nonprofit paperwork

Employment policies are vital to the well-being of your favorite nonprofit. Such policies set workplace expectations, define work guidelines, reduce and eliminate confusion and misunderstanding, and provide steps necessary for any disciplinary action. Formalizing workplace rules makes certain that everyone—from independent contractors to management to staff to board members—are informed and on the same page.

COVID-19 has been particularly tough on the nonprofit sector and organizations providing essential social services. Employment policies in this environment are important, but I understand they could easily fall to the budgetary backburner. That’s why I want to make it clear, upfront, that I will work with each individual Iowa nonprofit organization to come to an agreement for a fee that fair, but also accessible and not a strain on the nonprofit. So, in short, the cost of drafting essential employment policies or other employment documents, like an employee handbook, is entirely flexible to fit each situation.

Benefits of Employment Policies

An official set of well-developed employment policies provides many benefits for your nonprofit. For nonprofit employers, policies capture 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. Instituting strong, fair, and unambiguous policies not only contributes to a happier workforce, but it can also improve employee retention. Further, employment law is vast, complicated, and can be tricky to navigate. Well-drafted employment policies, as described below, can also help you avoid legal issues and costly mistakes.

Employee Handbook

Employee handbooks are not required by law, but having one is in the best interest of your nonprofit and those who work for you— even if you have just one employee. A good employee handbook effectively communicates your nonprofit’s policies and procedures to employees and makes clear the rights and responsibilities of employees in your organization. Many disputes can be avoided by a clear, easy-to-read, and straightforward employee handbook.

 Employment Agreement

An employment agreement sets the conditions, terms, and obligations between you as the employer and an employee. It’s considered a binding contract that should be administered in writing and signed by both the employee and an acting officer.

Employment agreements need to be individualized to suit each employment relationship. But important elements of employment agreements may include salary; benefits; work schedule; paid-time off (PTO) allotment; restriction on confidential information; non-compete and non-solicitation provisions; mandatory mediation and arbitration for all disputes; and making certain the employee is considered to be only “at-will,” that is, the employee can be fired at any time for any reason.

 Formal Performance Review

Formal performance reviews are an assessment of an employee by a supervisor and employee (it’s a two-way, not a one-way discussion) that are based on jointly determined job goals and performance objectives. While often overlooked—and sometimes dreaded—performance reviews are of great value to nonprofit employers and their employees.

You should have in place a standardized form and consistent processes for conducting individual performance reviews of all employees. Evaluating the quality of an individual’s work, ability to meet goals, communication skills, adherence to your nonprofit’s mission, attendance, and dependability, among other criteria, is key to effective workforce management and to building trust with employees.

 Employee Personal File

A personnel file is a hard copy folder or digital file that contains information related to every new employee, existing employees — full and part-time — and former employees. Knowing what needs to be stored in a secure personnel file — and what NOT to keep in it — will help your nonprofit in promotion and termination decisions; provide a means of tracking vacations, training, and achievements; and are necessary to comply with local, state, and federal regulations.

A personnel file should only contain items related to his or her job or employment status. These include (but are not limited to):

  • Application and resume
  • Signed acknowledgment page from employee handbook
  • Pay information including timesheets, W-4s, and withholding forms

Just as important as having the right information in a personnel file, is to avoid placing the wrong documents in a personnel file. Some items that should NOT be in an employee’s personnel file include:

  • Medical information and accommodation requests
  • Whistleblower complaints
  • Court orders, such as garnishment or restraining orders

Independent Contractor Agreement

Self-employed, freelancer, consultant. No matter what they call themselves, people who provide goods or services to your nonprofit, but are not your employees, are considered independent contractors. Independent contractors differ from employees in that IC’ers control their financial and work-related relationships and pay their own self-employment, Social Security, and Medicare taxes.

When you hire an independent contractor, you should have a written and signed contract that clearly outlines the scope of work, price, and payment, severability, deliverables, and clearly identifies the person as an independent contractor. Also, you can minimize and avoid legal liability by placing the right provisions in an independent contractor agreement.

phone sign here

Updating Employment Policies & Additional Policies Needed

If you already have some (or even all) of the above-listed employment policies in place, when were they last updated? Think about the many ways your organization has changed and grown since they were written, including new employees you hired and existing employees whose roles evolved. Changes to state and federal laws may have rendered some elements of your employment policies incomplete or out of compliance. It may be time to renew your commitment to a productive and happy workplace by revising employment policies.

What Other Policies Do You Need

Be aware this blog discusses only employment policies. To work toward optimal IRS compliance, you should adopt the nine major policies and procedures which appear on IRS Form 990. Also, you should have documents in place covering ethics; grantors and grantees; endowment management; and legal training for your board of directors.

Let’s Talk!

To discuss further, please don’t hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077). I’d be happy to discuss employment law with you any time. I offer a one-hour free consultation, without any obligation whatsoever. Also, as I mentioned,  I allow my nonprofit clients to essentially choose their own rate during this trying time of COVID-19, when more than ever before, our communities need the essential services that Iowa nonprofits provide.

nonprofit leader at table

When forming a new nonprofit there are really two must-have documents you need to get the dream off the ground. Those two documents are articles of incorporation and bylaws. Of course, there are other important documents you will need, but it’s good to tackle first things first!

Recently on the blog we explored the state and federal requirements and best practices for articles of incorporation. Now, let’s learn about bylaws!

What Exactly Are Bylaws?

Undoubtedly you’ve at least heard of or read through a set bylaws. But, what does this document do? Effective bylaws should do the following:

  • serve as the internal operating rules of a nonprofit.
  • specify processes like the election process of directors and operation of meetings.
  • resolve any uncertainty between board members on issues of correct process.

Do Bylaws Need to be Filed or Adopted?

Unlike articles of incorporation, bylaws are not filed with any government entity like the Iowa Secretary of State. However, Iowa law does require that the initial bylaws of a nonprofit be adopted by its board of directors.

A nonprofit’s bylaws should address the high level governing decisions that founding board members deem non-negotiable for the organization’s success. Here are a few provisions that great bylaws often include:

  • Purpose for organization
  • Board structure
  • Official meeting requirements
  • Terms of board service for officers
  • Officer position descriptions
  • Procedure for officer/board member succession and removal
  • Provisions for membership (if any)
  • Voting rights

Another essential element that can be mistakenly forgotten is a paragraph for amending the bylaws in the future. Times change and the circumstances of how your organization can do the most good can shift. In such a case your board will want to rely on the procedure for amendments outlined in the bylaws to reflect the transition.

Regularly Review and Reference

Again, an organization’s bylaws are like an internal roadmap if there’s any question of structure or procedure. As fiduciaries of the organization, board members should re-read the bylaws at least annually for sustainable good governance. Of course, brand new board members should be provided with a copy as a part of their board orientation.

What About All the Other Documents I Need?

At this point you may be skeptical that you just need two documents–articles of incorporation and bylaws. What about all the other documents you’re certain you need to have? It’s a valid question and to obtain and maintain qualified tax-exempt status there’s certainly more “paperwork” to be done:

So, How Do I Go About Drafting Bylaws

There is much more to be said on bylaws as they can and should be tailored to your individual organization. It’s a wise investment to enlist a professional (like an attorney well-versed in nonprofit law!) to draft quality, comprehensive bylaws personalized for your nonprofit’s needs, mission, and goals.

Questions? Want to learn more about turning your dream of an organization that makes a significant impact or positive change? Grab my complimentary Nonprofit Formation Guide and then contact GFLF for a free consult!

compass journal near macbook

To get the ball rolling in forming a tax-exempt charitable organization there are just two main documents to put in place. Seriously, just two–articles of incorporation and bylaws. Let’s start with exploring the components of what should be in your nonprofit’s articles of incorporation. (We’ll dig into bylaws in another post!)

Articles of Incorporation

Think of articles of incorporation as the constitution of your nonprofit. While articles of incorporation can be fairly short, there are some necessary elements required under both Iowa and federal law to gain and retain that golden tax-exempt status.

woman holding red heart

Legal Requirements in Iowa for a Nonprofit’s Articles of Incorporation

Under Iowa law, articles of incorporation for a nonprofit must contain the following:

A corporate name which satisfies two requirements.

First, the corporate name must be distinguishable from any other nonprofit or business authorized to do business in Iowa. In other words, the name must be different and unique from all other names – even if it’s different by just a single letter. For example, no one could incorporate using the name, “Gordon Fischer Law Firm.” But if there were another lawyer with my name, he could legally incorporate simply by naming his business, “Gordon R. Fischer Law Firm,” or “The Gordon Fischer Law Firm.”

The second requirement is that the name does not contain language stating or implying that the corporation is organized for an unlawful purpose. To take an extreme example, “The Nonprofit Association of Heroin Dealers” would not be a proper name (in addition to many other legal issues!).

The address of the corporation’s initial registered office and the name of its initial registered agent at that office.

The “registered agent” is a legal name for “contact person”–the person who will be mailed if there’s any sort of problem or issue with the corporation. The “initial registered office” is simply that person’s (the registered agent’s) physical address, like a home address. It cannot be a PO Box; it must be a street address.

Be certain that the registered agent is responsible and involved. There can be obvious, profoundly negative consequences if the Iowa Secretary of State, or a taxing and/or regulatory agency (like the IRS) were to mail to the registered agent, and the registered agent doesn’t see the mail, and/or doesn’t provide the mail to the organization.

The name and address of each incorporator.

The “incorporator” is a legal term meaning the founder(s); the person(s) responsible for starting the nonprofit.

Whether or not the nonprofit will have members.

Unlike a regular corporation, a nonprofit does not have stockholders. (Of course, this is because nonprofits do not issue stock.) Instead, nonprofit can choose to have “members.” A formal “membership” structure often grants members certain basic rights, such as the power to vote for directors and approve a sale or merger. Most nonprofits (especially smaller ones) do not have members, due to the additional paperwork and required formalities. Instead, most nonprofits instead rely on their board of directors. In any case, a nonprofit must formally declare in their articles whether or not it will have members.

Provisions not inconsistent with law regarding the distribution of assets on dissolution.

When a nonprofit dissolves (i.e., terminates), any remaining assets must be distributed to another nonprofit (or government entity for a public purpose). No individual or group can be unduly enriched when a nonprofit ends. And, if you think about it, that makes a lot of sense. Folks contribute to a nonprofit to support its tax-exempt purposes, they wouldn’t want their funds to end up supporting non-charitable purposes.

An incorporator must sign and file the articles of incorporation.

The articles of incorporation must be filed with the Iowa Secretary of State’s office (and the ISOS will check that all the requirements above are met before filing is allowed). Currently, the filing fee is $20.00.

Federal Legal Requirements for a Nonprofit’s Articles of Incorporation

Of course, like all organizations, a nonprofit is governed by both state and federal law. Simplifying a bit, the IRS has two major requirements for a nonprofit’s initial governing documents.

  1. The articles of incorporation must limit the nonprofit’s purposes to exempt purposes set forth in Internal Revenue Code Section 501(c)(3). The exempt purposes set forth in section 501(c)(3) are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” An explicit reference or citation to 501(c)(3) and one or more exempt purposes is sufficient to meet this requirement.
  2. In addition, an organization’s assets must be permanently dedicated to an exempt purpose. This means that if an organization dissolves, its assets must be distributed for an exempt purpose pursuant to 501(c)(3), or to the federal or state government or a local government entity, for a public purpose.

Amended and Restated Articles of Incorporation

No doubt some of you are thinking, hey, we already have articles of incorporation! Sure, we may need better articles, or improved articles, but we do have them.

In such cases, when a nonprofit wants to update or revise current articles, the organization files with the Iowa Secretary of State what is known as “amended and restated articles of incorporation.” These amended and restated articles completely supplant the earlier articles.

If filing amended and restated articles, Iowa law requires a statement in the document to the affect that all the amendments, changes, revisions, etc. are reflected in this new, single document. To meet this requirement, I use this statement:

“I [the incorporator] hereby certify that these Amended and Restated Articles of Incorporation consolidate all amendments into this single document.”

So, How Do I Go About Getting Articles of Incorporation

Each organization is unique and it’s smart to enlist someone (like an attorney well-versed in nonprofit law!) to draft a quality, comprehensive set of articles personalized for your nonprofit’s needs, mission, and goals.

Questions? Want to learn more about turning your dream of an organization that makes a significant impact or positive change? Grab my complimentary Nonprofit Formation Guide and then contact GFLF for a free consult!

man typing on macbook

I’ve written a lot about IRS Form 990 on this blog, but all nonprofits organized in Iowa or authorized to business in the state also need to file a Biennial Report with the office of the Iowa Secretary of State. The report is required under Iowa Code §504.1613.

The report is pretty basic and is essentially entity information updates of which the Iowa Secretary of State’s office records. Report requirements vary by state, so I’ve laid out all the basics below!

When is my nonprofit’s Biennial Report due?

Biennial Reports should be submitted between January 1 and April 1 in odd-numbered years (like this one, 2019!). An organization’s first Biennial Report is due on the first odd-numbered year following the calendar year of formation. So, if your nonprofit was formed (meaning you submitted articles of incorporation) in October 2019, the first Biennial Report would be due by April 1, 2021.

Does someone have to sign it? Does it need to be notarized?

Yes; someone with authority in the organization should sign it (such as the president of the board of directors), however, original signatures are not required. Notarization is also not required.

person at conference table

What information is included in the biennial report?

The statute requires the following information be reported. (Note that a nonprofit is still a “corporate” entity, even though we don’t typically refer to nonprofit organizations like corporations.):

  • Name of the corporation
  • State or country under whose law the nonprofit incorporated
  • Address of the corporation’s registered office
  • Name of the corporation’s registered agent at that office in Iowa
  • Consent of any new registered agent, if applicable
  • Address of the corporation’s principal office
  • Names and addresses of the president, secretary, treasurer, and one member of the board of directors
  • Whether or not the corporation has members

The information on the Biennial Report should be related to the two-year period immediately preceding the calendar year in which the report is filed.

Is there a form?

Yes, there is a form you can file online or by mail. You will need both the corporation number and a temporary code to begin the filing process. Each corporation’s registered agent will receive a Biennial Report notice in early January.

Does it cost money?

Unlike the costs for LLCs or for-profit corporations, for nonprofit corporations, the filing fee is $0.

Other Considerations

While you’re thinking about reporting, once you have the Biennial Report submitted turn your attention to Form 990. Do you know which version you can submit? Do you need to adopt any beneficial policies and procedures to boost your filing (and amplify good governance and successful operations in your organization)?

Don’t hesitate to contact me with questions about any forms and reporting. It can seem like a pain at first, but the more prepared you are and the more knowledge you have, the faster you can get back to work, forwarding your mission.

men on computer at table

Not paying federal taxes is a big deal for a nonprofit 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 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 the 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 typically due the 15th of the fifth month after the organization’s taxable year; this is May 15 for most organizations. However, in 2020, due to COVID-19, the IRS granted nonprofits and foundations the opportunity to extend the filing due date out to July 15, 2020.

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).

Conflict of Interest chair with book on table

When you truly believe in a cause or issue your favorite nonprofit is addressing, you want everything to be in place to achieve the utmost success. This most certainly means adopting well-written and well thought out policies and procedures.

Make a smart paradigm shift in 2020. Stop thinking about adopting policies and procedures as something you “must” do…just another administrative hassle. Instead, realize that adopting the right policies and procedures protects you and your fave nonprofit, and even more importantly, sets you up for success.

A conflict of interest policy is inarguably one of the most essential policies a nonprofit board adopts. A conflict of interest policy addresses two critically important issues:

  1. Requires board members with a conflict (or a potential conflict) to disclose it.
  2. Excludes individual board members from voting on matters in which there is a conflict.

Who is responsible, and who gets the credit, for your nonprofit being a nonprofit? If you think about it, it’s the IRS! No less an authority than the Internal Revenue Service (IRS) highly encourages nonprofits to adopt specific types of governance policies to limit exposure to abuse, vulnerabilities, and engagement of nonexempt activities. One important such policy is a conflict of interest policy.

Note the IRS Form 990 (essentially the tax return form for nonprofits) directly asks whether the nonprofit has a conflict of interest policy,  how the organization determines when board members have a conflict of interest, and what steps are taken following such a determination.

If your nonprofit already has a conflict of interest policy already in place, great! It may be a good time to hold a board meeting to review it.

If your organization does not have a conflict of interest policy, and/or you’re unsure of what specifics it should include, don’t hesitate to take me up on my free consultation offer.

If you have any questions or want to discuss further shoot me an email or give me a call at 515-371-6077.

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.

handshake

At times nonprofits that share highly similar missions, goals, and the like can be consolidated to maximize impact. So, in Iowa, what’s the process of a legal merger between two nonprofits?

Definition of Terms: What’s a Merger

Like many legal terms, the word “merger” is capable of multiple definitions. A merger can mean an asset acquisition; partnership; parent-subsidiary relationship; umbrella organization; and, of course, an outright merger.

Asset Acquisition: Assets of an organization are transferred to another entity, but the organization itself is not acquired.

Partnership: A relationship in which two or more organizations pool money, skills, and/or other resources and share risk and reward, in accordance with mutually agreed-upon terms.

Parent-Subsidiary: A relationship in which two separate corporations are maintained after a merger, with one (the “parent”) being a member corporation with its only member being the other corporation (the “subsidiary”).

Umbrella: An overarching organization that holds several smaller organizations under it, each participating in the same branding and organizational structure as the umbrella, for the purpose of gaining efficiencies, improving and expanding available administrative services, and coordinating programs to better and/or more widely serve the community.

Outright merger: The process of combining two or more organizations into one organization.

Iowa Revised Nonprofit Corporation Act 

The Iowa statute which governs nonprofits is known as the Iowa Revised Nonprofit Corporation Act (“RINCA”) and can be found at Iowa Chapter 504. RINCA has a specific subchapter on mergers, Subchapter XI. Here’s a list of the major sections:

RINCA, Iowa Code Chapter 504, Subchapter XI: Merger

504.1101         Approval of plan of merger

504.1102         Limitations on mergers by public benefit or religious corporations.

504.1103         Action on plan by board, members, and third persons

504.1104         Articles of merger

504.1105         Effect of merger

504.1106         Merger with foreign corporation

504.1107         Bequests, devises, and gifts 

RINCA Definition of Terms

RINCA continually refers to nonprofit as “corporations.” To prevent confusion, and for simplicity’s sake, I change this and refer to “nonprofits.”

Also, RINCA discusses three kinds of nonprofits: religious, mutual benefit, and public benefit.

  • Religious nonprofits,” just as you would expect, refer to nonprofits with a sole or primary purpose that is religious in nature.
  • Mutual benefit nonprofits” work for the betterment of a select group of members, rather than for the benefit of the public. The most obvious type of mutual benefit nonprofit is a membership organization, such as a union, business chamber of commerce, or homeowner’s association.
  • Most nonprofits fall into the third category — “public benefit” nonprofits. This would include nonprofits like the Girl Scouts, Red Cross, and Iowa Public Radio.

Also, RINCA repeatedly refers to “foreign” nonprofits. Foreign nonprofits are simply nonprofits organized under other state laws; states other than Iowa.

Articles of Incorporation and Bylaws

RINCA continually refers to nonprofit articles of incorporation and bylaws. Usually, in a phrase like, “Unless the articles of incorporation or bylaws provide otherwise . . . . ” RINCA very often defers to the nonprofit’s own governing documents. In that way, RINCA acts as a “gap filler,” providing rules where nonprofits’ governing documents are silent or ambiguous.

Step One to Merger: Plan of Merger

RINCA begins quite sensibly by stating that nonprofits may merge. Nonprofits may merge, IF a proper plan of merger is properly approved.

What’s a plan of merger? A plan of merger must contain all of the following:

(1)       The name of the nonprofits;

(2)       The terms and conditions of the planned merger; and

(3)       The manner and basis, if any, of converting the memberships of each nonprofit into memberships of the surviving nonprofit.

A plan of merger may include any of the following:

(1)       Any amendments to the articles of incorporation or bylaws of the surviving corporation to be affected by the planned merger.

(2)       Other provisions relating to the planned merger.

Step Two: Approval of Plan of Merger

Who Approves the Plan of the Merger

Precisely who has the right or obligation to approve the plan of merger? The Iowa Code starts to answer that question with the common phrase, “unless . . . . the articles or bylaws impose other requirements . . . ” and then goes on to say: . . . a plan of merger for a corporation must be approved by all of the following to be adopted:

(1)       The board

(2)       The members, if any, by two-thirds of the votes cast or a majority of the voting power, whichever is less.

(3)       In writing by any person or persons whose approval is required by a provision of the articles authorized by section 504.1031 for an amendment to the articles or bylaws.

OK, so of course the Board of Directors approve the plan of merger, makes perfect sense. What about (2) & (3) above?

Members’ Approval

Who are the “members”?  That term, “members,” has a very specific meaning under RINCA.

RINCA defines “members” as: “Member” means a person who on more than one occasion, pursuant to the provisions of a corporation’s articles or bylaws, has a right to vote for the election of a director or directors of a corporation, irrespective of how a member is defined in the articles or bylaws of the corporation. A person is not a member because of any of the following:

(1)       The person’s rights as a delegate.

(2)       The person’s rights to designate a director.

(3)       The person’s rights as a director.

Note, again, very unusual for RINCA, that the definition of a “member” is given by RINCA, period, irrespective of how a member is defined in the articles or bylaws of the corporation. And, under RINCA, a member is someone who has a right to vote for directors.

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Third Person’s Approval

As to who approves the plan of merger, RINCA goes further, however, to include:

. . . a plan of merger for a corporation must be approved by all of the following to be adopted:

. . . In writing by any person or persons whose approval is required by a provision of the articles authorized by section 504.1031 for an amendment to the articles or bylaws.

What is this Section 504.1031? That section reads as follows:

504.1031 Approval by third persons. The articles of a corporation may require that an amendment to the articles or bylaws be approved in writing by a specified person or persons other than the board. Such a provision in the articles may only be amended with the approval in writing of the person or persons specified in the provision.

So, nonprofits looking to merge must look to their own Articles to see if any third persons must also approve the plan of merger.

 How Does the Board and Members Approve the Plan of Merger

According to RINCA, there are three different ways that a plan of merger can be approved:

(1)       at a membership meeting;

(2)       by “written consent;” or

(3)       by written ballot.

Each of these has different requirements.

Requirements for Membership Meeting, at Which Plan of Merger is to be Approved

If the board seeks to have the plan approved by the members at a membership meeting, the following requirements must be met:

(1)       Notice to its members of the proposed membership meeting in accordance with Section 504.705.

(2)       The notice must also state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger and contain or be accompanied by a copy or summary of the plan.

(3)       The copy or summary of the plan for members of the surviving nonprofit shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision.

(4)       The copy or summary of the plan for members of the disappearing nonprofit shall include a copy or summary of the articles and bylaws which will be in effect immediately after the merger takes effect.

What is sufficient “notice” under Section 504.705?

Under RINCA, nonprofits must give notice, consistent with its bylaws, and in a fair and reasonable manner. Helpfully, RINCA provides a description of when a notice is fair and reasonable.

Notice is fair and reasonable if all of the following occur:

(a)        The corporation notifies its members of the place, date, and time of each annual, regular, and special meeting of members not more than sixty (60) days and not less than ten (10) days, or if notice is mailed by other than first-class or registered mail, not less than thirty (30) days, before the date of the meeting.

(b)       Again, the notice of a meeting includes a description of the plan of merger.

(c)        Again, the notice of a special meeting includes a description of the purpose for which the meeting is called, e.g., approval of the plan of merger.

Requirements for Merger is to be Approved by Written Consent

Under RINCA, nonprofits may take action by “written consent.” In other words, action by written consent refers to a person’s right to act by written consent instead of a meeting, e.g., a signed document.

Written consent can be limited or even prohibited by a nonprofit’s articles or bylaws of the corporation. Here’s a potential problem: the action must be approved by members holding at least eighty percent (80%) of the voting power. That is a high bar.

Requirements for Merger to be Approved

By Written Consent or Ballot

Whether approval by written consent or written ballot, both share some requirements. If a nonprofit seeks to have the plan of merger approved by the members by written consent or written ballot:

(1)       The material soliciting the approval shall contain or be accompanied by a copy or summary of the plan of merger.

(2)       The copy or summary of the plan for members of the surviving corporation shall include any provision that, if contained in a proposed amendment to the articles of incorporation or bylaws, would entitle members to vote on the provision.

(3)       The copy or summary of the plan for members of the disappearing corporation shall include a copy or summary of the articles and bylaws which will be in effect immediately after the merger takes effect.

writing on desk with coffee and phone

Email for Written Consents or Written Ballots

Can email be used for either written consents or written ballots? Yes! (The issue with email and written consents is the requirement of a signature; the issue of email and ballots is the “checkmark” or “X”).

Unless prohibited by the articles or bylaws, a written ballot may be delivered, and a vote may be cast on that ballot by electronic transmission. Electronic transmission of a written ballot shall contain or be accompanied by information indicating that a member, a member’s agent, or a member’s attorney authorized the electronic transmission of the ballot.

The last sentence simply means there must be an indication that the returned ballot was from the member to whom it was emailed (a block signature, etc.).

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 Step Three: Prepare Articles of Merger

Let’s assume a plan of merger has been approved pursuant to RINCA, specifically, Iowa Code Sections 504.1101 and 504.1103 (and the Iowa Code provisions set forth therein). Next step? Articles of merger.

The articles of merger must contain all of the following:

(1)        The names of the parties to the merger.

(2)        If the articles of incorporation of the survivor of a merger are amended, or if a new corporation is created as a result of the merger, the amendments to the articles of incorporation of the survivor or the articles of incorporation of the new nonprofit.

(3)        If the plan of merger required approval by the members of a nonprofit that was a party to the merger, a statement that the plan was duly approved by the members.

(4)        If the plan of merger did not require approval by the members of the nonprofit that was a party to the merger, a statement to that effect.

(5)        If approval of the plan by some person or persons other than the members of the board is required a statement that the approval was obtained. (This is the “approval by third persons” (Section 504.1031) discussed above).

Articles of merger must be signed on behalf of each party to the merger by an officer or other duly authorized representative. (But only to be signed after the plan of merger is approved).

Step Four: File Articles of Merger with the Iowa Secretary of State

Articles of merger must be delivered to the Iowa Secretary of State for filing by the survivor of the merger. If there are other filings resulting from the merger, say, new and revised Articles of Incorporation, these may be filed as a “combined filing.”

Once the articles of merger are successfully filed, the merger is complete.

Step Five: Recognize the Legal Effect of Merger

Upon a successful merger, all the following occur:

(1)       Every other party to the merger merges into the surviving nonprofit and the separate existence of every nonprofit except the surviving corporation ceases.

(2)       The title to all real estate and other property owned by each party to the merger is vested in the surviving nonprofit without reversion or impairment subject to any and all conditions to which the property was subject prior to the merger.

(3)       The surviving nonprofit has all the liabilities and obligations of each party to the merger.

(4)       A proceeding (e.g., a lawsuit) pending against any party to the merger may be continued as if the merger did not occur or the surviving corporation may be substituted in the proceeding for the nonprofit whose existence ceased.

(5)       The articles of incorporation and bylaws of the surviving nonprofit are amended to the extent provided in the plan of merger.

“Bequests, Devises, and Gifts”

An interesting side note: RINCA’s subchapter on merger contains a provision about “bequests, devises, and gifts.” Bequests are property left to someone by a decedent through his or her will. A devise is the same, only given through a trust. The term “gifts” here means “charitable gifts.”

Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, that is made to a constituent corporation and which takes effect or remains payable after the merger, inures to the surviving corporation unless the will or other instrument otherwise specifically provides.

That’s really pretty great, right? So, if someone should leave property (cash, stock, bonds, real estate, whatever) through a will or trust, or just about any other way, to a “non-surviving” nonprofit after a merger with a surviving nonprofit, the property will go directly, without question, to the surviving nonprofit (unless specific instructions are left to the contrary).

Is your Iowa nonprofit considering a merger? Please contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077). I’d be happy to discuss the Iowa laws on merger with you anytime. I offer a free, one-hour consultation for all.

paper and phone on desk

Tax-exempt organizations need to have specific guidelines in place to be compliant and in order to meet the IRS’ expectations. It’s never too late (or early!) to invest in comprehensive internal and external policies and procedures. That’s why I’m offering the Nonprofit Policy: 10 for 990 special. You don’t have to feel overwhelmed or burdened at the thought of trying to draft legally correct and comprehensive policies. I’m offering a special deal for 10 important policies (read on for an overview of each) at the rate of $990. This also includes a comprehensive consultation and one full review round.

If you’re a nonprofit founder, executive, board member, or even an active volunteer, this is an excellent way to ensure the organization you’re deeply invested in is meeting (and exceeding!) the gold standard for tax-exempt organizations.

team members holding speech bubbles

I don’t know anyone who loves paperwork more than the Internal Revenue Service (IRS). But, if you’re operating a nonprofit, you’re going to have to learn how to embrace paperwork as well. Why? The IRS requires certain information from your organization be submitted annually via Form 990 “Return of Organization Exempt From Income Tax.” This 12-page document (not including schedules) serves as a check to make certain nonprofit organizations are still qualified for that coveted tax-exempt status. To that point, the 990 asks nonprofits about policies and procedures that help ensure the nonprofit is conducting business in a transparent way that’s consistent with their exempt purposes. Specific governance policies encouraged by the IRS limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities.

Major Benefits & Reasons for Policies for Compliance

If governance policies are not technically required, why do them?

write ideas

The existence of a policy doesn’t mean compliance is assured, of course, but having policies in place provides a framework and the expectations for an organization’s executives, employees, volunteers, and board members. Such policies can also be referenced if/when issues arise.

One of the major reasons to invest in strongly written, organization-specific policies is because the IRS audits tax-exempt organizations, just as it audits companies and individuals. (Having certain policies in place will only serve to benefit the organization should it happen to be audited.)

Another major reason to have proper policies and procedures in place is because they provide a foundation for soliciting, accepting, and facilitating charitable donations. Last, but not least, the 990 is made accessible to the public, meaning it can be used as a public relations tool if filled out diligently. Major donors can and often do review a charity’s 990 to ensure the charity is compliant, putting charitable donations to good use, and continues to operate in alignment with the overall mission.

Form 990 also serves the greater nonprofit sector as the data collected allows for the monitoring of growth and trends, tracking the types of needs/issues being addressed by nonprofits, and identifying specific adopted practices.

What Policies are We Talking About?

One thing’s for certain, articles of incorporation and bylaws are just the beginning when it comes to foundational documents.

The IRS made a major revision to Form 990 in 2008. The old version focused largely on financial data. Now, Form 990 reports extensive information on operations such as board governance, fundraising, international programs, non-cash receipts, joint ventures, use of subsidiaries, and more. Let’s cover all the policies the IRS asks tax-exempt nonprofits to report on:

Conflict of Interest

Found on Form 990: Part VI, Line 12 a-c

A conflict of interest policy should do two important things:

  1. require board members with a conflict (or a potential conflict) to disclose it, and
  2. exclude individual board members from voting on matters in which there is a conflict.

The Form 990 glossary defines a “conflict of interest policy” as follows:

A policy that defines conflict of interest, identifies the classes of individuals within the organization covered by the policy, facilitates disclosure of information that may help identify conflicts of interest, and specifies procedures to be followed in managing conflicts of interest. A conflict of interest arises when a person in a position of authority over an organization, such as an officer, director, or manager, may benefit financially from a decision he or she could make in such capacity, including indirect benefits such as to family members or businesses with which the person is closely associated. For this purpose, a conflict of interest does not include questions involving a person’s competing or respective duties to the organization and to another organization, such as by serving on the boards of both organizations, that do not involve a material financial interest of, or benefit to, such person.

Form 990 asks whether the nonprofit has a conflict of interest policy, as well as how the organization determines and manages board members who have an actual or perceived conflict of interest. This policy is all too important, as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.

If consistently adhered to, this policy can inspire internal and external stakeholder confidence in the organization as well as prevent potential violations of federal and state laws.

Document Retention and Destruction

Found on Form 990: Part VI, Line 14

This policy should clarify what types of documents should be retained, how they should be filed, and for what duration. It should also outline proper deletion and or destruction techniques.

The document retention and destruction policy (DRD policy) is useful for a number of reasons. The principle rational as to why any organization would want to adopt such a policy is that it ensures important documents—financial information, employment records, contracts, information relating to asset ownership, etc.—are stored for a period of time for tax, business, and other regulatory purposes. No doubt document retention could be important for proof in litigation or a governmental investigation.

You may have heard of the federal law, the Sarbanes-Oxley Act of 2002. It reaffirms the importance of a DRD policy. Sarbanes-Oxley reads:

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

While the Sarbanes-Oxley legislation generally does not pertain to tax-exempt organizations, it does impose criminal liability on tax-exempt organizations for the destruction of records with the intent to obstruct a federal investigation.

Another reason a DRD policy is an excellent idea, is it forces an organization to save space and money associated with both hard copy and digital file storage, by determining what is no longer needed and when…it’s like sanctioned spring cleaning!

Whistleblower

Found on Form 990: Part VI, Question 13 

Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers.

Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:

A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)

The Sarbanes-Oxley Act (referenced under the document retention and destruction policy above) also applies here. If found in violation of Sarbanes-Oxley, both an organization and any individuals responsible for the retaliatory action could face civil and criminal sanctions and repercussions including prison time.

Compensation

Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Data related to compensation is reported in three different sections on Form 990: “Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees;” “Statement of Functional Expenses,” lines 5, 7, 8, and 9; and Schedule J;” and “Compensation Information for Certain Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.”

Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management, is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy, which explains to current and potential employees and board members how compensation supports the organization’s mission, can be included in the compensation policy.

Generally, this policy provides the benefits of:

  • Enhanced confidence of donors and supporters
  • Consistent framework for decision making on compensation
  • Increased compliance with federal and state employment laws
  • Reduced risk to the organization and its management and governing board

Fundraising

The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, three places in Part IV, Part VIII, Part IX, and Schedules G and M. Almost every nonprofit needs a fundraising policy, as almost all engage in some sort of charitable fundraising. This policy should include provisions for compliance with local, state, and federal laws, as well as the ethical norms the organization chooses to abide by in fundraising efforts. Remember that fundraising doesn’t just include solicitation of donations, but also receipt of donations.

Gift Acceptance

Found on Form 990: Schedule M, Part I, line 31

While related to the fundraising policy, the gift acceptance policy relates to charitable contributions. There are no legal requirements for a gift acceptance policy, however this policy provides written protocols for nonprofit board members and staff to evaluate proposed non-cash donations. The policy can also grant some much-needed guidance in how to kindly reject donations that can carry extraneous liabilities and obligations the organization is not readily able to manage.

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Investment

One way a board of directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary.

Beyond the specifics of investments, this policy can also govern financial management decisions regarding situations like accepting charitable gifts of securities.

The policy should be written to give the nonprofit’s management personnel the authority to make investment decisions, as well as preserve the board’s oversight ability.

Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.

Form 990 does not ask if an organization has a specific investment policy, but it does refer to investments in multiple places throughout the form, hence the obvious need. 

Financial Policies and Procedures

Different than the aforementioned investment policy, the financial policies and procedures policy specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place. Similar to the investment policy, Form 990 does not make a specific ask about an organization’s financial policies, but this type of policy will serve as an indispensable guide to organizing, collecting, and reporting financial data.

Form 990 Review

Found on Form 990: Part VI, Section B, Line 11

Form 990 asks the following questions:

  • Has the organization provided a copy of this Form 990 to all members of its governing body before filing the form?
  • Describe in Schedule O the process, if any, used by the organization to review this Form 990.

In asking these questions, the IRS is indicating that distribution of the form prior to filing is optimal. (This is also one of those gold standard governing practices that is beneficial when using the form as a public relations material.) There are no federal tax laws requiring Form 990 review, and Form 990 does not mandate a written policy. However, a written policy is incredibly useful in clarifying a specific process for distribution and procedure review by the governing body (such as the board of directors). It also formalizes a review process and acts as a reminder to nonprofit leaders to distribute accordingly.

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Public Disclosure

Found on Form 990: Part VI, Section C, Lines 18 – 20

Public charities exist to serve the public in some way or another, and some organizational documents must be made available to the public upon request. Other documents can be kept entirely internal. This policy should overview (1) what documents must the organization disclose, and (2) to what extent does it want to make other non-required documents and information available to the public.

Form 990 specifically asks the filing organization to report if certain documents are made available to the public, such as governing documents (like the bylaws), conflict of interest policy, and financial statements. Additionally, the form asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the organization.

Where Do I Start?

man writing on paper

The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa, and to that point I want to help every Iowa nonprofit be legally compliant.

The 10 policies part of this promotion will save you time, resources, and you can feel good about having a set of high quality policies to guide internal operations, present to the public (if appropriate), and fulfill form 990 requirements.

If you already have some (or all) of the above listed policies in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.

Interested? It’s always a good day to contact Gordon Fischer Law Firm via email Gordon@gordonfischerlawfirm.com or by phone (515-371-6077).

glasses on notebook

A nonprofit is obligated, just like any other employer, to conduct an investigation when nonprofit management knows or has reason to know, that an employee is being subjected to discrimination, harassment, or other unlawful conduct in the workplace. That is true even if the complainant never submits a formal written complaint and no witnesses provide written statements. For today, let’s focus on sexual harassment and what steps nonprofits should take to make certain that allegations are handled seriously and followed-up on thoroughly.

What is Sexual Harassment?

The Equal Employment Opportunity Commission (EEOC) defines sexual harassment to include unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature. It also can include offensive remarks about a person’s gender. Both the victim and the harasser can be either a woman or a man, and the victim and harasser can be the same sex. The harasser can be the victim’s supervisor, a manager in another area, a co-worker, or even someone who is not an employee, such as a board member, volunteer, donor, or vendor.

Sexual harassment is considered illegal when it is so frequent or severe that it creates a hostile work environment and/or adversely affects the victim’s job, such as being fired or demoted. Iowa courts and administrative agencies ask, “would a reasonable person find the conduct offensive?”

 

What Should a Nonprofit Organization Do When They Receive a Complaint?

A. A thorough and complete investigation

All sexual harassment allegations should, indeed must be investigated. If an organization refuses to investigate, it can obviously be later accused of not taking complaints seriously. A superficial investigation could also send the message to employees that the organization doesn’t care, or is more concerned about protecting a person in power.

B. Contact your insurer

The nonprofit should contact, just as soon as possible, their insurance carrier (all nonprofits at a minimum should carry directors’ and officers’ liability insurance), to provide the insurer “notice of a potential claim.” If the nonprofit does not provide the insurance company with notice, the insurance company won’t have the opportunity to mitigate or address a potential claim. As a result, the insurance company may well have grounds to refuse to cover any resulting liability. Keep in mind too the insurance carrier will usually have an incentive to assist the nonprofit in avoiding legal liability and may offer resources and expertise, potentially even advice of legal counsel.

C. The investigation

The first step to beginning the investigation is to make a plan and determine the scope of the investigation. Questions to ask and answer: Who will investigate? What evidence needs to be collected? What are the main questions the investigator wants to ask? Who will be interviewed? To protect the integrity of the investigation and the credibility of the process, an organization may
want to bring in an outside, independent investigator.

D. Stay neutral

It is very important to stay neutral throughout the process and focus on the alleged conduct, remembering that harassment is subjective. I cannot emphasize enough that the organization should conduct a thorough investigation. Basic steps include preparing interview questions in advance; gathering evidence that might support or negate the complaint like text messages, voicemails, emails, photos, timecards, business expense reports, and social media posts; check past performance evaluations and prior complaints about the accuser and the accused; document every step; and encourage confidentiality, although never make confidentiality mandatory nor “absolutely guarantee” confidentiality.

E. Decision in written report

After an investigation is conducted, the organization will need to weigh the evidence and make a decision. Here the appropriate standard is what’s known as “preponderance of the evidence.” This is otherwise though of is it more likely than not that the incident occurred?

Then the organization should write a report. If the allegations by the accuser are supported, the employer should take immediate and appropriate corrective action. The EEOC recommends that the written report document the investigation process, findings, recommendation, and any disciplinary action imposed as well as any corrective or preventative action. After the nonprofit has submitted the report to the decision-maker and determined the appropriate action, it should follow up with the parties. The organization should tell the person who filed the complaint that appropriate action was taken, even if it can’t share all the details for privacy reasons.

F. NO Retaliation

After an investigation is complete and action is taken, it is very important is to check back with the employee regularly to ensure that no further harassment or retaliation has occurred. It is essential to explain to the victim that the nonprofit will not retaliate, and indeed will protect the victim from retaliation. It is also essential for all involved to understand (especially the alleged harasser) that retaliation is a separate and equally serious violation of the nonprofit’s policies, whether or not the underlying harassment did in fact occur.

G. No retaliation against third parties, such as witnesses

Prohibited retaliation can take place against anyone involved in the investigation, not just the accuser. It can take the form of leaving someone out of activities or decision-making that the person would normally participate in or be as direct as refusing to provide a requested accommodation or terminating employment. It can even be unintentional! A too-common example is moving an individual’s office thinking that by moving the office the employer is “protecting” the alleged victim.

H. Retaliation is the most common mistake

Retaliation for filing a complaint of sexual harassment is the most common mistake employers make in connection with their response to a complaint of sexual harassment. Again, for emphasis: do not retaliate against any employee or independent contractor who participates in the investigation.

Keep Protection Top of Mind

Remember: protecting the harassed employee is exactly the same as protecting the nonprofit. In sexual harassment situations, the best way that the board and executive director can protect the nonprofit is to make sure they find out what’s really going on, and if necessary, punish and remove harassers from the workforce. So, protecting employees is really protecting the nonprofit.

What questions or concerns do you have on this topic? What is your nonprofit doing currently in regards to potential situations such as this? Is it time to make a change or implement quality policies and procedures? Please do not hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077).