Nonprofit Governance: Law, Practices, and Trends

Book Citations xix

Preface xxi

Chapter One: Federal and State Law Fundamentals 1

1.1 State Law Overview 1

1.2 Formation of Organization 5

1.3 Board of Directors Basics 9

1.4 Principles of Fiduciary Responsibility 13

1.5 Duties of Directors 15

1.6 Board Composition and Federal Tax Law 16

Chapter Two: Board Members: Responsibilities and Liability 21

2.1 Board of Directors Governance Principles 21

2.2 Role of Officers 33

2.3 Key Employees 35

2.4 Management Companies 35

2.5 Board Member Responsibilities 36

2.6 Protections against Personal Liability 39

2.7 Minimizing Board Member Liability 41

Chapter Three: Nonprofit Organizations' Governance Principles 45

3.1 Governance Philosophy in General 45

3.2 Sarbanes-Oxley Act 46

3.3 Watchdog Agencies' Standards 51

3.4 California's Nonprofit Integrity Act 66

3.5 Senate Finance Committee Staff Paper 67

3.6 U.S. Treasury Department's Voluntary Best Practices 70

3.7 Committee for Purchase Proposed Best Practices 72

3.8 Panel on Nonprofit Sector Recommendations 73

3.9 Boards of Exempt Credit Counseling Organizations 74

3.10 Draft of IRS Good Governance Principles 74

3.11 American National Red Cross Governance Modernization

3.12 Panel on Nonprofit Sector Good Governance Principles 79

3.13 Redesigned IRS Annual Information Return (Form 990) 86

3.14 IRS LifeCycle Educational Tool Principles 86

3.15 Commentary 91

Chapter Four: Governance and the Redesigned Form 990 93

4.1 Governing Body and Management 94

4.2 Policies 104

4.3 Disclosure 108

Chapter Five: Nonprofit Governance Issues 111

5.1 Perspectives on Nonprofit Governance 111

5.2 Governing Board Size 113

5.3 Governing Board Composition 116

5.4 Role of Governing Board 121

5.5 Organization Effectiveness and Evaluation 124

5.6 Board Effectiveness and Evaluation 125

5.7 Frequency of Board Meetings 126

5.8 Term Limits 127

5.9 Board Member Compensation 129

5.10 Audit Committees 130

5.11 Other Committees 132

5.12 Compliance with Law 132

5.13 Categories of Expenditures 134

5.14 Disclosures to Public 136

5.15 Mission Statements 139

5.16 Codes of Ethics 140

5.17 Conflict-of-Interest Policies 141

5.18 Whistleblower Policies 144

5.19 Document Retention and Destruction Policies 145

5.20 Fundraising Practices 146

5.21 Role of IRS in Governance 148

Chapter Six: Policies and Procedures for Good Governance 157

6.1 Sources of Policies and Procedures 157

6.2 IRS Focus on Policies and Procedures 159

6.3 Discussion of Specific Policies and Procedures 160

6.4 Colleges and Universities 178

6.5 Other Policies 179

Chapter Seven: Nonprofits in the Spotlight: Governance Case Studies 181

7.1 The American National Red Cross 181

7.2 The Smithsonian Institution 183

7.3 American University 187

7.4 J. Paul Getty Trust 188

7.5 University-Affiliated Medical Centers 189

7.6 Lessons Learned 191

Chapter Eight: Law for Nonprofit Board Members: A Primer 195

8.1 Nonprofit Organizations 195

8.2 Tax-Exempt Organizations 196

8.3 Categories of Tax-Exempt Organizations 196

8.4 Tax-Exempt Organizations Law Basics 199

8.5 Legislative Activities Law 202

8.6 Political Activities Law 203

8.7 Public Charities and Private Foundations 204

8.8 Reporting Rules 206

8.9 Disclosure Rules 207

8.10 Unrelated Business Rules 207

8.11 Subsidiaries 209

8.12 Joint Ventures 210

8.13 Other Aspects of Law of Exempt Organizations 212

8.14 Charitable Giving Rules 213

8.15 Federal Law as to Fundraising 214

8.16 State Law as to Fundraising 215

8.17 IRS Audits 215

8.18 Bankruptcy 222

Chapter Nine: Governance Legal Audit 223

9.1 Inventory of Basics 223

9.2 Governance 225

9.3 Policies and Procedures 226

9.4 External Relationships 228

9.5 Tax-Exempt Status 229

9.6 Private Inurement Doctrine 230

9.7 Private Benefit Doctrine 231

9.8 Excess Benefit Transactions 232

9.9 Self-Dealing Rules 235

9.10 Actions by Organization 235

9.11 Public Charity Classification 236

9.12 Private Foundation Rules 239

9.13 Donor-Advised Funds 240

9.14 Endowment and Other Funds 240

9.15 Legislative Activities 241

9.16 Political Campaign Activities 243

9.17 Other Forms of Advocacy 245

9.18 Subsidiaries 245

9.19 Bifurcation Basics 245

9.20 Tax-Exempt Subsidiaries 246

9.21 Taxable Subsidiaries 246

9.22 Revenue from Subsidiary 247

9.23 Joint Venture Basics 247

9.24 Joint Ventures—Other Elements 248

9.25 Unrelated Business Analysis 249

9.26 Commerciality Doctrine 250

9.27 Annual Information Returns 250

9.28 Disclosure Requirements 252

9.29 Considerations for Lawyer Conducting Legal Audit 253

Index 255