Nonprofit Organizations Committee Fast Facts
|Number of Current Members:
|Number of Active Past Chairs:
Article Writers Wanted
The Newsletter Editorial Board is seeking articles on nonprofit law subject matter to include in future newsletters.
There is no length requirement. If you are interested in submitting an article, please contact:
Newsletter Editorial Board
- Willard L. Boyd III, Des Moines, IA
- Cari Campbell, Kieler, WI
- Megan A. Christensen, Washington, DC
- Matthew G. Wright, Waco, TX
Greetings from the Nonprofit Organizations Committee Chair
I want to thank all the members of the Committee who have so diligently worked to carry on the work of the Committee between the Annual meeting in
August and the upcoming Spring meeting. The Committee held a very successful Nonprofit Law for the Non-Nonprofit Lawyer series of Continuing Legal
Education programs by webcast and telephone. Past Committee Chair Willard "Bill" Boyd took the laboring oar in organizing the series: Nonprofit
Formation Issues on January 16, 2013; Tax Issues for Nonprofits on January 23, 2013; and Nonprofit Governance Issues on January 30, 2013. If you were
not able to attend the live broadcast, and want a great overview or a refresher, you can download the programs in MP3 format for CLE credit from the
ABA Business Law CLE webpage:
The upcoming Spring Meeting at the Washington, DC, Hilton should provide excellent opportunities for learning and camaraderie. The Religious
Organizations, Athletic & Recreational Organizations, and Nonprofit Governance Subcommittees will offer substantive program meetings. The Nonprofit
Organizations Committee is the primary sponsor of an exciting CLE program on Setting up a Social Entrepreneurship Organization. The Committee is
also providing significant input and experience to the CLE program on the Lawyer's Obligations Serving on Boards of Nonprofits, primarily
sponsored by the Pro Bono Committee. In addition, Nonprofit Organizations is co-sponsoring a number of other CLE programs with other committees,
including Healthcare M&A Legal and Financial Issues: 2012 and Beyond and
Showcasing Diamonds: An Interactive Discussion with Glass Cutters.
We are looking forward to an active business meeting for the Nonprofit Organizations Committee, highlighted by the announcement of the annual
Outstanding Nonprofit Lawyer Awards. New this year are two exciting additions to our Spring program. One, we will be sponsoring a roundtable on
Saturday through the Current Developments Subcommittee. This will offer all Committee members and friends the opportunity to meet in an informal
setting to discuss recent nonprofit law developments and interesting issues arising in our practices. Two, we will be premiering a new pro bono
veterans organization governance advising project sponsored by the Section and organized jointly by the Nonprofit Organizations and Pro Bono
Committees. Our Committee will be providing training to other business lawyers interested in performing pro bono governance audits for veterans service
A highlight of the meeting, as usual, will be our Committee dinner, currently scheduled for Friday night at Georgia Brown's (Southern low country cuisine). It promises to be an
exciting meeting and a great opportunity to get involved. A full schedule of events at the Spring Meeting is posted on the Committee webpage.
Please let William Klimon, email@example.com, know if you plan on attending the Friday night dinner.
We hope to see you there. But if you can't make it, you can call in to all Committee and Subcommittee business meetings (call in information to be provided on
the Committee listserv and webpage shortly before the meeting) and obtain all CLE program materials on the Section website.
Michael E. Malamut
Chair, Nonprofit Organizations Committee
DEADLINE EXTENDED! LAST CHANCE to Submit Nominations for the 2013 Outstanding Nonprofit Lawyer Awards
The Committee on Nonprofit Organizations is calling for nominations for the 2013 Outstanding Nonprofit Lawyer Awards. These Awards are given annually in
the following categories: Academic, Attorney, Nonprofit In-House Counsel, Young Attorney (under 35 or in practice for less than 10 years) and the Vanguard
Award (for lifetime commitment/achievement).
For a nomination form, go to the Nonprofit Lawyer Awards Subcommittee's webpage
and look under "Nonprofit Lawyer Awards Documents." You can also find there a list of prior award recipients.
Nominations are due by March 15, 2013.
The Awards will be announced at the Business Law Section's Spring Meeting in Washington, DC April 4-6.
Send nomination forms by March 15, 2013 to:
Caplin & Drysdale
One Thomas Circle, NW
Washington, DC 20005
(202) 429-3301 (fax)
The Nonprofit Committee Needs You!
The Committee is in search of someone to act as a second Vice Chair for the Joint Subcommittee on Pro Bono Veterans Service Organizations Governance
Advising. This position will involve setting up a stand-alone training module for governance/compliance consulting issues, including checklists for a
governance audit, with some emphasis on compliance issues unique to veterans service organizations. For more information or to volunteer to hold one of
these positions, please contact Michael Malamut (firstname.lastname@example.org).
Spring Meeting Programming Preview: You've Been Asked to Set up a Social Entrepreneurship Organization - a How-To Primer
When: Friday, April 05, 2013, 10:30 AM - 12:30 PM
Social Entrepreneurship: You know people who want to do it. You know people who want your help in setting them up. Yet Wikipedia says "there are continuing
arguments over precisely who counts as a social entrepreneur." So what models can you use? What are the legal structures you can use to frame social
entrepreneurial organization? Has your state passed benefit corporation (B Corp) legislation recently? What are the pros and cons of using benefit
corporations, LLCs, traditional business or nonprofit corporations? What has the United Kingdom's experience been with Social Impact Bonds as another way
of raising funds for social entrepreneurship? Are there governance issues that these models raise? How does a social entrepreneurial organization build
public confidence and assure their funders and others that they are not a masquerading for-profit business? Join our panel as they each present and
champion the options dearest to them and dialogue around the relative merits of and issues with the options. Then hear from Philip Kirkpartick, our guest
from London, England on the U.K.'s experience as well as the co-founder of B Labs, Bart Houlihan.
This program is co-sponsored by the Nonprofit Organizations, Corporate Governance, Federal Regulation of Securities, Community and Economic Development,
Health Law and Life Sciences, Environmental, Director and Officer Liability, and LLCs, Partnerships and Unincorporated Entities Committees
Summary of Several 2012 Law Review Articles Relating to Nonprofit Organizations
Duties of Nonprofit Corporate Directors - Emphasizing Oversight Responsibilities
In North Carolina Law Review, September 2012,
Duties of Nonprofit Corporate Directors--Emphasizing Oversight Responsibilities,
Thomas Lee Hazen and Lisa Love Hazenns explore the obligations of nonprofit directors in North Carolina in light of recent developments in nonprofit
governing board oversight responsibilities and the unique history of the North Carolina statute governing nonprofits. The article begins with a discussion
of nonprofit organizations and an overview of the role of the governing board generally followed by a review of the 2008 revisions to the IRS Form 990 that
were designed to increase transparency and accountability of nonprofit boards. The authors detail the legal standards imposed on nonprofit directors: the
duty of care, duty of loyalty and the not often discussed duty of obedience. The authors provide a history of the North Carolina Nonprofit Corporation Act
and compare it to the Revised Model Nonprofit Corporation Act. While the North Carolina Nonprofit Act generally follows the model act, North Carolina did
not adopt recent changes in the Model Acts that included terminology that more narrowly defines the directors' obligations. The authors provide a
discussion of the limited remedies available to redress nonprofit director failure to adequately oversee a nonprofit organization or director misconduct
including removal, actions by the attorney general and derivative suits. In this discussion the authors acknowledge that while derivative suits are
available they are rarely used since there is very little economic incentive to bring such a suit. Ultimately the authors conclude in North Carolina there
is a gap between the nonprofit directors' obligations and the available remedies to hold directors accountable but there are sound policy reasons for not
increasing liability exposure because it would make nonprofit board service unattractive.
Recent Developments in U.S. Nonprofit Taxation: The Pension Protection Act Takes Effect
In the Journal of the Kansas Bar Association June, 2012, Recent Developments in US Nonprofit Taxation: The Pension Protection Act Takes Effect, Lori
McMillan provides a basic overview of nonprofit organizations and tax exemption under section 501(c) of the Internal Revenue Code. McMillan describes how
the Pension Protection Act of 2006 essentially made three changes affecting tax-exempt organizations: mandatory filing of Form 990s for all exempt
organizations, automatic revocation for failure to file a Form 990 for three consecutive years, and the requirement that tax exempt organizations that file
unrelated business income tax returns (Forms 990-T) make those forms available for public inspection upon request. Lastly, McMillan covers the basic steps
an organization should take to retain its tax-exempt status.
Confirmation Issues Facing a Nonprofit Debtor
In the American Bankruptcy Institute Journal, April 2012, Confirmation Issues Facing a Nonprofit Debtor, Kavita Gupta explains how a nonprofit
debtor in a Chapter 11 reorganization must propose a plan that, among other things, complies with certain section 1129 requirements such as section
1129(a)(7) (the best-interest test), section 1129(a)(11) (feasibility) and section 1129(b) (the absolute-priority rule) and how such compliance can differ
significantly from a for-profit business's compliance with those same requirements. Gupta describes the nuances of compliance that are specific to
nonprofit debtors and provides examples of how nonprofit debtors are impacted by these requirements.
Nonprofits, Politics, and Privacy
In Case Western Reserve Law Review, Spring 2012, Nonprofits, Politics and Privacy, Lloyd Hitoshi Mayer discusses the disclosure obligations for
tax-exempt nonprofit organizations engaged in political activity. According to Mayer, a tax-exempt nonprofit organization that engages in political
activities is at the intersection of three significantly different federal law disclosure regimes, each of which may require the organization to disclose
detailed financial information about its activities and its supporters. From Mayer's perspective these regimes include: (i) general federal tax law where
disclosure of individual political expenditure information is disfavored; (ii) federal tax law specifically applied to tax-exempt organizations where
disclosure relating to the organization's expenditures is favored but disclosure related to individuals is viewed with ambivalence; and (iii) federal
election law where disclosure of all such financial information is strongly favored. In connection with these disclosure regimes, Mayer considers the
concept of privacy and the public disclosure of information relating to nonprofit organizations involved in politics and their supporters from two
contrasting approaches - cost-benefit versus a right-to-privacy - and discusses how the existing disclosure rules reflect these approaches. A cost benefit
approach judges disclosure requirements based on their quantifiable costs and benefits, including among those costs the harm to privacy, however measured.
A right-to-privacy approach considers privacy a fundamental right that can only be abridged if there is a relatively strong interest for doing so and then
only to the extent required to further that interest. After examining the three regimes through a cost benefit approach as well as a right to privacy
approach, Mayer concludes that at some point disclosure must have a limit, assuming at least that disclosure can both have real costs for those whose
information is disclosed and that individuals enjoy a fundamental although not unlimited right to privacy.
Nonprofit Legislative Speech: Aligning Policy, Law, and Reality
In Case Western Reserve Law Review Spring, 2012, Nonprofit Legislative Speech: Aligning Policy, Law, and Reality, Jill Manny reviews the
restrictions section 501(c)(3) of the Internal Revenue Code imposes on public charities with respect to lobbying and legislative activities and how these
limitations (often mistaken as prohibitions) impose real and substantive limits on lobbying by public charities and how limitation in legislative activity
by charities undercuts the unique benefits that public charities can provide to society. Manny first explores the Substantial Part Test, derived from the
the standard used to measure the lobbying activity of most public charities and the Expenditure Test contained in
which establishes an elective standard for determining whether a public charity's legislative activities qualify as insubstantial. The Substantial Part
Test provides that organizations will be entitled to exemption from federal income tax if no substantial part of the organization's activities is carrying
on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection 501(h)). A 501(c)(3) organization that engages
in lobbying activities is subject to the Substantial Part Test unless it affirmatively elects the Expenditure Test. As Manny details, the Substantial Part
Test is the default test for determining whether an organization has engaged in excessive lobbying and basically
is an elective safe harbor that specifically provides an election for certain 501(c)(3) organizations that permits them to engage in legislative activity
up to statutorily specified limits, which are expressed solely in terms of dollar amounts. Manny indicates that unlike the subjective Substantial Part
Test, the Expenditure Test objectively draws vivid lines for charitable lobbying framed entirely in terms of dollar amounts allowing charities who elect
the Expenditure Test to pinpoint precisely how much they can spend on various activities. Focusing on their basic structures and the legislative history
surrounding the enactment of each test, Manny also examines the policy reasons for permitting public charities to lobby without restriction and notes the
lack of convincing policy explanations for the restrictions. Manny concludes that the restrictions on lobbying under 501(c)(3) are ambiguous, confusing,
and ineffective. Manny adroitly points out that most charities electing the Expenditure Test under
can lobby extensively, provided that the charity properly structures lobbying to take advantage of the liberal rules and definitions. Manny argues that
legislative discourse is increased and improved through lobbying by charities so the inefficacy and innate complexity of the restrictions on lobbying
imposes should be amended to permit unlimited legislative activities by all public charities. Absent a complete removal of the current restrictions, Manny
suggests improving and simplifying the Expenditure Test and making it the default test for legislative activities by public charities.
Scratch My Back and I'll Scratch Yours: Scratching the Surface of the Duty of Care in Cross Sector Collaborations
In the Hastings Business Law Journal, Winter 2012,
Scratch My Back, and I'll Scratch Yours: Scratching the Surface of the Duty of Care in Cross Sector Collaborations -- Are For-Profits Obligated to
Ensure the Sustainability of their Partner Nonprofits?,
Christyne J. Vachon discusses cross-sector collaborations between nonprofit and for-profit institutions. Vachon contends that to accomplish
effective implementation and continuation of such collaborations, both entities should be aware of the possible corporate governance issues posed by the
collaboration. Vachon places collaborations on a continuum of increasing stages of engagement and interaction identified as: the philanthropic stage, where
the for-profit provides a charitable donation to the nonprofit; the transactional stage, where the collaboration consists of resource exchanges through
specific activities, such as cause-related marketing, event sponsorships, licensing, and paid service arrangements; and the integrative stage, where the
collaboration takes on characteristics that resemble a joint venture and the collaboration becomes more integral to the strategy and functioning of each
individual collaborator. Vachon details the governance concerns of both a for-profit collaborator and a nonprofit collaborator at the different stages
along the continuum. Vachon ultimately concludes that the board or leadership of a for-profit collaborator should view the sustainability of the
collaborating nonprofit as a responsibility under its own duty of care, focusing on the influence the for-profit collaborator has on the nonprofit
collaborator and ensuring that the nonprofit collaborator is not forced into a situation that would harm it's tax-exempt status.
Representing a Nonprofit Debtor in Bankruptcy
In the California Bankruptcy Journal 2012, Representing a Nonprofit Debtor in Bankruptcy, Kavita Gupta provides a detailed explanation to
practitioners of the bankruptcy process for nonprofit organizations. Gupta details a number of considerations a practitioner representing a financially
ailing nonprofit debtor will need to weigh when deciding whether to file a bankruptcy case. These include the creditors' inability to file an involuntary
bankruptcy case against a nonprofit, whether there are facts extant that would provide cause for the appointment of a Chapter 11 trustee under Section
1104, and finally, the character or attributes of the nonprofit's assets and donations (i.e., whether the nonprofit's donations are subject to use
restrictions or subject to a trust), since these factors will determine whether these assets are deemed property of the debtor's bankruptcy estate and can
be used to pay creditors or fund a plan. Gupta points out that a nonprofit that files a Chapter 11 case will have to comply with the same requirements as a
for profit firm and provides a description of the nuances that are specific to a nonprofit such as source of income (operating income versus a revenue
stream from donations). Gupta concludes by detailing what happens if a class of unsecured creditors declines to accept a nonprofit's plan in a Chapter 11
or if a nonprofit commences a Chapter 7 and the application (or not) of the absolute priority rule in a final dissolution of a nonprofit organization.
Chapter 450: Permitting Nonprofits to Save State Parks
In McGeorge Law Review 2012, Chapter 450: Permitting Nonprofits to Save State Parks, Eric E. Bonnett details California's effort to save the
largest state park system in the country with Chapter 450 by fostering partnerships with nonprofit organizations. Bonnett discusses California's
historic options to finance its immense state park system as well as California's current attempt with Chapter 450 to prevent the closure of its state
parks. Prior to Chapter 450, California law permitted the California Department of Parks and Recreation to enter into agreements with public entities
for the operation of state parks, partnerships with nonprofit organizations for the purpose of providing educational and informational services to park
visitors and contracts with profit-seeking organizations to provide certain concession-related services in state parks. Indicating that the Department
lacks the resources available to nonprofit organizations, Bonnett states that the California legislature, with the enactment Chapter 450, sought to
increase the number of nonprofits involved in state parks. According to Bonnett, Chapter 450 fosters the development of operating agreements between
qualified nonprofit organizations tax-exempt under the Internal Revenue Code's section 501(c)(3) with the principal purpose of serving visitors to
state parks or "stewardship of natural, cultural or historical lands, or resources" and the Department to prevent the closures of some state parks.
Under Chapter 450, qualified nonprofits would by contract assume many of the responsibilities and duties necessary for maintaining a state park and, as
a result, California can avoid park shutdowns. From Bonnett's perspective, Chapter 450 further facilitates cooperation between nonprofit organizations
and the Department by streamlining the process of entering into agreements while at the same time offering nonprofits increased opportunities to assist
California's state parks.
Doctoring the Law of Nonprofit Associations with a Band-Aid or a Body Cast: A Look at the 1996 and 2008 Uniform Unincorporated Nonprofit Association Acts
In William Mitchell Law Review 2012,
Doctoring the Law of Nonprofit Associations with a Band-Aid or a Body Cast: A Look at the 1996 and 2008 Uniform Unincorporated Nonprofit Association
Elizabeth S. Miller examines the world of unincorporated nonprofit associations and the National Conference of Commissioners on Uniform State Laws'
(NCCUSL) attempts to provide a statutory regime to govern them. According to Miller, unincorporated nonprofit associations are enigmatic creatures that
have long been problematic for the law. In most states, nonprofit associations are governed by "a hodgepodge of common law principles and statutes
governing some of their legal aspects." In 1992, NCCUSL promulgated the Uniform Unincorporated Nonprofit Association Act (UUNAA), which addresses a very
limited number of issues. UUNAA, which was amended in minor respects in 1996, has been adopted in thirteen jurisdictions. In 2005, NCCUSL promulgated a
more comprehensive Revised Uniform Unincorporated Nonprofit Association Act (RUUNAA), which was approved by NCCUSL in 2008 and has been adopted in four
jurisdictions. Miller undertakes an examination of the different approaches taken in UUNAA and RUUNAA and the manner in which these statutes address
particular issues revealing that there are advantages and disadvantages to the overall approach in each as well as challenges involved in articulating
particular provisions. UUNAA adopts an entity approach to unincorporated nonprofit associations with respect to a limited number of issues that are
arguably areas that have proved most troublesome for unincorporated nonprofit associations and their members under the common law. RUUNAA takes a more
comprehensive approach, conferring entity status on unincorporated nonprofit associations and addressing, in addition to the issues addressed by UUNAA. The
goal of RUUNAA is to provide a more modern and integrated basic legal framework governing nonprofit associations than is provided under the common law and
statutes of most states. It addresses some significant issues not addressed by UUNAA, such as internal governance, dissolution, winding up, and merger.
Miller concludes that while the more comprehensive approach of RUUNAA has the appeal of providing rules in instances where the case law in a jurisdiction
may be vague or nonexistent, the statutory rule may constrain the court in developing or applying the common law in a manner most suitable to the
particular situation before the court.
Megan A. Christensen, Blank Rome LLP, Washington, DC
IRS Summarizes Significant Changes to 2012 Form 990 and 990-EZ.
The IRS has released a summary of significant changes to the 2012
Forms 990 and 990-EZ. These changes include: clarification that only hospital organizations should attach their most recent audited financials; provision
of an example of how to report benefits provided through a self-insured medical reimbursement plan in Section A of Part VII; new checkboxes in the headings
for Parts VIII and X required if Schedule O contains a response to a question in those Parts; revision to the definition of "Disqualified person"; new
lines in Part XI for net unrealized gains (losses) on investment services and use of facilities, investment expenses, and prior period adjustments; and
Sequestration Hits Small Business Health Care Tax Credit.
The sequestration that went into effect on March 1, 2013 pursuant to the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, includes a
reduction to the refundable portion of the Small Business Health Care Tax Credit of I.R.C. Section 45R, applicable to certain small tax-exempt employers.
The result is that the refundable portion is reduced by 8.7%, which will be applied until either further Congressional action or September 30, 2013 (the
end of the fiscal year), at which time the rate is subject to change.
Emily Chan, NEO Law Group, San Francisco, CA
On February 19, 2013, Senator Lara introduced SB 323 (also known as the Youth Equality Act) which would revise the Sales and Use Tax Law exemption for
certain nonprofit, tax-exempt organizations. This bill would provide, in part, that an organization that is a public charity youth organization that
discriminates on the basis of gender identity, race, sexual orientation, nationality, religion, or religious affiliation is not exempt from the taxes
imposed by that law. This bill would affect organizations such as the Boy Scouts of America.
On January 24, 2013, the Circuit Court of Jackson County, Missouri ordered Hospital Corporation of America ("HCA") to pay $161,908,504 plus attorneys' fees
and costs to Health Care Foundation of Greater Kansas in Health Care Foundation of Greater Kansas City v. HM Acquisition, LLC. The Court found HCA
failed to comply with its obligations under an Asset Purchase Agreement whereby HCA agreed to spend $450 million in capital improvements to existing Health
Midwest facilities purchased by HCA and spend more than $500 million in charity care in the Kansas City community.
On February 5, 2013, the Maine Supreme Court ruled in favor of Hebron Academy in the case Hebron Academy v. Town of Hebron, affirming the Superior
Court's judgment that certain parcels of Hebron Academy's real estate are exempt from property taxes, despite being rented for outside use.
On January 2, 2013, Governor Synder signed into law SB 1337, which provides that personal property purchased by certain nonprofit and charitable
organizations used to carry out the purposes of the organization or to raise funds or obtain resources necessary to carry out the purposes of the
organization are not subject to sales tax. The exemption does not apply to any single item of tangible personal property or vehicle used to raise funds
or obtain resources with a sales price that exceeds $5,000.00. The law goes into effect March 28, 2013.