Law 101 for Nonprofits: Key Issues and New Developments June 9, 2015 Joseph E. Miller, Jr. © 2015 Faegre Baker Daniels LLP These materials are intended for information only and are not to be considered legal advice. 1

An Overview of Charitable Giving Laws ► General Requirements and Restrictions under IRC section 501(c)(3) ► The private inurement prohibition ► The private benefit limitation ► The organizational requirement and governance documents ► The operational requirement and the “insubstantial part” limitation ► The lobbying limitation: “insubstantial” strikes again ► The complete ban on political campaign activity: a “no-fly zone” 2

An Overview of Charitable Giving Laws 3 ► Deductibility of Charitable Gifts by Individuals and Corporations ► Contributions of money and property: deductible, with caveats ► Contributions of services: nondeductible ► Documentation requirements for charitable gifts ► Monetary gifts ► In-kind (non-cash) gifts ► Gift receipt language ► Quantitative limits on the deductibility of gifts: percentage “caps” ► Caps on corporations ► Caps on individuals ► Private foundations v. public charities ► Cash v. noncash gifts

The Formation of New Nonprofit Organizations ► Choice of Entity Type: Nonprofit Corporation ► Articles of Incorporation ► Bylaws ► Organizational Steps ► Procedural requirements for obtaining federal exemption ► Form 1023 ► Cost and timing ► Retroactivity of exempt status ► New developments in IRS review and processing of applications 4

Board Governance Issues ► The role of the Board of Directors ► Oversight responsibility ► Fiduciary duty (legal concept) ► Board mechanics ► Bylaws ► Meetings: notices, quorum, and voting ► Action outside of meetings (written consents) ► Handling conflicts of interest ► What’s a conflict? ► How to resolve? ► Committees: authority and limitations 5

Compensation Issues ► The legal framework ► Why does compensation uniquely matter to nonprofits? ► Excess benefit transactions and intermediate sanctions ► The “rebuttable presumption of reasonableness” ► Approval by a disinterested, authorized body ► Review of appropriate comparability data ► Contemporaneous documentation ► Form 990: the ultimate transparency document ► Reporting the process used to determine compensation ► Reporting the compensation paid: who and what? 6

Public Reporting Requirements ► Annual filing requirement: Form 990 ► Revenue Thresholds ► Most supporting organizations: no minimum; must file 990 or 990-EZ ► If annual receipts are $50,000 or below, may file 990-N “postcard” ► May file 990-EZ if receipts are below $200,000 and assets are below $500,000 ► Private Foundations: file Form 990-PF regardless of income ► Churches and integrated auxiliaries: no filing requirement ► Generally, identity of donors (Schedule B) not subject to public disclosure, except for private foundations ► Automatic revocation for failure to file 990/990-N for 3 consecutive years (re-application available) 7

Relationships with Private Foundations ► Private Foundations and Public Charities: What’s the difference … and why does it matter? ► General bifurcation of 501(c)(3) organizations ► Classifications of public charities ► Functionally based classifications ► Churches ► Schools ► Hospitals ► Others ► Broadly publicly supported organizations ► Donation-driven organizations ► Fee-for-service organizations ► Supporting organizations 8

Relationships with Private Foundations ► Private Foundations: Special and Counterintuitive Rules ► The tax on net investment income ► The minimum payout requirement ► Taxable expenditures ► Lobbying expenditures ► Political campaign expenditures ► Certain scholarship grants to individuals ► Certain payments to organizations ► Non-charitable expenditures ► The self-dealing prohibition ► The excess business holdings prohibition ► The prohibition on jeopardy investments 9

Special Rules for International Charitable Giving ► International Grant Making by Private Foundations ► The legal framework in general ► Making the equivalency determination ► Reasonable judgments ► Good faith determinations ► Currently qualified affidavits ► Expenditure responsibility: an alternative to equivalency determinations ► Other contemporary issues ► Terrorism ► Illicit activities ► International program-related investments 10

Special Rules for International Charitable Giving ► Utilizing Intermediary Domestic Public Charities ► Perspectives: the international disallowance prohibition revisited ► Deductibility requirements: the technical framework ► The requirement of discretion and control ► The use of “American Friends Of” organizations ► Permissible and impermissible approaches: IRS rulings ► Revenue Ruling ► Revenue Ruling

The Future of Charitable Giving Laws ► President Obama’s FY16 Budget Proposal ► 28% cap on all itemized deductions for individuals in the top three tax brackets ► “Buffett Rule”: minimum 30% tax rate on annual incomes above $1 million; no deductions other than the charitable contribution deduction ► Proposed Tax Reform Act of 2014 (former Rep. Dave Camp) ► Introduced in December 2014 ► Would reduce number of tax brackets ► Would establish a floor of 2% and a ceiling of 40% of AGI ► America Gives More Act (H.R. 644; passed House in February) ► Senate Finance Committee Working Group (convened in January) ► Independent Sector: good source of updated information 12