employees as a desk

An employee handbook is just an employee handbook…or so you may think. But, what happens when it doesn’t have an appropriate “disclaimer?”

Incorporate a Disclaimer

In addition to smart employment policies, all nonprofit entities should develop an employee handbook as a part of the onboarding/training process for all employees. The handbook, like other employment policies, serve the purpose of capturing the values you wish to instill in your workforce, outline the standards of behavior you expect, and provide a clear guide for rights and responsibilities.

That said, an employee handbook can actually be considered an employment contract if you’re not careful. And, to best set out the parameters of the employment relationship, it’s best if the handbook and contract are two different documents.

If you think about it, an employee handbook has all the elements of a contract—it’s written, it’s specific, it “promises” certain things will (or won’t) happen. It’s even “signed” by the nonprofit/company.

An employee handbook could actually be considered a unilateral employment contract unless the employer includes an appropriate disclaimer, with wording like this:

“The policies, procedures and standard practices described in this manual are not conditions of employment.  This manual does not create an express or implied contract between the Nonprofit/Company and employees.  Nonprofit/Company reserves the right to terminate any employee, at any time, with or without notice or procedure, for any reason deemed by the Nonprofit/Company to be in the best interests of the Nonprofit/Company.”

Free Employee Handbook Sample

To make all of this more salient, I’ve compiled a free Employee Handbook guide that you can use as a sample guide to better understand how a handbook and a contract or agreement differ.

There are many reasons why an employee handbook should be just that and not also serve as an employment contract. I would be happy to review the employment documents you currently have in place or outline what documents your nonprofit needs, to ensure you have the best possible foundation for legal compliance. Shoot me an email (gordon@gordonfischerlawfirm.com) or give me a call (515-371-6077) and we’ll get your free (no-obligation) one-hour consultation scheduled.

discussion over table with laptop

Imagine I’m working with a great new client named Daphne. She wants to found a nonprofit organization to assist at-risk youth in her local community and across Iowa. This is a hypothetical memo I would send to Daphne outlining the steps of what it takes to form a nonprofit in the state of Iowa. (Note, if you’re looking to form a 501(c)(3) it’s best work with a qualified attorney for advice and counsel specific to your situation and goals.)

To:                  Daphne Downright – SENT VIA EMAIL
From:             Gordon Fischer (gordon@gordonfischerlawfirm.com)
Subject:         How to Form a 501(c)(3) Nonprofit
Date:              April 13, 2019

Dear Daphne:

Good afternoon! I very much enjoyed our phone conversation of this morning, where we discussed your intent to begin a nonprofit to assist at-risk youth. Certainly this is an noble mission and I have no doubt that you could make a big impact. I also acknowledge you are very busy and don’t have the time to allocate to dealing with all of the documentation. So, I’m here to take this stress off of your plate!

Let’s recap some details regarding the process for founding a nonprofit organization. These steps will set your public charity up for the best possible success.

Main Steps to a 501(c)(3)

To recap what we talked over, forming a 501(c)(3) involves four steps:

  1. drafting, editing, and filing articles of incorporation;
  2. drafting and editing bylaws, with new board members then voting in favor of the bylaws in a duly authorized meeting;
  3. applying for an Employer Identification Number (EIN); and
  4. drafting, reviewing, and editing the IRS non-exempt status application, known as IRS Form 1023, as well as all the supporting materials IRS Form 1023 requires.

By far, the most difficult and time-consuming of the four steps is the IRS Form 1023. You should definitely review the form immediately, so you can gain a sense of the level of detail and involvement it requires.

How much does it cost?

While my regular hourly rate can go up to $300 per hour, I often have agreed with clients to perform all the legal work required to successfully begin a nonprofit for a flat fee of $4,800. I typically bill this over the span of five months, i.e., five easy payments of $980, due on, say, the first of each of the months.

Additionally, as you would expect, this matter will necessitate payment of filing fees to governmental agencies, such as the Iowa Secretary of State’s Office and the IRS. (The Iowa Secretary of State has a $20 filing fee, and the IRS 1023 Form has a $850 or $400 filing fee depending on the amount of gross revenue expectations). Of course, clients are solely responsible for payment of all such governmental fees.

How long does this take?

It usually takes a few months to pull all the paperwork together, including and especially Form 1023. I’ve had, however, ambitious clients who wanted to do it much faster, and I was able to accommodate. The flat fee includes as many conferences with me as you reasonably need for us to complete steps 1-4, above.

Benefits of Nonprofit Formation

Daphne, the benefits of a 501(c)(3) are many and include:

Tax exemption/deduction

Organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible to be completely exempt from payment of corporate income tax. Once exempt from this tax, the nonprofit will usually be exempt from similar state and local taxes.

Even better: if an organization has obtained 501(c)(3) tax exempt status, an individual’s or company’s charitable contributions to this entity are tax-deductible.

Eligibility for public and private grants

Nonprofit organizations can solicit charitable donations from the public. Many foundations and government agencies limit their grants to public charities.

Being able to offer donors income tax charitable deductions for donations, as well as eligibility for public and private grants, are probably the two major reasons folks want to obtain 501(c)(3) status.

Formal structure

A nonprofit organization exists as a legal entity and separate from its founder(s). Incorporation puts the nonprofit’s mission and structure above the personal interests of individuals associated with it.

Limited liability

Under the law, creditors and courts are limited to the assets of the nonprofit organization. The founders, directors, members, and employees are not personally liable for the nonprofit’s debts. There are exceptions. A person cannot use the corporation to shield illegal or irresponsible acts on his/her part. Also, directors have a fiduciary responsibility; if they do not perform their jobs in the nonprofit’s best interests, and the nonprofit is harmed, they can be held liable.

Focus your giving

With charitable giving flowing through a central nonprofit organization, and not through, say, a for-profit business, it’s easier to focus the giving on a singular mission. A for-profit business may be easily pulled away from a charitable mission by the pet causes of lots of different customers, clients, vendors, and employees. A nonprofit should be much less susceptible to such pressure.

Responsibilities of Forming & Managing a  Nonprofit

Of course, there are serious responsibilities that come along with creating and running a nonprofit. These can’t be overstated, and include:

Cost

Creating a nonprofit organization takes time, effort, and money. Plus, keeping a nonprofit on track, compliant, and successful also requires great care.

Paperwork

A nonprofit is required to keep detailed records and submit annual filings to the state and IRS by stated deadlines to keep its active and exempt status. 

Shared control

Although one who creates a nonprofit may want to shape his/her creation, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own articles of incorporation and bylaws. A nonprofit is required to have a Board of Directors, who in turn determine policies. 

Scrutiny by the public

A nonprofit is dedicated to the public interest, therefore its finances are open to public inspection. The public may obtain copies of a nonprofit organization’s state and federal filings to learn about salaries and other expenditures. Nonprofits must be transparent in nearly all their actions and dealings.

Continue the discussion

I hope this information is helpful to you as you begin this journey. It won’t always be easy (although I will attempt to make it as simple as possible for you!), but it will be worthwhile.

I would enjoy the opportunity to be of service to you. Thank you for your time and attention. If you have any questions or concerns, please contact me. As I told you this morning, I offer anyone/everyone a free one-hour consultation. Simply reach out to me anytime via my cell, 515-371-6077, or my email, gordon@gordonfischerlawfirm.com.

Warmest regards,

Gordon Fischer

Gordon Fischer Law Firm, P.C.

man stretching at desk

For decades, employers enjoyed very wide latitude in disciplining and firing employees for attendance problems, even if the absenteeism was the result of illness or injury. That latitude has been significantly altered since the passage of the Americans with Disabilities Act (ADA) in 1990. Let’s explore how some of the policy implications of the civil rights law play out in the workplace. Don’t forget the ADA applies to nonprofit employers too, and non-compliance is not an option!

ADA Coverage

The ADA protects only “qualified individuals with a disability.” Disabilities as defined under the ADA can mean either physical or mental impairment that substantially limit one or more major life activities. It can also mean an individual who has a record of such an impairment or is regarded as having such an impairment.

 

group of people in line

A qualified individual must be able to perform essential functions of the job, with or without reasonable accommodation. What’s a reasonable accommodation? It may include the following (but is certainly not limited to):

  • Making existing employee facilities readily accessible for use by persons with disabilities
  • Modifications to work schedule
  • Job restructuring
  • Appropriate reassignment to a vacant position
  • Acquiring/modifying equipment or devices
  • Adjusting/modifying examinations, training materials, or policies
  • Providing qualified readers or interpreters

Tension Between ADA and Absenteeism

It can be difficult when an employee is absent for a health reason, and co-workers must pick up the slack, or the work simply goes unfinished. But, the employer risks violating the ADA if the company terminates or disciplines such an employee without first considering whether the employee is a “qualified individual with a disability.” If the answer is yes, the employee does fall under the ADA umbrella, then the employer must consider whether they can reasonably accommodate the employee. An employer is required to make a reasonable accommodation to the known disability of a qualified employee, if it would not impose an “undue hardship” on the employer’s operation. Yet another term that sounds ambiguous at its face, undue hardship is defined as an action requiring significant expense or difficulty with regard to things like the structure of its operation, employer’s size, financial resources, and nature of the industry.

Employers are NOT required to make an accommodation if it would mean lowering quality or production standards. (They’re also not required to provide personal items for use, like hearing aids.)

Of course, not all persons with a disability will need the same kinds of accommodation. Some examples relating to absenteeism include:

  • Abe was diagnosed with cancer and will be absent as he undergoes chemotherapy.
  • Betty has a chronic medical impairment in the form of diabetes and will need to attend related medical appointments in regular intervals.
  • Charlie deals with major depressive disorder, and a recent exacerbation of symptoms means he’ll need time to recuperate.
  • Diana will also need time to recover from surgery for her chronic back condition.

Practice Pointers

To control attendance problems without violating the ADA, you should:

  • Evaluate each situation (that is, whether the employee is qualified, disabled, or whether you can provide a reasonable accommodation) on a case-by-case basis while acting as consistently as possible with past practice and in accordance with your attendance policy;
  • Have a written attendance policy that emphasizes the necessity of good attendance, but also provides you with flexibility that you might need to accommodate a qualified individual with a disability;
  • Maintain accurate records of all absences, including a separate and confidential file for any medical certifications or medical information relating to an employee’s absences;
  • Be aware of the interplay between business/nonprofit policies and state and federal laws; and
  • Call your attorney when you have questions about your duties under the ADA. The saying, “An ounce of prevention is worth a pound of cure,” is smart to keep in mind!

Smart Employers Seek Advice

Again, nonprofit employers, remember the ADA applies to you too! The ADA can be a complex law, and it can get even trickier when trying to accommodate appropriately for absenteeism, while balancing business/nonprofit operations. Know you don’t have to navigate it alone. Questions? In need of counsel? Don’t hesitate to contact me.

alarm clock on table

Most people have Tax Day earmarked in their minds like a birthday or federal holiday (typically it’s April 15, although it can vary year-to-year). Nonprofit leaders should have another day highlighted on their calendars for the next few years: when the annual reporting return, Form 990, is due.

Tax-exempt nonprofit organizations don’t pay federal taxes (obviously from the “tax-exempt” category), but the IRS still requires certain information in order to evaluate organizations on details like programs, finances, governance, and mission. It’s a way of confirming that tax-exempt entities are still qualified to operate without paying federal taxes. Form 990s are also made available to the public so there’s also accountability and transparency involved.

Due date?

man typing on computer with phone in forefront

So, when is Form 990 due exactly? It depends on the end of your organization’s taxable year; the form is due the 15th of the fifth month after the organization’s taxable year.  For most tax-exempt organizations that follow the typical calendar year (January 1 through December 31), this means Form 990 is due on May 15th every year.

What happens if there’s a failure to file?

Just like if you fail to file your income taxes there are repercussions, if an organization is required to file Form 990 and fails to for three consecutive years, the IRS will automatically revoke tax-exempt status. That’s right, no questions, no appeal process, just revocation in accordance with the law. Timely submission of Form 990 also can help your nonprofit organization avoid filing additional documents and certain user fees.

What happens if tax-exempt status is revoked?

If your nonprofit’s tax-exempt status is revoked, then the organization will have to pay corporate income tax on annual revenue. Additionally, the organization may be subject to penalties and back taxes if the revocation date was in the previous tax year. The nonprofit will then lose any state tax exemptions that were dependent on federal tax-exempt status. (Common examples of such state tax exemptions are property, income, and sales/use taxes.) Of course, the organization will no longer be able to receive tax-deductible charitable contributions and, accordingly, donors will no longer be able to receive the federal income charitable deductions for any gifts post-revocation date. Losing tax-exempt status will also disqualify the nonprofit from receiving many private foundations’ grants.

Be prepared for the filing date!

Form 990 is over 10 pages (not including additional schedules and written attachments), so no doubt your organization should have a jump start on the process. The best way to be prepared, year after year, is to have updated and applicable policies asked about on the form readily available to be referenced. I’m offering a great deal that features 10 policies related to Form 990 for $990. The rate includes a comprehensive consultation and full review round.

Any questions about when your nonprofit specifically needs to file, or want to discuss how the “10 for 990” special could work for you? Contact me at any time via email or by phone (515-371-6077).

men on computer at table

Not paying federal taxes is a big deal for a charity and is one of the major benefits of going through all that work of Form 1023, state filing requirements, drafting foundational policies, and the like. For oversight and evaluation purposes, many organizations that fall under the Internal Revenue Code Section 501(a) provision need to annually file Form 990 (Return of Organization Exempt From Income Tax) instead. Beyond aspects of the organization’s finances, Form 990 also collects information related to practical and operational aspects like conflicts of interest, Sarbanes-Oxley compliance, and charitable gift acceptance. Submitting an annual filing (if required to do so under the provisions of Internal Revenue Code Section 6033) is also essential to retaining the coveted tax-exempt status. If an organization fails to file the required return for three consecutive tax years the IRS automatically revokes the entity’s tax-exempt status. (It’s one of many reasons why having updated, quality policies and procedures in place is so essential!)

One Form Doesn’t Fit All

Charities fall on a wide spectrum in terms of size, income, and number of programs. Consequently, not all organizations are required to file the same type of annual return. Indeed, some nonprofits are exempt from filing an annual return entirely. In addition to the “regular” Form 990, there are the options for 990-PF, 990-EZ, and 990-N.

Form 990 and the shorter 990-EZ are the most common forms filed by tax-exempt charities. Nonexempt charitable trusts (which are not considered private foundations) and section 527 political organizations are also required to file such a return.

Read on to find out which organizations need to file which annual form. (Note that this is general information and any specific questions on which form your organization needs to file should be directed to an attorney experienced in nonprofit law.)

woman looking at computer

Form 990

There are financial thresholds that determine which form your organization must file. However, any tax-exempt organization can choose to file a full return if they so choose. Organizations that meet or exceed the highest financial threshold are required to file Form 990. This includes organizations with gross receipts greater than or equal to $200,000 OR a total of assets greater than or equal to $500,000.

Form 990-EZ

Don’t let the title of this form fool you! There is less required information to report on than the full Form 990, but it’s not exactly easy. 990-EZ generally applies to small to medium-sized organizations with gross receipts less than $200,000 AND assets totaling less than $500,000. Organizations that meet these revenue qualifications can opt to file the full 990 or the EZ version.

Form 990-N

This is the shortest version of the 990 and isn’t so much of a full form as a basic electronic “postcard” submission. (The official name is “Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ.” Needless to say, I’m glad it’s been shortened to a simple “N.”) Smaller nonprofits with gross receipts less than or equal to $50,000 qualify to opt for this form. These nonprofits could also elect to file the more comprehensive Form 990 is they so choose.

For example, let’s say a group of high school students formed a small nonprofit with the non-partisan mission of registering high school students to vote across the state. Their reach is growing, but it’s still a small nonprofit with just $24,000 in gross receipts. This organization could certainly elect to file 990-N, but if they wanted to (if even for the experience) they could still choose to file a complete and full 990 return.

man at standing desk

990-PF

Private foundations, regardless of gross receipts or asset value, must file Form 990-PF. Nonexempt charitable trusts treated as a private foundation also need to file this form.

Extension

Just how sometimes you need to file an extension for your personal federal income taxes, the same goes for tax-exempt charities. If needed, the organization should file IRS Form 8868 by the annual filing due date in exchange for an automatic six-month extension.

When in Doubt, File Above and Beyond

Many organizations may find they need to file one form one year and then as they grow or change, need to file a different form the next. Other nonprofits may report gross income very close to either side of the threshold, which can make it confusing as to which form to file. When in doubt, it’s always better to “file up” and provide more information and data, rather than less. Hypothetically let’s say your organization filed 990-EZ last year, and is very close to the financial threshold, but could technically file 990-N this year. Just in case, it doesn’t hurt to file the more comprehensive 990-EZ again. For specific advice on your nonprofit’s individual situation, again, seek counsel from a qualified nonprofit law attorney.

Organizations Exempt from Filing

I mentioned earlier that some nonprofit organizations are not required to file an annual return of any type. These organizations include the following condensed list from this full IRS guide:

State institutions, federal corporations, & governmental units

Examples of state institutions exempt from filing an annual return include state-run hospitals and state universities. Tax-exempt federal corporations (organized under an Act of Congress) are also exempt from filing. Qualified governmental units and affiliates are also exempt if they meet the requirements listed in this Revenue Procedure document.

Political organizations

small american flag

Local and state qualified political organizations are only required to file Form 990 if they have annual gross receipts equal to or greater than $100,000. Additionally, the following are all exempt from filing:

  • Local or state committee of a political party
  • Association or caucus of local or state officials
  • Political committee of a local or state candidate
  • Any organization excluded from requirement to file Form 8871

Subsidiaries of parent organization

Let’s say there’s a statewide nonprofit organization that has small chapters in multiple counties across Iowa. If the “parent” organization files a group return that includes or “covers” the subsidiary, then that subsidiary would not need to file their own annual return. A parent organization may only file for the subsidiary organization if said subsidiary is covered under the IRS’ letter of exemption. Plus, the subsidiary covered by the exempt parent must give written consent for legal inclusion in the group return.

Additionally, parent organizations are under no obligation to file such a group return, in which case each subsidiary would be responsible for filing their own return.

Faith-based organizations

Faith-oriented organizations comprise a number of organizations that don’t need to file a version of Form 990, including churches, associations of churches, church-operated or religious-based schools, and some missionary organizations. Note that some religious groups that aren’t a church or associated with a church will need to register as a 501(c)(3) and file the corresponding annual return.

I recommend that all Iowa nonprofits have policies and procedures in place for top of the line compliance, but this advice especially applies to those organizations which need to file Form 990. (For most nonprofits that do need to file Form 990, it’s due in May, but it can vary. Technically the form is due the 15th of the fifth month after the organization’s taxable year.) Currently I’m offering a 10 for 900 nonprofit policy special, so that your organization may be prepared to file Form 990 and meet the gold standard for exemption!

Any questions about which forms your organization needs to file, or want to discuss how the 10 for 990 policy special could be helpful to your nonprofit? Contact me at any time via email or by phone (515-371-6077).

jeopardizing investments board meeting

Public charities and private foundations are both classified as 501(c)(3)s by the IRS. However, the different nonprofit operating structures come with different benefits, requirements, and challenges that can make navigating compliance difficult. I’ve written previously on aspects of private foundations including prohibited grants, payout requirements, and avoiding self-dealing. The best way to deal with many of the ins and outs of learning about private foundations is to deal with each individually; today let’s focus on jeopardizing investments.

Don’t Jeopardize the Foundation

Failing to exercise prudence and investing in ways that threaten the foundation’s ability to carry out its exempt purposes—called jeopardizing investment—and can result in a stiff penalty.

Many factors can contribute when determining whether or not an investment can be considered jeopardizing. At the least, a private foundation’s managers must exercise reasonable, ordinary business judgment and prudence in investing a foundation’s assets. Investments should also be made with the short and longterm financial needs of the entity in mind. This is part of baseline fiduciary duty board members must act with by closely overseeing the nonprofit’s finances.

 

Penalty Payment

In cases of jeopardizing investments, an excise tax of 10% is imposed on the foundation for the IRS-defined taxable period. Foundation managers can also be held personally liable and taxed up to a max of $10,000 (or 10% of the jeopardizing investment) if the “knowing, willfully, and without reasonable cause” participated in the making of the investment.

Furthermore, if the foundation does not take steps to remove an investment, an additional tax can be imposed on both the foundation and the responsible foundation managers.

High-Risk Activities: Proceed with Caution

While no category of investment is outright prohibited, a private foundation’s managers must pay close attention to high-risk activities, such as trading securities on margin, trading in commodities futures, and short selling, among others.

Get the Right Advice

All of this said, this is general advice and each charitable organization is unique. I highly recommend seeking out an attorney well-versed in nonprofit law to assist with multiple aspects of the charitable organization life cycle from the formation through employee hiring through board development.

Questions? Want to make sure your private foundation is taking the right steps to avoid adverse consequences like audits and taxes.

private foundation board meeting

When you first read the headline to this blog post you might have been (rightfully) confused. A private foundation is a type of 501(c)(3), so isn’t this type of nonprofit tax-exempt from federal income tax? This is just one of the nuances of private foundations that can make forming and managing them complicated. Previously I’ve covered other aspects about the private foundation that are important for foundation leaders to understand including avoiding jeopardizing investments, prohibited grants, self-dealing, and payout requirements. Today let’s shine the learning spotlight on excise taxes.

Tax Exempt, But…

Even though private foundations are exempt from income tax, they are subject to an annual 2% excise tax on the income they earn on their net investment income. (This is often referred to as the private foundation excise tax.) The purpose of collecting this revenue is to fund IRS oversight of the nonprofit sector.

Can you Reduce the Tax?

In certain circumstances, the excise tax can be reduced to 1%. The tax is reduced in situations where a foundation’s distributions (measured as a percentage of assets) in a given tax year exceed the average payout rate of the foundation over the preceding five years, by an amount at least as much as the 1% tax savings the foundation will obtain. This is called the “maintenance of effort test” and was implemented to make certain that tax savings are being used for added charitable expenditures as opposed to being “pocketed” by the foundation.

Managing & Administering

Managing and administering the private foundation excise tax can be difficult and complicated, particularly because of the two-tier tax structure. This can also be challenging in decision-making because it somewhat discourages foundations to consider increasing gift for unanticipated grants, such as in the case of a natural disaster or other relief efforts. To comply with the private foundation excise tax requires staff to constantly monitor and adjust spending and savings in order to calculate the correct tax rate.

How to Prepare Your Private Foundation

I highly recommend enlisting an attorney well-versed in private foundation operations in order to stay on top all requirement and avoid detrimental missteps. You may also want to consider implementing training for foundation board members. It’s also a good idea to implement sound policies and procedures and update them when necessary as the foundation evolves and circumstances change.

Questions? Want to learn more about how to make certain your private foundation is set up for success from the start? Don’t hesitate to contact me for a free consultation. You can also download my free, no-obligation nonprofit formation guide!

blackboard

April Fool’s and Easter aren’t the only days to look forward to in April! I like to help spread the word about all the awesome events, awards, and grants available in Iowa. There are so many great opportunities for nonprofit pros, board members, volunteers, and donors, that range from webinars to workshops. But, life is busy, and it can be hard to keep track of what you should register for or put on your calendar. That’s why I compiled a list for your convenience!

Learning Seminars, Trainings, & Workshops

  • 4/2- For those on the western side of the state of Iowa, young professionals can take advantage of the opportunity to learn about what it means to serve on a nonprofit board at this Board Training (in Omaha) presented by Share Omaha.
  • 4/3- Still not sure how search engine optimization can help your nonprofit, or what it is? Cedar Falls-based Red Lab Technologies will be helping the Community Foundation of Northeast Iowa Marketing Meet Up group get answers and solutions to these questions and more.
  • 4/4- Attend the Central Iowa Chapter of Grant Professionals Association, “In It to Win It – Grant Writing, Management, and Everything in Between” workshop at DMACC. Pro grant trainers Johna Rodgers, GPC, and Amanda Day, GPC, share their knowledge of grant writing, management, and other topics.
  • 4/4- The Minnesota Planned Giving Council will lead community foundation participants in a one-day seminar through the nuts and bolts of planned giving instruments and strategies at the Greater Des Moines Botanical Gardens. Registration is $25 per participant.
  • 4/9- Cedar Valley Nonprofit Association is hosting SuperSTAR Supervision to enhance your professional skill repertoire while heightening the intentionality of your supervision through the sharing of tips and strategies to make you a S.T.A.R. in your most important role. Presenter: Dr. Beth Triplett, Leadership Dots.
    Free for CVNA members/$25 non-members.
  • 4/9- The Association of Fundraising Professionals Eastern Iowa Chapter is hosting a program highlighting the Eastern Iowa successes with giving circles that reflect the generosity of community members and may offer insights into giving preferences of a relatively untapped demographic. Learn more from Leighton Smith, who helped found the Hawkeye Chapter of 100+ Men Who Care, which surpassed $500,000 in total cash contributions this past November.
  • 4/15- Hosted by World Renew in Pella, “Helping that Helps” workshop attendees will hear stories from practitioners, best practices from each other, and be inspired to confidently partner both locally and globally in a way that provides hope instead of unintended harm.
  • 4/25- For the quarterly membership meeting of the Iowa Council of Foundations, head to NewBoCo for an interactive session on how Power Moves can help you redefine risk to more effectively build, share and wield power for equity and justice.
  • 4/30- Here’s a great event in Des Moines: “A Fairytale for Fundraising: Storytelling Strategies to Inspire Donations.” The workshop is for nonprofit staff and board members who want to make a connection between marketing and development functions, lead fundraising or promotional efforts for the organization or want to gain a better understanding of how they can be an ambassador for their organization by telling the story of impact and opportunity. The cost to attend is $30 and the event will be held at Junior Achievement in Des Moines.

Events

  • 4/4- UNI’s Nonprofit Leadership Alliance Student Association hosts the15th Annual Cedar Valley Nonprofit Awards Luncheon to recognize the contributions of local nonprofits and nonprofit leaders.
  • 4/5- Put a spring in your step with eight rounds of trivia in Iowa City to benefit a community non-profit, the Antelope Lending Library Bookmobile.
  • 4/6- Join the Clinton Committee at the 24th Annual Clinton Benefit: Red, White, and Blue make wishes come true to benefit Make-A-Wish Iowa.
  • 4/6- Hops for Housing is a fund- and awareness-raising event at NewBo City Market to benefit Willis Dady Homeless Services, which provides shelter and prevention services to homeless and near-homeless households in Linn County. The event will feature beers from 35-40 local, state, national, and international breweries. Tickets are $30 in advance and $35 at the door.
  • 4/12- Eastern Iowa Corridor wine and beer tasting event, Uncork A Wish, returns to Cedar Rapids. All proceeds will go to Make-A-Wish Iowa to help grant wishes for children with life-threatening medical conditions.
  • 4/25- Attend the spring banquet benefiting the Dubuque Dream Center. The theme is Impacting Youth. In the keynote, “Telling Our Story,” teachers, parents & students will share how the Dubuque Dream Center has impacted lives and the Dubuque community. An individual ticket for this event is $75 and a table of 8 is $600.
  • 4/26- Putts for Prevention is an exciting and fun nine hole putt-putt course located at all of your favorite downtown eateries in Cedar Rapids. Your day will start at Greene Square Park and follow the course of restaurants and bars. The best part? The proceeds will go to Foundation 2 and support crisis services and suicide prevention efforts.

Grants

There are so many great events and opportunities for nonprofits and the people that advance them that there is no doubt I missed some in the list above. If you would like to notify GFLF of any upcoming nonprofit-focused events and opportunities in the coming months, don’t hesitate to email me at gordon@gordonfischerlawfirm.com.

stop sign

Awarding grants is a primary way for private foundations to accomplish their charitable goals. It’s also an oft-used way to meet annual distribution requirements to avoid an IRS-imposed penalty of an excise tax. However, this area of nonprofit activity can be ripe for misstep and noncompliance because some grants are prohibited. Further, others require heightened diligence to steer clear of trouble.

Taxable expenditures

Taxable expenditures for non-charitable purposes are not considered qualifying distributions, including:

  • Lobbying
  • Political activity to influence legislation
  • Grants to organizations other than most public charities

Scholarships

  • Scholarships to individuals for travel or study are considered grants. However, grant-making plans need prior approval from the IRS and must include certain provisions, such as monitoring the performance of the grantee.

Adopt Smart Grant-Making Policies & Procedures

It is in the best interest of private foundations to exercise expenditure responsibility by setting in place a formal set of policies and procedures for grant-making. This document and its provisions, among other things, should:

  • Ensure that grant funds are spent solely for grant purposes
  • Obtain full and detailed reports from the grantee on how grant funds are spent
  • Make full and detailed reports to the IRS with respect to such grants

When it comes to high quality policies and procedures, you can and should avoid the time, energy, and monetary costs of DIY Internet templates. Set the foundation up for success when you enlist an attorney well-versed in nonprofit law to draft a document (or set of documents) and implement with an effective, engaging board/staff training. The benefits of investing in a qualified attorney to craft your important policies (like those related to grant-making) are numerous; the right attorney will put your organization’s best interests first, saving you resources in the long run.

two people talking at table

It’s important to note that the info in this post is, at best, a mere outline of just one of the complex regulations governing private foundations.  If you want to learn more, don’t hesitate to contact me as I offer a free consultation. You can also download my free, no-obligation nonprofit formation guide if you’re thinking about topics like this the pre-formation phase of the foundation’s life cycle.

Two woman at board meeting table

When forming a nonprofit organization, at some point founder have to weigh the merits of the public charity versus the private foundation. Both are classified by the IRS as 501(c)(3)s. There are indeed benefits and challenges to the structure of both nonprofits, but private foundations can be subject to stricter oversight and need to meet different requirements to retain compliance. Because all the different aspects of a private foundation can be difficult to parse out together, it’s helpful to break it down. We’ve covered self-dealing and now it’s time to explore the payout requirement for private foundations.

Qualifying Distributions

Unlike public charities, private foundations are required to spend a minimum amount—called a qualifying distribution—for grants, administration, and other charitable distributions every year, or pay a penalty. The amount of the qualifying distribution is equal to 5% of the fair market value of the foundation’s assets during that year.

The following are considered permissible for qualifying distribution payments:

  • Grants
  • Costs of all direct charitable activities
  • Program-related investments and loans
  • Administrative expenses necessary for the conduct of its charitable activities
  • Asset purchases for carrying out charitable activities (such as furniture or computers)
  • Program-related investments and loans

If a private foundation fails to make a qualifying distribution, the IRS imposes a hefty penalty (a 30% excise tax) on the funds a private foundation fails to distribute.

The More You Know

An important caveat to the qualifying distribution requirements is that a foundation may elect to set aside funds for up to 5 years for certain major projects. Furthermore, excess qualifying distributions may be carried forward for a period of five tax years immediately following the tax year in which the excess was created.

Leader Liability

Foundation managers should be aware that while the penalty is imposed on the foundation, individuals may also be charged penalties on the grounds s/he failed to exercise fiduciary duties.

Let a Lawyer Help

With all of that said, this is why it’s a smart (even essential) idea to enlist an attorney well-versed in the intricacies of nonprofit law to serve as a guide at different steps throughout the life cycle of a private foundation, from formation to board building, to continued compliance.

employees talking

Questions? Want to learn more about how to make certain your private foundation is set up for success from the start? Don’t hesitate to contact me for a free consultation. You can also download my free, no-obligation nonprofit formation guide!