Earlier this month, I had the privilege of guest lecturing to Scott Curran‘s Social Impact Law class at Chicago-Kent College of Law at the Illinois Institute of Technology. Among the areas I covered or hoped to cover (I may have been overly ambitious in setting the scope):
Lawyers and how they may be involved with nonprofits
- Nonprofit and tax-exempt organizations attorney (outside or in-house counsel)
- Attorney with other areas of practice serving one or more nonprofits (outside or in-house counsel)
- Pro bono representation of nonprofits
- Board member
- Officer (including CEO)
- Volunteer (not providing legal representation but making use of their professional knowledge)
Overview of types of tax-exempt and nonprofit entities
Exempt Organization Types (IRS)
- Most common tax-exemption category: 501(c)(3) – public charities and private foundations (separate tax classifications)
- Some other tax-exemption categories: )501(c)(4) social welfare organizations, 501(c)(5) labor organizations, 501(c)(6) business leagues, 501(c)(7) social clubs, 501(c)(8) and 501(c)(10) fraternal societies
Size of some nonprofits
- OpenAI Foundation – est. $130 billion in total assets
- Harvard – $74 billion in total assets (2024)
- Gates Foundation – $50 billion in total assets (2024)
Diversity equity & inclusion and nonprofit law
Investing in Racial Equity Through Charitable Grants and Services (Lawyers’ Committee for Civil Rights Under Law)
Charitable Giving and Civil Rights: A Defense of Private Remedial Action (Roger Colinvaux, Yale Law Journal)
Fourth Circuit’s Narrow Ruling on Anti-DEI Executive Orders Leaves Employers With Broad Questions (T. Scott Kelly and Nonnie L. Shivers, Ogletree Deakins)
Governance and fiduciary duties
Nonprofit Boards: Duties and Responsibilities
Purpose-Driven Board Leadership (BoardSource)
- Purpose before organization
- Respect for ecosystem
- Equity mindset
- Authorized voice and power
Typical governance issues
- Compliance issues with the articles/bylaws
- Voting members who want to micromanage
- Failures to regularly elect directors and officers
- Infrequent board meetings
- Directors who don’t understand their duties
- Less than reasonable care by directors in governing the org
- Board-executive conflicts
- Conflicts of interest / self-dealing
Internal Revenue Code Section 501(c)(3)
Key Concepts
Starting a Nonprofit: What is “Charitable” under 501(c)(3)?
Starting a Nonprofit: What is “educational” under 501(c)(3)?
Starting a Nonprofit: What is “Religious” under 501(c)(3)?
Starting a Nonprofit: What is “Scientific” under 501(c)(3)?
Federal Law Protects Nonprofit Advocacy & Lobbying (National Council of Nonprofits)
What is Lobbying Under the 501(h) Election?
Compliance
Compliance Guide for 501(c)(3) Public Charities (IRS)
Protect your nonprofit’s tax-exempt status (National Council of Nonprofits)
Nonprofit Legal Compliance in an Unfriendly Political Environment (NPQ)
Typical 501(c)(3) legal issues
- Operations that may not be considered directly in advancement of the organization’s stated 501(c)(3) purposes
- Private benefits conferred upon anyone that may be more than incidental, qualitatively or quantitatively, to the furthering of the organization’s 501(c)(3) purposes (e.g., excessive compensation or payment), particularly if to an organizational insider (e.g., board member)
- Communications that may be characterized as supporting or opposing political parties or candidates for public office even if not an explicit endorsement or rejection
- Advocacy communications and whether they would constitute lobbying and should be appropriately monitored or may be freely engaged in without limitation if in advancement of the organization’s stated 501(c)(3) purposes
- Accuracy and completeness of required filings with the IRS (e.g., Form 990)
Revocation of 501(c)(3) status and illegality and public policy
Once and Future Revocation of Tax Exemption for Pursuit of DEI and Other Alleged Violations of Section 501(c)(3) (Ellen Aprill, SSRN)
The Public Policy Doctrine and 501(c)(3) Organizations (Congressional Research Service)
Evolving Threats to the Tax-Exempt Status of 501(c)(3) Nonprofits (ICNL)
Executive actions, NSPM-7
Countering Domestic Terrorism and Organized Political Violence (NSPM-7)
How NSPM-7 Seeks to Use “Domestic Terrorism” to Target Nonprofits and Activists (ACLU)
Demanding transparency on the administration’s nonprofit “enemies” lists (Protect Democracy)
First amendment rights
Charitable Giving and Civil Rights: A Defense of Private Remedial Action (Roger Colinvaux, Yale Law Journal)
Commentary: Free speech or conspiracy? Courts limit protesters’ First Amendment rights (Bobbie Stein, Cal Matters)
Mitigating risks
Risk Management (BoardSource)
Risk Management Considerations for Nonprofits: Getting Started (AICPA & CIMA)
Nonprofit Risk Management Center
Concluding Thoughts
I wish the best to all of Scott’s students and all of the lawyers out there dedicating their work efforts to social good. It’s a very rewarding space and one that’s helped me find identity and meaning.