5 Ongoing Legal Issues for Nonprofit Boards

According to the National Center for Charitable Statistics, there are more than 1.5 million nonprofit and tax-exempt organizations operating in the United States, from charities to industry associations to religious institutions. But whatever their structure or purpose, such organizations need to understand – and respond to – key legal and regulatory issues that are unique to not-for-profits.

For your reference, here are five areas that require ongoing attention (and legal understanding) by nonprofits:

1. Lobbying and Political Campaigning:

“Non-profit organizations are prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributing to political campaigns or public statements – verbal or written – made on behalf of the non-profit organization in favor of or in opposition to any candidate for public office, violates the prohibition against political campaign activity. Simply put, non-profit organizations are forbidden from engaging in any political campaigning activity; violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.” (Political Activities By Non-Profit Educational Institutions by Fisher & Phillips LLP)

2. Tax Compliance and IRS Activism:

“The IRS is continuing its three-year initiative (announced in 2009) aimed at determining whether businesses and tax-exempt organizations are complying with employment tax laws. Among other activities, the initiative includes approximately 1,500 audits of tax-exempt organizations, targeting issues such as worker classification, fringe benefits, officer compensation and employee expense reimbursements.” (Recent Developments for Exempt Organizations, Including 2011 Year in Review by Ropes & Gray LLP)

3. Employees, Interns and Volunteers:

“Whether an unpaid internship occurs under the auspices of an educational institution, in a non-profit organization, or at a for-profit business, in the end the FLSA question still gets down to some version of this: Do the circumstances clearly show that the relationship is for the purpose of generalized learning, education, and training that imparts to the participant significant knowledge of a broadly-applicable kind, or do they instead indicate that the idea is to have the person perform work? ” (Unpaid Internships At Non-Profits Or Arranged By Schools by Fisher & Phillips LLP)

4. Privacy and Data Security

“Cloud computing solutions can avoid the traditional need to invest in computer hardware and software resources required for on-site computing power and related storage equipment and space… These benefits create flexibility and potentially lower costs for the cloud customer. It is therefore not surprising that this type of computing solution has rapidly become a key component to the operation of many nonprofit organizations. Despite these potential benefits, cloud computing doesn’t come without risk…” (Know the Risks Before You Head to the Cloud: A Primer on Cloud Computing Legal Risks and Issues for Nonprofits by Venable LLP)

5. Licensing and Intellectual Property

“Many of the most successful and profitable technologies being developed and commercialized by technology-based companies, particularly in the areas of life sciences and clean technology, were initially developed by universities and other nonprofit institutions… Any such in-license agreement that fails to include certain critical provisions or includes provisions that are viewed by existing or potential investors as overly burdensome or unreasonable can severely inhibit the company’s ability to raise funding from investors.” (Five Key Issues to Consider When Negotiating In-License Agreements With Nonprofit Entities by Mintz Levin)

See also:
Nonprofit Law: A Roundup of Recent Legal Commentary
Nonprofit Law: A Legal Reading List 
Non-Profit Organizations: A Roundup of Recent Legal Commentary and Analysis
Nonprofit Laws: IRS Exemption, Social Media Policies, Contracts, L3Cs, Marketing, and More

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