The Emerging Leaders Program (ELP) of the Center for Volunteer and Nonprofit Leadership "addresses the core competencies needed to effectively manage organizations and complex programs as well as the leadership skills one needs to be successful within our quickly changing sector." Last week, Emily Chan and I spoke to the ELP group on various legal issues affecting nonprofits. Here are some of the topics that we "parked" in order to complete the presentation on time:
Public Charity – Private Foundation distinction
- If your organization is a public charity, know that it's very important to keep that status.
- Most public charities (other than churches, schools, and hospitals) maintain that status by passing a public support test that is measured over a five-year period. See Public Support Tests – Public Charities: An Update.
- If your organization is not careful, a big grant can "tip" the organization so it automatically converts from a public charity into a private foundation. See "Tipping" – Impact on the Public Charity (but note that the public support test may have changed since the article was written).
- Know your public support ratio (see your Form 990).
- Talk with a nonprofit and exempt organizations attorney on how to manage and structure large gifts to avoid tipping.
501(c)(3) Organization: Public Charity or Private Foundation
Lobbying and Political Activities
- Charities can and often should lobby (subject to certain limits).
- For most charities, the 501(h) election makes it easier to comply with lobbying limitations and expands the scope of advocacy activities that will not be subject to the lobbying limitations. See Alliance for Justice's (AFJ) Worry-Free Lobbying For Nonprofits: How To Use The 501(h) Election To Maximize Effectiveness. It's super easy to make the 501(h) election – simply file the one-page Form 5768 anytime!
- Charities cannot endorse or give contributions to candidates for public office.
- Charities can engage in certain non-partisan voter education activities. See AFJ's newly revised The Rules of the Game.
- Charities may work in tandem with 501(c)(4) social welfare organizations (but confer with a knowledgeable attorney about structure and tax issues).
Fiscal Sponsorship
- A fiscal sponsorship relationship is defined by the contract. It can take on many forms, but only certain forms will properly accomplish the goals of the parties. See Greg Colvin's Fiscal Sponsorship: 6 Ways To Do It Right.
- In probably the most common proper form of fiscal sponsorship (Colvin's Model A), the sponsor organization is ultimately responsible for everything about the sponsored project. If the project does something wrong, the sponsor is on the hook. If some party has a claim against the project, the sponsor will be sued. If there is an audit or investigation of the project, it's an audit or investigation of the sponsor. The sponsor is responsible for holding the project's assets in charitable trust; reporting the project's financials as part of its own; obtaining appropriate licenses, registrations, and permits; and implementing appropriate risk management policies. So, new sponsors generally should not think of sponsorship fees as being an additional source of revenues. The costs of sponsorship may vastly exceed the additional revenues, particularly if the sponsored project is modest in size.
- Projects: be very, very careful and selective in choosing a fiscal sponsor.
- Sponsors: be very, very careful and selective in choosing projects to sponsor.
- Make sure there is mutual agreement and understanding about terminating a fiscal sponsorship agreement and who gets what.