With the new year upon us, our hope is that all of our nonprofit clients will thrive in 2016, fulfilling their organizational mission and impacting their communities. As attorneys, we understand the importance of legal compliance for an organization’s mission, governance, and success. The following is a list of ten critical legal areas that may impact nonprofit organizations in 2016. Resolve to address them throughout the year, especially any deficiencies that warrant further action.
2. Use Social Media Well. Social media is a powerful tool for many nonprofits. Continual improvements can help promote an organization’s mission and nurture its good reputation. Unfortunately, many nonprofits fail to take the time to understand how copyright and trademark laws govern their use of photos, videos, or other media in their posts. In using social media, nonprofits need to teach their workers how to identify and comply with applicable copyright or trademark restrictions, for which a license or other protection may be needed. Nonprofits should also consider individual privacy interests related to posts and obtain consents or provide other disclosures as warranted prior to posting information about beneficiaries, donors, or others. Finally, nonprofits should take steps to protect their reputations by developing a procedure or policy that ensures employees and volunteers refrain from using the organization’s social media for disparaging comments or to express views contrary to the mission.
3. Identify and plan for new legal risks. Legal risks change and evolve for nonprofit organizations. Nonprofit leaders do well to proactively identify existing and emerging legal risks, whether through new programs or new legal developments. For example, the U.S. Supreme Court’s 2015 Obergefell decision has served as a springboard for many faith-based organizations to examine and upgrade organizational governance, employment, and facility usage policies and practices to obtain optimal religious liberty protections. Programmatically, an insurance check-up may also be in order, particularly to make sure that insurance coverage is sufficient and appropriate to address any new organizational activities, property ownership, or goals. Other safety-related protocols are worth examining and updating, such as abuse prevention policies and emergency measures.
4. Avoid prohibited politicking. This contentious election year may tempt public charities to advocate within the political arena, as never before. Remember that activities intended to influence a political candidate’s election or defeat are absolutely prohibited for 501(c)(3) organizations. Lobbying activity, such as to encourage people to contact their legislators about pending legislation, is permissible but only on a limited basis. In IRS parlance, only “insubstantial” lobbying is allowed, measured in both expenditures and overall activity. The lobbying and campaigning rules affecting Section 501(c)(4), 501(c)(6), 527, and other nonprofit organizations are different, so nonprofit leaders should consult with qualified legal counsel for guidance concerning these rules.
On the other hand, nonpartisan educational advocacy on public policy issues is constitionally protected under the First Amendment, despite potential political overtones. In fact, such advocacy work remains central for many nonprofits’ tax-exempt mission, in areas such as health, the environment, economics, and protection of vulnerable persons. Keep in mind, however, that the contours of applicable political restrictions are highly context-specific and can quickly get complicated. Legal counsel thus may be essential.
5. Address employment considerations. Given the centrality of workers for nonprofits and the vast scope of legal protections, employment issues can easily derail a nonprofit’s focus on its mission. Assign two to three people to perform an employment review to ensure proper measures are in place, such as payroll tax compliance, up-to-date employee handbooks that provide clear guidance and helpful information, job descriptions (particularly for any faith-based, disability-related, or other job-specific considerations), and worker safety and training. A handbook specific to volunteers may be helpful, too, such as to provide for anti-harassment, confidentiality, standards of conduct, and conflict resolution.
A frequent area of compliance errors for nonprofits is unemployment insurance. Section 501(c)(3) public charities pay only into the state system (SUTA), and potential exemptions may apply (e.g., churches, nonprofits with less than four regular employees, nonprofits electing to be “reimbursable” rather than “contributing”).
6. Make charitable receipting personal and timely. Donors need continual nurturing. One simple legal step to accomplish this is to send charitable receipting as timely as possible. Donors do no want to identify your organization as the reason they have not filed a tax return yet. Make sure that the written acknowledgment has accurate tax reporting information for in-kind contributions and any goods or services provided in exchange for donations (e.g., the value of a banquet meal).
At a deeper level, evaluate how to better communicate with donors how their donations are expended. A high level of transparency, whether in annual reports or other communications, keeps donors engaged and encouraged. Taking the time to accompany the charitable receipting with a handwritten thank you note or other thoughtful personal touch to the donor also helps cultivate a long-term relationship with the organization.
7. Maintain legal compliance with annual filing requirements. Section 501(c)(3) organizations (with notable exceptions, such as churches, other religious institutions, and their integrated auxiliaries) must annually file IRS Form 990, the 990-N, 990-EZ, or 990PF. Exchange written communications with the organization’s accountant and/or auditor to ensure that the audit and Form 990 will be timely prepared. Schedule sufficient time to enable the board to review and approve the Form 990 prior to filing. Reviewing a nonprofit’s 990 prior to filing gives directors an opportunity to reflect on the big picture and raises important questions: “How is the organization really operating?” “Are these the best uses of our revenues?” “Are there programming alternatives we should consider?”
Nonprofits also have additional annual filing responsibilities including annual state reporting, state charitable solitication registration and reporting requirements (depending on state-specific fundraising laws), and other requirements arising from their particular activities. Make sure that you properly identify and calendar filing due-dates, and get any needed extensions.
8. Cultivate effective leaders. Directors and officers need to understand their fiduciary responsibilities for diligence, loyalty, and obedience to the organization’s mission. Take time annually or semiannually to review and teach directors, officers, and other key leaders their basic fiduciary duties and goverance responsibilities. Review the corporate purpose and mission and the leaders’ role and responsibilities in fulfilling the mission. Every director should have a corporate notebook with the essential corporate records, which may be maintained electronically. The notebook provides an invaluable tool for keeping leaders informed, aiding board orientation, and even recruiting new leadership.
9. Promote good governance. Assign two to three leaders to review the organization’s bylaws and policies to evaluate whether any adjustments or new developments are warranted. Remember to have all directors, officers, and key employees complete annual conflict of interest disclosure forms and ensure that your board understands the proper procedures for addressing conflicts of interest when they do arise. This annual disclosure is increasingly required by state charity regulators, such as in New York and Florida. If the organization has not adopted conflict of interest policies, make that a top priority!
10. Strategically plan for the future. Strategic planning is often helpful but typically neglected in the face of pressing operational needs. Plan now for the future, such as through developing new leadership, prudently managing organizational finances, anticipating potentially troubling developments to be avoided, and ensuring that good governance structures are well established.