Nonprofit Legal Check Up Helping Nonprofit Organizations: Understanding Their Legal Issues Presented by: SoRelle Brown - Employment Special Counsel, Sutherland

Nonprofit Legal Check Up

Helping Nonprofit Organizations: Understanding Their Legal Issues

Presented by:SoRelle Brown - Employment Special Counsel, Sutherland

David Zimmerman – Corporate Partner, Sutherland Matthew Gries - Tax Partner, Sutherland

Jim Johnson - Intellectual Property Counsel, Sutherland

December 9, 2014

© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.


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Agenda

Employment Corporate Tax Intellectual Property



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Employment – Topics

Applicable Laws Worker Classification

Employee v. Independent Contractor Employees v. Volunteers Exempt v. Non-exempt

Pre-Employment Compliance Employee Handbooks/Policies Volunteer Policies and Procedures Record Retention & Employment Taxes© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.


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Applicable Laws* 1-2 Employees: Fair Labor Standards Act (FLSA); independent contractor

laws; Occupational Health and Safety Act (OSHA); unemployment; new hire reporting

10 Employees: Georgia E-Verify requirements 15 Employees: Title VII (Civil Rights Act), Pregnancy Discrimination Act

(PDA), & Americans with Disabilities Act (ADA); Genetic Information Nondiscrimination Act (GINA)

20 Employees: Age Discrimination in Employment Act (ADEA) & COBRA for benefits

50 Employees: Affordable Care Act (ACA); Family and Medical Leave Act (FMLA) and FLSA lactation accommodation

* There are additional rules for federal contractors

Employment



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Worker Classification What is an “Employee”?

Job-by-job inquiry Alternative workers such as Independent Contractors,

Volunteers, and Interns√ Benefits: flexibility, not covered by FLSA, unemployment

compensation laws, workers’ comp, certain taxes√ Risks: back taxes, back wages, contributions for

unemployment insurance, lost benefits, fines and penalties

Employment



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Employment

Worker Classification Employees vs. Independent Contractors

Some factors: √ Actual or “right to” control√ Skill/independent judgment required√ Source of instrumentalities/tools√ Services rendered integral part of principal’s business



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Worker Classification Employees vs. Independent Contractors (cont.)

Compliance and maintaining independent relationship√ Written agreement√ Payment by project, rather than per hour (if possible)√ Allow IC to control details and schedule/provide equipment√ Avoid IC doing similar jobs as regular employees√ Periodic review for compliance


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Employment


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Worker Classification Employees vs. Volunteers

Integral to many nonprofits Critical: performance of task with no promise or

expectation of compensation Interns and minors Employees as volunteers:

√ Truly voluntary√ Activities different from employee’s (or another employee’s)

regular duties√ Not volunteering during regular work or overtime hours


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Employment


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Worker Classification Exempt vs. Non-exempt - wage and hour issues

FLSA:√ Sets a national minimum wage and√ Governs overtime payments for employees in certain job

classifications Non-exempt employees: covered by minimum wage and

OT regulations “White-Collar Exemptions”: employment in a “bona fide”

executive, administrative, professional, computer, or outside sales capacity


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Employment


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Pre-Employment ComplianceApplication and interview processBackground checks, E-Verify, & Fair Credit

Reporting ActEmployment agreements/offer lettersTerms of compensation


Employment


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Discipline and SeparationDocumentation of performance and disciplineReview of adverse decisions before demotion or

separationSeparation procedures and Georgia DOL-800

notice of separationReleases and unemployment benefits


Employment


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Employee Handbooks What is the goal or purpose? Important policies:

Employment-at-will/handbook acknowledgement EEO/non-harassment Avenues for employee complaints Standards & rules of conduct Attendance, benefits/leaves/pay Other policy areas: discipline, computer usage, confidential

information© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.

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Employment


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Volunteer Policies and ProceduresReasons for volunteer rules & policiesConduct, duties, rights & responsibilitiesBackground checksLiability releases


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Employment


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Employment Record Retention and Documentation

Personnel Files Medical records I-9 forms

Time records Posters

Employment Taxes Federal & State Employment Taxes, FICA, SUTA, not FUTA

http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Section-501(c)(3)-Organizations-FUTA-ExemptionPersonal liability for Responsible Parties including board members

Personal Liability for Responsible PartiesIncluding for board members


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Corporate & Tax Interaction

Three overall requirementsOrganization must be “organized” under the

Georgia Nonprofit Code (or similar state code) as a nonprofit corporation

Organization must be qualified as a “Tax-Exempt” under Internal Revenue Code

Organization must be operated in compliance with both Georgia nonprofit and federal tax-exempt law.


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Legal Form

GA Non-Profit Corporation Act No owners or shareholders – organized for the

benefit of society Articles of Incorporation and Bylaws

Purpose/Mission Statement Nonprofit Corporations may have “Members”

Subsidiaries/Affiliates Small nonprofits rarely


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Board Structure & GovernanceOrganization’s activities must be consistent with the stated

tax-exempt purposeImportance – IRSPermanent Records

Corporate Minute Book Accounting Records

Board Duties Duties of Care, Loyalty and Obedience Limitation of Liability and Indemnification D&O Insurance

Board Committees, Officers, etc.Beware of “Founderitis”



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Board Governance (cont.)

Board Policies and ProceduresConflicts of Interest

Recusals & Written disclosuresEthics and Business Conduct CodesWhistleblowerRecord Retention Financial & Internal Control PoliciesExecutive Compensation

Documented process, comparability data, independence



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State Corporate Filing & Transparency Requirements State Annual Registration

For each state in which the organization does business Updates to Officers and Registered Agent

Charitable Solicitations Act – GA File Form C-100

http://sos.ga.gov/acrobat/Securities/forms_2006/C100.pdfOther states / website donations Level of minimum contacts Multistate filing option

GA Ethics in Government – registering lobbyists Raffles – State Law; County Application


http://sos.ga.gov/acrobat/Securities/forms_2006/C100.pdf

http://sos.ga.gov/acrobat/Securities/forms_2006/C100.pdf


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Tax-Exempt Background “Nonprofit” v. “Tax-Exempt”

Nonprofit status – state law concept Separate Internal Revenue code requirements to be tax-exempt

Many Categories – common types include: (c)(3) “charitable” organizations (c)(4) social welfare organizations (c)(6) business leagues (trade associations) (c)(7) social clubs

Today’s presentation will cover the “501(c)(3)”. Benefits include exemption from federal income tax, eligibility to receive charitable contributions, state and local tax benefits, postal rate reductions.

All clients participating today are recognized by the IRS under §501(c)(3) of the Internal Revenue Code



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The “501(c)(3)” Organization Exempt Activities – charitable, educational, religious, scientific,

literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety

Charitable: includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency



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Interplay of §170 of Internal Revenue Code

With limited exceptions (e.g., gifts to states), only donations given to organizations recognized

as §501(c)(3) organizations are deductible as a charitable donation under §170 of the Internal

Revenue Code



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Donation Substantiation Charity Acknowledgement

Written Acknowledgement – required for any single contribution of $250 or more before donor may claim charitable deduction.

Must contain statement that no goods or services were provided in exchange for the contribution, if that is the case.

Best practice: Charities give donation receipts for all cash donations Written Disclosure – required for payment in excess of $75 partly

as contribution and partly for goods or services provided by the organization, explaining portion that is deductible.

E.g., dinners, donation above ticket price For in-kind donations, simply acknowledge the item donated

without providing a value unless a substantial item – then appraisal needed and additional IRS forms



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Donation Substantiation & Deductibility

Donor RecordkeepingNo tax deduction for contribution of cash, check,

or other monetary gift unless donor retains record of the contribution or a written communication from the charity

Contribution of Services – NOT DEDUCTIBLEMost donated space is not deductible


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Internal Revenue Code - Exempt Organizations

§501(c)(3) Test:

Must be ORGANIZED & Must be OPERATED Exclusively For Exempt Purposes

Limitations: Not An Action Organization No Inurement No Substantial Private Benefit

§509(a) Public Charity v. Private Foundation© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.

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Tax-Exempt-Related Issues

All clients are established 501(c)(3) organizationsCompliance Requirements – Ongoing “Operations”

ClassificationThe organization must continue to satisfy the criteria for

continued classification as a §501(c)(3) organization. If a publicly-supported charity, must satisfy the “public

support” test by receiving broad-based support from members of the general public.

√ All the clients participating in the Nonprofit Legal Check Up are public charities.


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Limitations: Not an Action Organization

Political Activities May not support or oppose a political candidate running for public office. Any amount of political activity can result in loss of tax-exemption Face of Organization – involvement in political activities

Excessive Lobbying“Legislation” is action by Congress, state legislature, local council or similar

governing body, or the public in a referendum, initiative, constitutional amendment or similar procedure.



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Limitations: Not an Action Organization (cont.)

Excessive Lobbying (cont.)

An organization is lobbying when it engages in either: Direct Lobbying (“Dear Congressman, please vote no on HR 2000”):

√ Communication refers to specific legislation (i.e., legislation that has already been introduced or a specific legislative proposal);

√ Communication reflects a view on such legislation (“oppose HR 2000”); and√ Direct communication with any member or employee of a legislative body or

government official who may participate in the formulation of legislation. Grass Roots Lobbying (“Please contact your Congressman and tell him to oppose

HR 2000”):√ Communication refers to specific legislation (i.e., legislation that has already been

introduced or a specific legislative proposal);√ Communication reflects a view on such legislation (“oppose HR 2000”); and√ Communication encourages the recipient to take action with respect to such Legislation

(“Call to Action”) (“Please contact your Congressman”).

Permitted for a public charity so long as it is not engaged in “substantial lobbying.”

501(h) Election© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.


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Limitation: No Inurement

Private Inurement Insiders prohibited from receiving benefits greater than she

or he provides in return (e.g., excessive compensation, loans at below market rates, etc.)

Insiders = founders, officers, directors, anyone with control/influence over organization during the past 5 years, and certain family members and affiliated companies

“Intermediate Sanctions” for violationsExcess Benefit Transaction involving an insiderRebuttable presumption of reasonableness



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Limitations: No Substantial Private Benefit

Substantial Private BenefitA tax-exempt organization must serve a public not private

interest Organization cannot benefit a charitable class that is too small

Can apply to disinterested or interested parties Incidental private benefit Examples of Potential Substantial Private Benefit

Co-Venturer agreements (§43-17-6 Charitable Solicitation Act)Other arrangements with individuals or taxable entitiesContracts with Professional Fundraisers/Grantwriters



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Income Taxable Activities - UBI Unrelated Business Income

Trade or business Regularly carried on; and Not substantially related to mission

Exceptions and Exclusions to UBI Volunteers, Contributed Property, Benefit of members Royalties (affinity cards and mailing lists), Dividends Qualified Corporate Sponsorships

Name, logo, tagline Insubstantial return benefit

Issue for Nonprofits trying to be creative with fundraising Form 990T/ Georgia 600T



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Tax-Exempt Means Exemption from Income Tax Only

Taxed ActivitiesSales & Use – State tax

Definition of “goods and services” Just because are income tax-exempt, does not mean are exempt from sales

and use tax Exemptions:

√ GA Code §48-8-3 (e.g. resale items)

Employment Taxes Property Taxes – depends upon state/county authorities

Purely charitable activities



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Annual Tax Information Return – Form 990 Federal Filing Requirement

Small: If gross receipts < $50,000 file Form 990-N (e-Postcard) Medium: If gross receipts < $200,000, and total assets <$500,000 file Form 990-EZ Large: If gross receipts gross receipts > $200,000 OR total assets >$500,000 file

Form 990 Due Date – 15th date of 5th month after accounting period ends (if calendar

year, then May 15th) Form 990 must be made available to the public

No social security numbers on Form 990 – cannot be redacted



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Annual Tax Information Return (cont.)

Federal Tax Filing Requirements (cont.)

Penalties (for failure or incomplete or incorrect filings) Normal - $20 per day (capped at lesser of $10,000 or 5% of gross receipts) >$1Million gross receipts - $100 per day (capped at $50,000)

Failure to File Rule - If fail to meet annual filing requirements for 3 consecutive years, IRS will revoke tax-exempt status

Exempt – Certain organizations (most notably churches) are exempt from filing requirement

State – in Georgia, must (i) file IRS Form 990 with Georgia Dept. of Revenue, and (ii) file GA Form 600-T (along with IRS Form 990-T) if have unrelated business taxable income



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Intellectual Property

What is Intellectual Property (IP)?Trademarks, Copyrights, Patents, Trade SecretsFocus: copyrights & trademarks

Why should a nonprofit care about IP?Reach constituents and fulfill mission (software,

websites, promo/educational materials, etc.)Protect investment in programs, products, and

“brands” (e.g., names of programs and orgs)Avoid infringement!



Intellectual PropertyCommon Areas for Nonprofits

Trademarks/Service MarksExamples: Words, symbols, slogans (including

program or organization names)Trademarks should be searched prior to useRights vest in those that use the trademarkRights can be registered at the federal and/or

state level (but not always necessary)Notice = TM or SM or ® once registered at PTO


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Without a Search, the Client can get Into an Expensive and Burdensome Infringement Dispute and may be Forced to Re-brand

Federal Registration Most Useful if the Client Operates in Multiple States (otherwise Common Law Rights from Usage or State Registration may be Enough)




CopyrightsExamples: text, photo, recordings, educational

materials, manuals, songs or software codeRights vest in the author, not the entity

Except for works created by employees within the scope of their employment

Rights can be registered at the federal level onlyNotice consists of “Copyright © 2014 John Doe”

Rights of Publicity – photos, videos, recordings© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.

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Registration Does Not Create Copyright – It Exists Automatically

Registration is Most Useful Where Unauthorized Copying and Distribution Would Be a Real Problem for the Client

Registration Does Not Determine OwnershipAgreements Should Address Ownership Up Front

(except employees in the scope of employment)© Copyright 2014. All rights reserved. No further use, copying, dissemination, distribution or publication is permitted without express written permission of Pro Bono Partnership of Atlanta.



Websites IP Issues

Creator of materials and website owns the copyright by default (need IP assignment provision in dev agreement)

Owner of website / domain name (deal with in agreement)Inclusion of logos from other businesses w/o permissionText copied from other organizations without permissionUse of songs, photos, etc. without permission (don’t assume fair use,

public domain or ok with attribution)Use of another’s name or likeness (Right of publicity/privacy)

Best Practice is to buy, license or create own content on websites and all other materials


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LicensingComponents:

Exclusivity, Territory, Scope of Rights, Assignment, Payment, Audit Rights, Post-Termination Rights (Inbound and Outbound Licenses)

Quality Control - for TM’s (e.g. among affiliates)√ “Naked Licensing” w/o QC Can Result in Loss of TM Rights√ Not Just A Legal Requirement, But Can be a PR Problem for

Nonprofits (Need to Avoid Scandals and Damage to Reputation)


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COPPAInclude provisions in User Agreements and/or

Privacy Policy to address COPPASocial Media – Facebook, Twitter, etc.

Reputation Management (defamation) and TM Infringement Most Common Issues To Monitor

Need Policies for Employees to Follow



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User Agreements and Privacy Policies to Reduce Various Liability Risks (e.g. donor info)Must Follow These PoliciesFully Disclose How PII is Used Limit liability for Content and Other ActivitiesMake Users Responsible for Their Own Content

and Activities



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Questions?


Documents

Nonprofit Legal Check Up Helping Nonprofit Organizations: Understanding Their Legal Issues Presented by: SoRelle Brown - Employment Special Counsel, Sutherland