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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).

You are a superhero. Seriously, you have the ability to change the world or, at the very least, your little corner of it. In fact, changing the world can be as simple as asking yourself one question: what causes would I like to benefit in my will?

BEQUESTS TO CHARITIES IN YOUR WILL

You can include the nonprofits you care about most in your will, leaving a legacy after you have passed on. You can include charities like your church, alma mater, a local cause, or an international organization in your estate plan. If you ask the charity you care about most, I bet they’ll tell you that your charitable bequest, no matter how big or small, can make a huge impact. 

WHAT ABOUT MY KIDS?

When folks come to me for estate planning help, a major reason they do so—perhaps even the single reason they do so—is to benefit their children. Parents often think, “I love Charity X, but of course, I love my kids even more, and I’ve got to take care of my family.” Of course you do, and you should! However, I implore you to ask yourself another question: 

How much is enough for my kids?

If you have an abundance of assets, and/or your children are independent adults, could you provide adequate support for your children and include a bequest to one or more charities?

LET’S TALK

Invite the whole family to the kitchen table sometime (even if your kitchen table is a virtual one, via email or Zoom) and talk about the distributions you want to make at death. Ask if including gifts to charity from your estate plan would be appropriate and acceptable for your children. Perhaps it’s a charity the whole family supports. Perhaps this will be the beginning of a multigenerational cycle of giving.

Why not talk about it? This can be an especially productive conversation if you can explain that taxes are going to eat up a chunk of one or more of the assets, which can be avoided by giving said asset(s) to charity (since charities are tax-exempt).

LIFE INSURANCE

Sometimes when parents give a major asset(s) to charity, and their kid’s inheritance takes a real hit, they’ll buy a new life insurance policy to make up the shortfall to the kids. They may even buy a new life insurance policy and name the charity directly as a beneficiary. There’s also a very helpful kind of trust called an ILIT, that significantly increases the impact of life insurance. 

Without getting too complicated, let me explain the basics. An ILIT is an irrevocable, non-amendable trust which is both the owner and beneficiary of one or more life insurance policies. Upon the death of the insured, the trustee invests the insurance proceeds and administers the trust to one or more beneficiaries.

WHAT IS THE ROLE OF AN ESTATE PLANNER?

When it comes to estate planning, you’re thinking about so many different variables and scenarios – so what if you forget to factor in charity? Lucky for you, I’m here to help you maximize your charitable giving. That means determining how your generosity can not only help an organization make a difference, but how you can maximize the financial and estate-related benefits of giving.

STUDIES SHOWED

A 2013 study showed how lawyers, like me, can help charitable giving in estate planning. The scientifically-conducted research from the UK-based Behavioral Insights Team showed that when lawyers asked clients specific questions regarding charitable giving, the results were significant. Here are the findings:

CONTROL GROUP/BASELINE

Lawyers who provided no reminder or inquiry to their clients about possibly benefiting a charity in their estate plan (bequests) resulted in 4.9 percent of those clients including a charity in their plans.

TEST GROUP ONE

Lawyers who asked their clients, “Would you like to leave any money to a charity in your will?” resulted in 10.8 percent of their clients including a charity.

TEST GROUP TWO

Lawyers who said, “Many of our clients like to leave money to a charity in their will. Are there causes you are passionate about?” resulted in 15.4 percent of their clients including a charity. 

What a dramatic increase!

Here are the approximate dollar values associated with each group:

CONTROL GROUP/BASELINE

Average bequest – $5,000

TEST GROUP ONE

Average bequest – $4,800

TEST GROUP TWO

Average bequest – $10,200

Again, test group two gives a powerful example of the difference charity-minded estate planners can make.

In the study, there were a 1,000 people in each group. That means that “Test Group Two” raised over $1 million more than the control group.

Certainly, your lawyer plays an important role in reminding, guiding, and assisting you in your charitable giving so that you can use your superpower – charitable giving through your will – to the fullest extent.

In 2017, $35.70 billion was contributed to US charities through bequests. Imagine if everyone worked with a lawyer with a strong focus on charitable giving! The impact nonprofits make in our communities could be incredibly transformative.

LET’S GET STARTED

Harness your superpowers and start your legacy today! The best place to start is by filling out my Estate Plan Questionnaire. It’s easy, free, and there’s no obligation. It’s simply a document to get you thinking and planning. 

Already have an estate plan and want to update it to include the causes that are near and dear to your heart? Don’t hesitate to contact me.

*OK, not everything. But many things, let’s say, an excellent start.

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 on top of everything else there is to keep track of? Don’t hesitate to contact me.

board meeting with materials on table

While many nonprofit operations have shifted in some way or another during COVID-19, organizations do need to prep for a post-pandemic world. An ad hoc approach or reliance on what worked in the past may no longer be a strategic path forward.

I love the opportunity to speak with nonprofit boards of all sizes to help them govern the charitable organization in mission fulfillment in the utmost ethical and legal manner possible. While we can’t get together in the present due to public health concerns, leaders who are thinking ahead will want to schedule such trainings well in advance.

I highly recommend organizations of all sizes host training for their board members regarding their ten basic responsibilities, individually and collectively, within the broader context of modern best practices. I provide a two-hour training/orientation on these ten basic responsibilities, and the information below is intended as a simplified summary of this training.

Tailored Presentations

My live training session can be tailored to the nonprofit’s specific size, needs, and experience. The training includes an engaging visual presentation, handouts, and plenty of time for questions and discussion. Slides will also be sent out to attendees following the training. The following is a brief outline of the information I would present to the board.

10 Basic Responsibilities of Nonprofit Board Members

The ten basic responsibilities of nonprofit board members are as follows:

  1. Determine the organization’s mission, vision, objectives, and goals, and then advocate for them.
  • The board is responsible for ensuring’s mission, vision, objectives, and goals are plainly stated, embraced by all, and enthusiastically supported.
  1. Hire successful staff.
  • The board’s ability to recruit, support, reasonably compensate, and retain effective staff, especially the executive director, will be a crucial factor in the nonprofit’s success.
  • No matter how talented and experienced, employees need to clearly know their rights and responsibilities, through written policies and procedures, such as an employee handbook, employee agreement(s), and regular, formal performance review(s).
  1. Adopt “best practice” policies and procedures.
  • The IRS requires certain information from your organization to be submitted annually via Form 990 “Return of Organization Exempt From Income Tax.” 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.
  1. Ensure effective planning.
  • Through planning, the board and staff translate the nonprofit’s mission into objectives and goals, used to focus resources and energy.
  • The board is responsible for actively participating in and approving decisions that set the nonprofit’s strategic direction.
  1. Monitor and strengthen programs and services.
  • Given limited funds, but unlimited demands on those funds, the board ultimately must decide among competing priorities.
  • What the nonprofit actually does, and how well it does it, should guide all board inquiries.
  1. Ensure adequate financial resources.
  • A nonprofit can only be as effective as its financial resources.
  • Although much can and should be expected of the staff, the board is chiefly responsible for ensuring it has the funds it needs and that the organization does not spend beyond its means.

board training at wood table

  1. Provide financial oversight.
  • Safeguarding organizational assets is one of the most important board functions.
  1. Build and sustain a competent board.
  • A major issue the board and executive director need to answer is: How should we define the ideal mix and number of professional skills, backgrounds, experience, demographics, and other characteristics we should seek in our board members?
  • Board members must set and persistently articulate the level of expectation that they will hold themselves and the organization to.
  1. Ensure legal and ethical integrity.
  • The organization’s reputation and public standing require everyone to take three watchwords seriously: compliance, transparency, and accountability.

Compliance

The term “compliance” is simply shorthand for the regulatory and legal requirements imposed by the government and regulatory bodies at local, state, and federal levels that are considered part of a board’s fiduciary responsibility.

Transparency

Nonprofit organizations are expected to routinely and openly share more, and more complete, information to the media and the public about their financial condition, major activities, and staff compensation. A charitable nonprofit should make certain information about its operations, including its governance, finances, programs, and activities, widely available to the public.

Accountability

Although the board sets and periodically assesses the adequacy of major organizational policy, accountability measures ordinarily and appropriately fall to management. But the board needs to consistently ensure the organization is accountable to those who it serves, those who support it, and to the greater community.

  1. Enhance the organization’s public standing.
  • Board members serve as a link – the vital link – between the nonprofit and its board members, donors, potential donors, employees, volunteers, other stakeholders, and the community at large.
  • Board members should think of themselves as the nonprofit’s foremost advocates and ambassadors, hopefully, even after they leave the board!

Training Beneficial for New and Continuing Members

The “ten basics: as set forth above, tends to be an important training I recommend for all nonprofit boards and both new and returning board members. However, if your board is in need of a different training related to a specific aspect of organizational governance, such as governing midst the consequences of COVID-19, I can tailor the training accordingly. Most importantly, the training needs to be applicable and appropriate for your individual board.

Let’s Discuss What Your Organization Needs

Interested in hosting a two-hour training containing content individualized to your organization? That’s great and we can look to a date when we expect to no longer be social distancing and quarantining.

Generally, I charge a flat fee and this fee means no surprises for you or your budget. I’m also very conscious of pervasive budget constraints and will work with you and your budget.

The fee includes as many conferences as needed in preparation, materials during and following the training, and an active Q&A session throughout the training.

To discuss further, please don’t hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell (515-371-6077).

four faces covered by health masks

Consequences from COVID-19 including skyrocketing unemployment, mental health concerns, and general basic supply scarcity has meant an increased demand for services from nonprofits in a multitude of sectors. I’ve seen a number of successful efforts to help out local businesses, such as restaurants and shops, that are hurting from lack of foot traffic. These campaigns have focused on alternative revenue streams such as delivery deals and gift cards. The same concept can and should go be applied to your favorite nonprofit organizations as well.

Here are three ways you can help nonprofits while continuing to practice safe social distancing.

Donate cash under the CARES Act

The federal “Coronavirus Aid, Relief, and Economic Security” (CARES) Act was recently passed and among other policy goals, aims to incentivize charitable giving. The CARES Act creates a new federal income tax charitable deduction for total charitable contributions of up to $300. The incentive applies to cash contributions made in 2020 and can be claimed on tax forms next year. This deduction is an “above-the-line” deduction. This means it’s a deduction that applies to all taxpayers, regardless if they elect to itemize.

For those taxpayers who do itemize, the law lifts the existing cap on annual contributions from 60 to 100 percent of adjusted gross income. For corporations, the law raises the annual contributions limit from 10 to 25 percent. Likewise, the cap on corporate food donations has increased from 15 to 25 percent.

Protect yourself from coronavirus

Photo by Obi Onyeador on Unsplash

Gift retirement benefit plans

If you have a retirement benefit plan, like an IRA or 401(k), you may gift the entire plan, or just a percentage, to your favorite charity or charities upon your death. Retirement plans can be an ideal asset donation to a nonprofit organization because of the tax burden the plans may carry if paid to non-charitable beneficiaries, such as family members.

This can be accomplished by fully completing a beneficiary designation form from the account holder and name the intended nonprofit organization(s) as a beneficiary of your qualified plan. The funds you designate to charitable organizations will be distributed directly to the organizations tax-free and will pass outside of your estate, Individuals who elect this type of charitable giving can continue to make withdrawals from retirement plans during their lifetime.

Write in bequests to your estate plan

Execute an estate plan, or update an existing one, to include bequests (gifts) to the nonprofit organizations you care about. There are multiple different types of bequests which means testators have flexibility with the structure of their estate plans. An experienced estate planner will be able to advise you on all of your options, but here is a brief overview.

Pecuniary bequest

A gift of a fixed or stated sum of money designated in a donor’s will or trust.

Demonstrative bequest

A gift that comes from an explicit source such as a particular bank account.

Percentage bequest

A percentage bequest devises a set percentage—for example 5 percent of the value of the estate. A percentage bequest may be the best format for charitable bequest since it lets the charity benefit from any estate growth during the donor’s lifetime.

Specific bequest

A gift of a designated or specific item (like real estate, a vehicle, or artwork) in the will or trust. The item will very likely be sold by the nonprofit and the proceeds would benefit that nonprofit.

Residuary bequest

A gift of all or a portion of the remainder of the donor’s assets after all other bequests have been made as well as debts and taxes paid.

Contingent bequest

A gift made on the condition of a certain event that might or might not happen. A contingent bequest is specific and fails if the condition is not made. An example of a charitable contingent bequest might be if a certain person predeceases you,

This is just a small list, as there are many ways to efficiently and effectively make charitable donations in a tax-wise manner that benefits both parties involved. Because each individual’s financial situation is unique it’s highly recommended to consult with the appropriate professional advisors.

I’d be happy to discuss any questions, concerns, or ideas you may have. Contact me via email at gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.

board of directors hands in

If you’re thinking of forming a nonprofit organization, joining a board, or being a regular donor you may be confused by the differences between a “board of trustees” versus “board of directors.” It almost seems like they’re used interchangeably, and does it really matter? Isn’t a director a trustee, and vice versa?

In nonprofit practice and law today, both a “trustee” and a “director” describe an individual in a position of governance. But traditionally the term trustee was only used to refer to board members of a charitable foundation or trust. These days, generally, the name of a board of directors versus trustees mean the same thing and largely indicate syntactic differences.

Charitable Trust Laws

That said, some states have charitable trust acts (which are different from nonprofit corporation laws) and the term “trustee” can have a distinct meaning under such laws. In such cases, trustees are held to a higher fiduciary duty than directors, meaning trustees may be held liable for acts related to simple negligence. This means that a trustee could be held personally liable for certain acts even made in good faith.

As you might have presumed, trustees of a charitable trust have a duty to the beneficiaries of that trust.

The role of trustee can also come with an “absolute” duty of loyalty to the trust and a charge to the beneficiaries of the trust. Plus, even if approved by co-trustees, any personal transactions with the trust are prohibited.

What’s in a Name

If a nonprofit’s board members are referred to as trustees instead of directors, it doesn’t magically transform duties to those under the higher standard indicated in trust laws. But, there is a risk that in referencing board members as trustees in lieu of directors may inadvertently increase the governing board’s exposure to arguments that trust law and their associated standards applied.

Make Your Smart Start

When forming an organization or joining a nonprofit’s board, you want to be certain that the governing term—directors, trustees, or even governors—chosen is defined clearly and appropriately in governing documents. This helps ensure that everyone is on the same page regarding obligations, expectation, and legal standing. I highly recommend consulting with an attorney to make certain the officer terminology used with your organization is the best possible fit. It’s also important that the parameters of operation per that term are defined.

Questions? Concerns about your defining your board one way or another? Don’t hesitate to contact me for a free consultation. I can also assist with governing document drafting and review, as well as board training so that members know precisely their roles.

flowers in hand

My first attempt at a post to celebrate the spring equinox was a bad pun off of “springing power of attorney” (get it?!) that just didn’t work. Instead, I got to thinking about how all the great things about spring from green trees and baby bunnies, to finally putting away the snow shovel, evoke a sense of renewal. Spring is a time for cleaning out the old and opening up the windows to the new. So, allow me to plant a metaphorical seed of a few things nonprofit leaders should consider moving into the second quarter of the year so they can grow even stronger.

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Nonprofit Lesson: Seasons Change

All nonprofit organizations – no matter how successful – suffer through times of “winter.” Times when things seem bleak, cold, dark, icy, treacherous, and you just can’t get warm enough. But, always, these times pass. Sometimes, the best strategy is to just hang in there, like the seasons – metaphorical and real – always change and this too shall pass.

Nonprofit Lesson: Flower Power

The most beautiful flowers require lots of proper ingredients and care. Ask if you are tending to your nonprofit’s staff, board members, volunteers, donors, and other stakeholders, so they can help cultivate the beauty of your nonprofit’s mission?

With that in mind, nonprofits are typically understaffed and undercapitalized. Therefore it’s immensely important for nonprofit leaders to take time for self-care. Whether it’s a nature walk to listen to the birds trilling, taking your dog to the park, fishing, or spending time with your kiddos, it’s important to engage in your hobbies and peaceful activities to recharge, refresh, and start anew.

Nonprofit Lesson: Time for Spring Cleaning?

After a long Iowa winter, spring is always a welcome and refreshing thought. Yet, on top of all the wonderful aspects of emerging from frozen hibernation, this change of seasons reminds us that 2019 is moving quickly! The second quarter of the year is upon us. What are your nonprofit’s plans moving forward?

Let me suggest one “spring cleaning” project. Whether you’re on a nonprofit board, serving as staff, formed your own organization, or are an active donor or volunteer, the Nonprofit Policy Special: 10 For 990 is an important offer to consider and/or pass along to your colleagues, friends, and clients.

Tax-exempt organizations need to have specific guidelines in place to be compliant and meet the IRS’ expectations. It’s never too late to invest in comprehensive internal and external policies and procedures to help your organization work toward and achieve its mission.

Most annual information filing forms (Form 990) are due May 15. Now, through May 1, Gordon Fischer Law Firm is offering a special offer for 10 important policies asked about on Form 990. This also includes a comprehensive consultation and one full review round. Questions? Thoughts of how this can help your nonprofit blossom? Don’t hesitate to contact me at gordon@gordonfischerlawfirm.com or 515-371-6077.

two women talking about forming a nonprofit

Any good attorney worth their weight will advise you on multiple aspects of any given important action or decision. Let’s say you’re considering forming a new 501(c)(3). You may have thoroughly considered all the prospective benefits of a tax-exempt entity, but what about the responsibilities? Indeed, there are serious obligations that come along with creating and running a nonprofit. These can’t be overstated and should certainly be taken into account. Let’s dive into a few of them.

Monetary cost

Establishing a nonprofit organization does require a monetary cost including the 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 current user filing fee of $600.) If you elect to hire a qualified nonprofit attorney to guide you through the formation process and draft the required forms, then that will be an additional cost.  (Although I would always argue a worthwhile one!)

Once the nonprofit is formed you’ll also want to invest in keeping your nonprofit organization on track, compliant, and successful. A major part of this is drafting and implementing quality internal and external policies and procedures. Again, a nonprofit lawyer can be a valuable asset and provide expertise here.

Cost of time & effort

On top of the monetary costs, there are additional costs of time and effort. It typically takes a few months to pull all the paperwork together for the formational documents—especially the lengthy Form 1023. After all the paperwork is submitted for IRS review, actual 501(c)(3) approval can vary in the time it takes. A submitted Form 1023 can take anywhere from a month or two to a year to make its way through the review process; the 1023EZ‘s turnaround time depends on the backlog of review at the time.

Even after all of the required documentation is submitted for recognition of exemption, the IRS may request additional information through follow-up questions and supporting materials. And, of course, actually operating the nonprofit will take significant, continuous time and effort which can range in extent, but can include new employee hires, nonprofit board orientations and training, and compliance with state and federal laws (like Sarbanes-Oxley, for instance).

The flip side of this is that nonprofit work is often incredibly rewarding and important, making the effort and time even more worthwhile. But, again, it’s something good to just keep in mind as you weigh all inputs to your nonprofit formation decision.

Paperwork

A nonprofit is required to keep detailed records and also submit annual filings to the state and IRS by particular deadlines to keep its active and exempt status. (Reminder: having well-written policies and procedures will make the annual filings, like Form 990, an easier process!)

Shared control

As an incorporator of a nonprofit, you will certainly have a say in the development of the organization. Although one who creates nonprofits may want to shape his/her creation, personal control is limited. A nonprofit organization is subject to laws and regulations, including its own foundational documents such as articles of incorporation and bylaws. An Iowa nonprofit is required to have a board of directors, who have certain legal and financial fiduciary duties to uphold. The board itself also has collective responsibilities, so no one person is held solely accountable. Board orientation, trainings, and materials—like a board handbook—organized in a specific way can go a long way toward ensuring the board is set-up for success in working toward the mission you as the founder envisioned.

Man writing on white board

Scrutiny by the public

In the eyes of the government and society alike, the nonprofit must be dedicated to the public interest in one area or another. This is where it derives its tax-exempt status. It’s also why its finances are open to public inspection. For these reasons, nonprofits must be steadfastly transparent in nearly all their actions and dealings.

Interested parties may obtain copies of a nonprofit organization’s state and federal annual information filings to learn about salaries, program expenditures, and other financial information. You should be able to view copies of exempt organizations’ forms for free on the IRS’ website, or you can request a copy from the organization and they must provide it. Additionally, to make it easy for the public, many nonprofits link to these documents on their website. The information can be useful to current and prospective donors, new board members and employees, and grant-making organizations.

I hate to sound like a broken record, but again, this is where superior policies like “public disclosure” and “Form 990 review” are paramount to the operation.

These responsibilities shouldn’t scare you off from forming your change-making organization, but rather important elements to be aware of from the beginning. Plus, if you know the big picture of what you’re getting into, you can plan by enlisting the appropriate professionals to help you with your endeavor!

Want to discuss how to move forward with your nonprofit? Don’t hesitate to take me up on my offer for a free consult and the 10 For 990 policy special! Contact me via email or by phone (515-371-6077).

national employee appreciation day

If you manage a nonprofit undoubtedly you recognize that the mission couldn’t be driven forward without the hard work by talented staffers. Indeed, human capital is typically a nonprofit’s greatest asset! Today is National Employee Appreciation Day and the perfect chance to remind your employees that they make a difference. This is also an optimal chance to invest in employee retention; when you find the right people that work well as a team, believe in the mission, and have an admirable work ethic, it is important to keep them happy and engaged.

The nonprofit employee turnover rate is equal to other industries at about 19%. But, unlike other industries, the good news is that 93% of nonprofit employees say they are engaged at work which is three times that of other industries. More good news? 85% of employees who made the switch from a for-profit company to a nonprofit said they planned to continue working in the nonprofit sector long term.

When it comes to nonprofit employment law best practices like an updated employee handbook and quality contracts are essential. But, taking care of your business beyond legal documents is also incredibly important. Here are a few easy ways to invest in your staffers on Employee Appreciation Day and every day:

Break out the Suggestion Box

Sure it’s kind of old school and basic, but a suggestion box can still give employees a chance to share their opinions to make the workplace better. Staffers appreciate the opportunity for another avenue of communication, and acknowledging legit concerns and ideas can only help the organization improve!

employees talking

Build a Better Break Room

Everyone needs a place to take a breather throughout the workday. Whether it’s swapping stories over lunch or sharing posters for upcoming community events, the break room should be inviting, clean, and comfortable. Take a hard look at the status of the break room and determine if furniture should be replaced, decor redone, or appliances upgraded. Even fresh flowers or an improvement in the type of coffee/tea provided can give morale a boost.

A Little Recognition Goes a Long Way

We all loved to be recognized for our achievements, big and small, so do the bragging for your team. Without a doubt, your employees are doing wonderful things outside of the office from starring in the community theater production to coaching their kid’s sports team. Whether it’s a fun, quarterly recognition “party” or a “star wall” where you post compliments/accolades, find what fits with your organization’s culture. This also shows your team you care about them as people, not just as employees.

Thanks a Million!

It may seem obvious, but a simple thank you note can go a long way. Make it handwritten on a nice friendly actual card and it will speak volumes compared to the slog of usual emails.

Fun & Career-Based Rewards

Little rewards for a job well done like a gift card to the movie theater or providing free pizza in the break room just because. Who doesn’t love an unexpected surprise treat? You can also consider career-related rewards, like paying for an employee’s online class of choice or sending them to an industry conference/event. This illustrates your commitment to investing in their continued education and benefits the nonprofit as well!

Any questions related to smart employment practices at your nonprofit? What are your best ideas to celebrate National Employee Appreciation Day? Don’t hesitate to contact me at gordon@gordonfischerlawfirm.com or by phone at 515-371-6077.

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!