katrina, the Foundation has still only accounted for $5.3 million of the money it received from FEMA. The audit alleges that the Foundation did not follow federal contracting guidelines on holding open and free competitions for repair project bids and allotting funds to small companies and those owned by women and minorities. The audit also notes that the Foundation failed to secure FEMA’s permission for $7 million of over budget spending.

The Foundation argues that noncompliance primarily occurred because it was emergency work and they needed to reopen the buildings as quickly as possible. But the auditors refute this claim, stating that exigent circumstances do not negate the necessity to follow federal contracting guidelines even if it is difficult to do so.

The audit also notes the lax oversight from FEMA and Louisiana emergency management officials, stating “[i]t is Louisiana’s responsibility to do whatever is necessary to get these projects closed.”

Unfortunately the Foundation failed to heed the lesson of The American Red Cross, which has periodically been accused of mishandling donations by diverting funds raised for one purpose to an altogether different purpose.

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First Ice-Bucket Challenge Money Allocated

ice-bucket challengeWho knew getting people to pour cold water over their heads could be so profitable? It may be hard to believe, but the ALS Association took in $115 million over the summer thanks to the ice-bucket challenge clogging your Facebook newsfeed. Deciding what to do with the windfall presented a challenge to the Association as last year the organization received $64 million, far less than the amount it took in just over this summer.

After the board met to consider different options and spoke with multiple advisers, including a panel of individuals living with ALS, the Association recently announced how at least some of the money will be allocated. $21.7 million will support six projects to advance understanding of ALS and to speed the developments of new treatments. Two of the grants will aim to promote understanding of ALS’s genetic basis and to sequence the genomes of about 15,000 patients with ALS.

The Association will release a full spending plan next month, but it is not anticipated that the organization will spend the rest of the funds by the end of its current fiscal year in January. As a sneak preview, spokeswoman Carrie Munk revealed that most of the remaining money will also be used for ALS research. Last year, research spending was 28% of the Association’s budget, second only to education and public policy (32%).

However, Barbara Newhouse, the Association’s president and chief executive, noted that even with this summer’s windfall the organization is still far short of the $1 billion it would need to bring a new drug to market.

What would your organization do with a funding windfall?

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Emailing Canadians? Read this First

CanadiansDoes your organization send fundraising emails to Canadians? Before you hit send, make sure that the correspondence is compliant with Canada’s new Anti-Spam Legislation (CASL), which went into effect on July 1, 2014.

CASL doesn’t apply to all emails. If your nonprofit is simply emailing to request a donation then the law doesn’t apply. But if that message also includes a promotion or offer of a product, good, service, business, or gaming opportunity, then the email is subject to CASL.

If CASL applies, it requires a nonprofit get consent from all message recipients. For now, that consent is implied if the recipient has recently made a donation, served as a volunteer, or is a member of the nonprofit. But implied consent will only last so long. For contacts made before July 1, 2014, implied consent will expire on July 1, 2017, and for contacts made after July 1, 2014, implied consent will expire two years after the initial contact.

If and when express consent is needed, it won’t be easy to get. Express consent cannot be requested by email. Instead, it must be requested by paper or orally or the recipient must provide consent on the nonprofit’s website. If this last method is used, the recipient must actively check a opt-in box on the nonprofit’s website, it must not be pre-checked.

Even after your nonprofit receives consent, the hoops aren’t finished. Each message to a Canadian recipient subject to CASL must identify the sender and its contact information and must include an unsubscribe option. If an unsubscribe request is received, the nonprofit must carry it out within 10 business days.

Noncompliance with CASL will incur steep repercussions. Each violation brings up to $10 million in penalties for an organization and up to $1 million for an individual. If directors or officers of a nonprofit are involved with the noncompliant messaging, they may be held individually liable.

How will the CASL affect your organization? If so, how will your organization change its conduct to comply with its requirements?

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Sales Tax Confusion! 4 Questions to Help You Steer Clear of Trouble

downloadWe often are asked how sales tax applies to 501(c)(3) organization’s fundraising events. CPA Mary Archibald, who specializes in nonprofits, was kind enough to address this question. Read on to glean Mary’s wisdom on this topic.

The sales tax requirements may be misunderstood because most 501(c)(3) organizations do not pay income tax. Therefore, they often take for granted that they are exempt from sales tax. Indeed, when a 501(c)(3) organization puts on a fundraiser, sales tax may be last thing on its mind. However, in many states, including California, there is no exemption from sales tax for 501(c)(3) organizations.

The state-by-state rules are complex, but below are a handful of questions – with answers pertinent to California 501(c)(3)s – to help get you thinking about the sales tax implications of your organization’s events.

  1. Does sales tax apply to the event ticket?
  2. If the charge for the ticket is purely for admission, sales tax does not apply.
  3. If the organization serves refreshments and the ticket does not otherwise state, then sales tax does not apply to the refreshments, such as coffee and tea.
  4. If the organization contracts with a caterer to serve a meal, the caterer is responsible for paying sales tax based on the amount the caterer charges the organization for the meal.
  5. If the organization itself serves food or a meal and it is included in the ticket price, than the rules are more complex and a competent tax accountant or attorney should be consulted.
  6. Does sales tax apply to the price of raffle tickets?
  7. Tax applies to a ticket charge where the purchaser is guaranteed to win something.
  8. If the purchaser is not guaranteed to win anything than sales tax does not apply.
  9. Does sales tax apply to items sold at auction?

Generally it does apply to items sold at auction on the same basis as if the items were sold by a retailer. There is an exemption from sales tax if the organization benefits homeless shelters and certain additional requirements are meet.

Complete rules pertaining to sales tax for fundraising event activities of 501(c)(3) organizations in California can be found in Board of Equalization (BOE) Publication 18. The Multistate Tax Commission and the Association of Fund Raising Distributors and Suppliers have a handy website that links to sales and use tax rules in all 50 states. Look up the rules of your state before your 501(c)(3) holds its next fundraising sales event.


MacArthur Fellows Include 5 Nonprofit Geniuses

There are geniuses among us in the nonprofit sector. The John D. and Catherine T. MacArthur Foundation recently named five of them as it doled out its much-coveted fellowships, popularly known as “genius grants.”

And the nonprofit geniuses are:

Many of the other MacArthur fellows work in the nonprofit sector, including playwright Samuel D. Hunter (Partial Comfort Productions), historian Pamel O. Long (Princeton, Getty Research Institute, and Folger Shakespeare Library), scientist Mark Hersam (Northwestern University), and researcher Jennifer L. Eberhardt (Standard University), and physicist and brain researcher Danielle Bassett (University of Pennsylvania).

The Foundation selects the MacArthur fellows based on three criteria: “exceptional creativity, promise for important future advances based on a track record of significant accomplishment, and potential for the fellowship to facilitate subsequent creative work.” The winners are selected through a regimented nomination process, the Foundation doesn’t accept applications or unsolicited nominations.

Each winner receives a $625,000 “no-strings-attached” fellowship over five years. They can spend the money as they see fit with no proposals and no reporting.

Want more genius in your day? Check out the other 2014 MacArthur fellows.

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Lerner Plays Victim in Exclusive Politico Interview

After refusing for the last 16 months to speak to Congress about the IRS targeting scandal, Lois Lerner, former head of the IRS Tax-Exempt and Government Entities Division, had a two hour interview with news organization Politico. In the article, Lerner denies wrongdoing and expresses pride in her career, telling Politico she is not sorry for anything she did. She stated: “I’m proud of my career and the job I did for this country.”

As you can imagine, conservatives are not happy. House Oversight and Government Reform Committee Chair Darrell Issa (R-Calif.) said in a statement: “The American people deserve the opportunity to hear Lois Lerner’s testimony under oath. If Lerner had nothing to hid and did nothing wrong in the IRS targeting scandal, she would have chosen to answer basic questions about her conduct instead of obstructing Congress’ investigation.”

The American Center for Law and Justice, which is representing 41 organizations in a federal lawsuit challenging the IRS for improper treatment, believes Lerner’s interview reflects her “arrogance” and call this a “self-serving attempt” to “re-write history.”

Another representative of groups suing the IRS hopes the interview will ignite the House’s effort to enforce its contempt citation.

Is Lerner having her cake and eating it, too, or is she “right” to talk with Politico instead of Representative Issa’s committee?

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REJECTED! IRS Derails Hundreds of Forms 1023-EZ

Forms 1023-EZLate last week the IRS announced that hundreds of streamlined applications for recognition of exemption (Forms 1023-EZ) were rejected. Most were rejected because of the same mistake: the applicant’s name and employer identification number (EIN) on the form did not match IRS records. This mismatch results in automatic rejection of an application. In order to use Form 1023-EZ, an applicant must meet all eligibility requirements, including use of its proper name and EIN.

Fortunately all is not lost for an applicant whose 1023-EZ is rejected. Rejection does not mean denial of exemption. Even though an applicant’s streamlined application is rejected, it may apply again using the standard exemption application, Form 1023. On a side note, the IRS has noted that it had received more than 7,000 Forms 1023-EZ since they became available July 1 of this year. This amounts to almost 45% of all exemption applications received.

Have you filed a Form 1023-EZ? Share your experience with your readers.

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Twitter Experiments with “Buy” Button

TwitterWould you donate money through a “buy” button on Twitter? The social-media platform recently announced that it is starting to test the waters. The aim is to create a Twitter-based “convenient and easy, hopefully even fun” shopping experience.

Seven nonprofits are among the “buy” button guinea pigs. The nonprofits are 9/11 Day of Service, The Nature Conservancy, Global Citizen, Glide, GLAAD,, and Product Red. Each was selected based on its existing relationship with the social-media platform and because of its already strong Twitter following.

Only a small percentage of users in the U.S. will initially see charitable solicitations in their feeds. (Twitter promises that the number of users will grow over time.) For example, will be selling back-to-school t-shirts to support their charitable purpose of supporting classrooms.

Would you make a charitable donation on Twitter? Share with us a screenshot of your Twitter feed if a “buy” button shows up.

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Prostate Cancer Foundation Rejects Donations Linked to Hacked Photos

Returning donationThe Prostate Cancer Foundation, which funds prostate cancer research globally, recently returned donations totaling $8,000. The donations were raised in connection with a post that was set up on Reddit to disseminate and view hacked nude celebrity photos. Viewers were called to donate to the Foundation to atone for having viewed the photos.

In a statement, the Foundation said: “We would never condone raising funds for cancer research in this manner. Out of respect for everyone involved and in keeping with our own standards, we are returning all donations that resulted from this post.”

The “Subreddit” page where the fundraising took place has now been banned, but a Reddit user responded sarcastically to the rejected donations: “Guys, we’re literally worse than cancer.”

This $8,000 donation may have been easier to reject than the donations of millions of dollars from the Koch brothers colleges and universities thought about rejecting just a few months ago.

Is your organization ready to make tough decisions about accepting donations? Has the board adopted a gift acceptance policy or reviewed its existing policy recently? When it’s time to make tough decisions, a gift acceptance policy will help your board decide. It will also give the board a scapegoat on which to blame rejecting a donation.

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