Being invited to serve on the board of a charity you care about is often a wonderful honor and an exciting opportunity. Nonprofit organizations are well served to include an attorney on the board who can help identify, among other legal threats, potential threats to the organization’s tax exemption.
In order to best support the nonprofits they serve, board members should have some understanding of the tax laws that apply to Section1 501(c)(3) public charities. Key issues include: private benefits, private inurement, lobbying limitations, prohibitions on political campaign intervention, and unrelated business income tax. This is not an exhaustive list of tax-exempt issues that are of concern to 501(c)(3) public charities. It is also important to note that a director or trustee of a private foundation has many additional tax-exempt issues that do not apply to public charities. 2 Most private foundation issues are not discussed in this article. Likewise, Section 501(c) specifies 273 other tax-exempt organizations that are subject to different rules that are also not addressed in this article.
As a fiduciary, a board member will participate in board meetings, review budgets, financial reports, and the organization’s annual Form 990. 4 Each of these provides board members an opportunity to identify the following potential issues with the activities of the organization.
The Practical Lawyer
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Lawyer.