July 25, 2015

Great Board Expectations

Serving on a nonprofit board presents great opportunities for meaningfully contributing to a worthy cause.  But board service also involves significant responsibilities that may feel burdensome at times.  How can current board leaders effectively equip newly-recruited board members for successful board service?  In a nutshell, it’s all about a good fit, clear expectations, and safeguards.

A. Who is the right person for the job?

Nonprofit boards need leadership from individuals who share a passion for the organization’s mission.  To help potential leaders understand this mission, make sure that the nonprofit’s corporate purpose statement clearly and accurately articulates the organization’s mission.  Ask prospective board members to read the corporate purpose statement.  Then ask them to consider the following question.  Is this mission something that I believe in, and is it worth committing my best efforts?

B. What will be expected of board members?

Board leaders often speak in terms of “time, treasure, talents” or “wealth, wisdom, work” parameters.  These phrases may be helpful to show that board members should expect to contribute some of their time, some of their money, and some of their skills or expertise.  But better yet:  develop a one or two-page “Board Expectations” document that helps new board members to understand more clearly how they are to contribute meaningfully.  Also consider assigning seasoned board members to mentor new board members in their new responsibilities.

A “Board Expectations” document could include the following elements to inform new board members about their roles.

Governance
July 24, 2015

Nonprofit Tax Exemption: Post-Obergefell

As described in our law firm’s preceding blog article, nonprofits’ tax-exempt privileges are increasingly being questioned.  It thus may be helpful to understand not only the underlying rationales for income and property tax exemptions, but also to consider what may lie ahead in the aftermath of the U.S. Supreme Court’s recentObergefell same-sex marriage decision.

During oral argument in Obergefell, U.S. Solicitor General Verrilli indicated that religious colleges’ tax-exempt status could become an issue for colleges that prohibit same-sex relationships.  Post Obergefell, questions have now been raised as to whether this prediction will become a reality, not only for religious colleges but also for churches and other faith-based organizations.  

Such debate inevitably harkens back to the historic Bob Jones[1] decision, in which the U.S. Supreme Court approved the IRS’s rejection of a university’s tax-exempt status based on the school’s racially discriminatory policies.  In that case, the IRS claimed the power to withhold tax-exempt status for any organization that participates in any activity “contrary to a fundamental public policy.”  In siding with the IRS, a seven-justice majority rested its decision on the government’s “compelling . . . interest in eradicating racial discrimination in education.”[2]  In so ruling, the Court noted that it was dealing only with schools, not churches or other purely religious institutions.[3]  Two justices expressed great concern that the “public policy” authority accorded to the IRS strays dangerously from Section 501(c)(3)’s confines and is too heavy-handed.[4]

Property/Tax Exemption
July 21, 2015

Rationales for Nonprofit Tax Exemption

Nonprofits face recurring political pressure to justify their tax-exempt privileges.  In the wake of the U.S. Supreme Court’s Obergefell[1] ruling that a fundamental right to marry exists for same-sex couples, some religious organizations have questioned whether their Section 501(c)(3) tax-exempt status may come under attack, to the extent that they object to sexual orientation civil rights protections and notwithstanding their religious beliefs regarding human sexuality.  Property tax exemption for nonprofits is a related area under increasing opposition, as noted in our law firm’s article on “PILOTs.”  Both income and property tax exemptions are extremely well grounded in history, tax law, and underlying rationales, as follows.

Historical Rationale

Religious tax exemption has a lengthy historical precedent:  ancient regimes ranging from Sumer to Babylon, Egypt, Israel, Persia, and India provided tax exemption for the property of churches and priests.[2] American theories of tax exemption are derived from English law, which recognized exemption for both religious and charitable institutions and identified religion as benefitting an indefinite charitable class. 

These concepts have likewise permeated American society.  As the U.S. Supreme Court observed in the landmark case of Walz v. Tax Commission, specifically with respect to religious institutions’ unquestioned tax-exempt status:

Few concepts are more deeply embedded in the fabric of our national life, beginning with pre-revolutionary colonial times, than for the government to exercise at the very least this kind of benevolent neutrality toward churches and religious exercise generally, so long as none was favored over others and none suffered interference.[3]

This kind of benevolent neutrality is also embedded in state law – all fifty states and the District of Columbia currently provide for religious tax exemption through statutory or constitutional provisions.[4]  Other faith-based, charitable, and educational nonprofits enjoy similar tax exemptions. While historical tradition alone cannot suffice as the sole rationale, the long-standing and long-reaching history of tax exemption – particularly for religious organizations – provides a persuasive argument for its continuation.

Tax Exemption

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