Category Archives: nonprofit law

Will A Texas Cooperative Be Considered Similar Enough To A Non-Profit Such That The Non-Profit Statute Will Govern Its Conduct?

A recent Texas class action raised a novel issue of law. In that case, the Court was asked to determine whether Denton County Electric Cooperative, Inc. (“CoServ”) would be subject to the Texas Non-Profit Statute. The reason this came up was because the Non-Profit Statute had many more protections in it than the enabling statute for Texas cooperatives.

In Denton County Electric Cooperative, Inc. d/b/a CoServ Electric v. Nicole Hackett, Individually and on behalf of others similarly situated, Court of Appeals of Texas, Fort Worth, No. 02–09–00425–CV (May 10, 2012), the Court determined that the Texas “legislature did not intend to provide Electric Cooperative members with the same rights set out in the [Texas Non-Profit statute].” The sole exception would be if the cooperative enabling statute specifically incorporated the Non-Profit law.

Accordingly, the appellate court vacated the class certification.

How can a For-Profit Corporation Adopt Some of the Social Conscience of a Non-Profit?

What do for-profit businesses need to do if they are seeking to perform the socially conscious work of a non-profit, as well? 
In light of the fact that some for-profit companies are looking for ways to do charitable work while avoiding the limitations imposed by the potential of shareholder derivative lawsuits for failing to maximize profits, new hybrid forms of corporations have been established.  Two examples of the new forms of hybrid entities are “benefit corporation” and “L3C” entities.
Benefit corporations, which are recognized in New Jersey, New York, Maryland, California, Hawaii, Vermont and Virginia, must have a dual purpose to perform a public benefit and create value for their stakeholders.  L3Cs (low-profit limited liability companies) have the same liability protection and tax treatment as an LLC but must have social benefit as their primary purpose and profit as the secondary purpose.

It remains to be seen whether this new development in the law will take the business community in a more socially conscious direction.

Comments/Questions: gdn@gdnlaw.com
© 2014 Nissenbaum Law Group, LLC

New York Enacts the Nonprofit Revitalization Act of 2013

          The trend in nonprofit law is to provide for more oversight – both financial and managerial – so as to bring nonprofits in line with the best practices of the private sector. The State of New York recently took a step forward in that direction by passing the Nonprofit Revitalization Act of 2013 (“Act”).

          The Act provides for a number of changes to tighten the way nonprofits are run. First, it creates a mechanism for nonprofit boards of trustees to police their potential conflicts of interest. A formal structure must be set up to identify and consider whether these conflicts are such that they must be prohibited.

There is a new mechanism to allow for a lawsuit to “unwind”  interested party transactions. Likewise, an employee of the nonprofit will no longer be allowed to serve as its Board Chairman. There are also provisions to allow meetings to take place by email or video link.

Overall, any nonprofit operating in New York should review the provisions of the Act to ensure compliance with it.

Comments/Questions: gdn@gdnlaw.com
© 2014 Nissenbaum Law Group, LLC

May the Government provide funding for religious schools that discriminate based upon gender and other suspect classifications?

May the Government provide funding for religious schools that discriminate based upon gender and other suspect classifications? The currently-pending case, American Civil Liberty Union of New Jersey; Unitarian Universalist Legislative Ministry of NJ and Gloria Shore Andersen v. Rochelle Hendricks and Andrew P. Sidomon-Eristoff, Superior Court of New Jersey, Chancery Division, General Equity Part: Mercer County is seeking to answer that question.
The suit stems from a $750 million bond issue that was approved by New Jersey taxpayers to fund higher education. $11 million dollars of that money was allocated by Governor Christie to support two New Jersey schools: Beth Medrash Govoha and Princeton Theological Seminary. The issue relates to whether these institutions should have been funded with government money, given the fact that they train clergy and discriminate (albeit, legally) on the basis of suspect classifications, such as gender and religion.
One of the interesting aspects of this case it is primarily being brought under the New Jersey Constitution. It provides protection against government intrusion into religious matters that is superior to that of the federal constitution.  Indeed, Article 1, paragraph 3 of the New Jersey Constitution prohibits taxes being used “for building or repairing any church or churches, place or places of worship, or for the maintenance of any minister or ministry” and Article 1, paragraph 4 prohibits establishing a preference for one sect over another.
Another impediment to the funding is that the schools engage in activity that, if engaged in by a private party, would violate the New Jersey Law Against Discrimination. Religious institutions enjoy an exception to that law which allows them to discriminate on such items as gender or religion. However, the government is covered by the restrictions in the New Jersey Law Against Discrimination. Therefore, when the government funds an otherwise exempt institution, the government is violating the Law Against Discrimination.  

Is a Person who Indirectly Benefits from a Nonprofit Organization Considered a “Beneficiary” Under the New Jersey Charitable Immunity Act?

Who should be considered a beneficiary under the New Jersey Charitable Immunity Act?

In Larissa Sapia and Joseph Sapia v. Hunterdon County YMCA, L-10265-09 (N.J. Super. App. Div. August 10, 2012), Larissa Sapia (“Plaintiff”) went to the YMCA (“Defendant”) to examine its facilities with her parents. Plaintiff went with her parents only to act as a translator for them because they did not speak English.  While touring the facilities, Plaintiff slipped on a puddle of water located in front of a water fountain. The fountain was between the men’s and women’s locker room entrances. 

Plaintiff sought damages against Defendant that were caused by the unsafe condition of Defendant’s premises. Defendant claimed its potential personal injury liability was limited by the New Jersey Charitable Immunity Act (“Act”) and moved for summary judgment. The court granted Defendant’s motion. Plaintiff filed a motion for reconsideration with the Superior Court of New Jersey, Appellate Division (“Court”). Plaintiff acknowledged Defendant’s status as a nonprofit tax exempt entity that was organized for charitable purposes. Therefore, the issue considered on appeal was confined to whether Plaintiff was a beneficiary of the charitable works. If it were, it could potentially receive immunity under the Act.

The Court explained that the Act shields charitable entities from liability for negligence in certain circumstances. The Court noted that the grant of immunity under the Act is not mandatory; it is not conditional. However, the Court also noted that the Act is liberally construed so as to afford immunity to nonprofit corporations organized for charitable, educational, or hospital purposes. 

In order for an entity to qualify for charitable immunity it must be:

1) formed for non-profit purposes;

2) organized exclusively for religious, charitable, or educational purposes; and

3) promoted for objective and purposes at the time of the injury to the plaintiff who was then a beneficiary of the charitable works.

The Court elaborated upon who is considered a beneficiary of the charitable works under the Act. The Court explained that beneficiary status does not depend upon a showing that plaintiff personally receives a benefit from the works of the charity. Rather, the issue was whether the entity claiming immunity was engaged in the performance of the charitable objectives that was the purpose of its
creation. 

The Court considered the following factors:

  • Plaintiff was educated regarding the nature of available services that Defendant offered
    and on Defendant’s proposed goals.
  • Plaintiff’s presence was incidental to the accomplishment of her own objectives, which were
    related to the charity’s beneficence; ensuring her parents could receive the benefits of the facility tour.
  • Defendant was advancing its charitable goals at the time Plaintiff was injured because it
    occurred while walking a guided tour of the facility where Defendant conducted its activities and functions.

Based upon these factors, the Court held that Plaintiff benefited from the charity’s works. Therefore, she was a beneficiary of Defendant. Thus, the Court affirmed Defendant’s motion to dismiss.

A lesson to be noted is that nonprofits may be immune from personal injury claims even if the person
injured is on the premises for purposes that do not directly benefit them.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

May a 501(c) Organization Utilize Its Funds For Issues Oriented Advocacy?

Most people are familiar with 501(c)(3) non-profit organizations.  These are entities that perform charitable work that is mostly (though not necessarily completely), devoid of political content.  Generally speaking, donations to such entities are fully deductible for tax purposes.

However, many people are unaware that there are a series of additional types of entities under section 501(c) of the Internal Revenue Code (“IRC”).  Those entities can engage in far more issues oriented political advocacy.  Generally speaking, donations to those entities are not necessarily deductible.  An example of such entities are 501(c)(4) organizations that are often specifically organized for the purpose of political advocacy.

One of the critical changes to this scheme has occurred as a result of Citizens United v. Federal Election Commission, 558 U.S. 50 (2010).   In that case, the Supreme Court held, among other items, that a 501(c)(4) entity could donate unlimited amounts for an issue oriented campaign.

One of the more interesting questions is whether this will allow donors to shield themselves from being identified.  While the Federal Election Commission has approved that anonymity, recent court decisions have called that into question.  We expect that this will become an issue on appeal in the months and years to come.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

May a Texas Nonprofit Organization Use Charitable Donations for Personal Use?

In December 2011, Texas Attorney General Greg Abbott (“Abbott”) sued the Texas Highway Patrol Association (“THPA”), the Texas Highway Patrol Museum, THPA Services, Inc. and several senior THPA officials (collectively “THPA and Affiliates,” separately “Affiliates”).  The suit claimed that THPA and Affiliates defrauded charitable donors by illegally soliciting donations under the false pretense that the contributions would be used to benefit the families of slain state troopers.  Instead, state investigators found that few survivors actually received financial assistance from THPA and Affiliates, and the money went toward personal use such as meals, movie theater and amusement park tickets and unauthorized association credit card charges for travel for officials and their family and friends.

THPA and Affiliates received up to $10,000.00 a day and they could not produce receipts for their expenditures that evidenced business related transactions.  While the organization had raised approximately $12,000,000.00 in donations within five (5) years, only a reported $63,500.00 was given to the families of fallen state police officers.

Some THPA officials gave employees excessive compensation and used donations to pay for personal vehicles.  Although THPA officials told investigators that the cars were for business, the insurance policy listed the purpose of the vehicles as being for pleasure.

The lawsuit also charged THPA and Affiliates with falsely claiming that they were a tax-exempt, charitable organization registered with the Internal Revenue Service (“IRS”).  THPA was a nonprofit business league, not a charity.

THPA and Affiliates also face civil penalties under the Texas Deceptive Trade Practices Act for falsely claiming that they are associated with the Texas Department of Public Safety (“DPS”) and its highway patrol division.  Neither the THPA nor its Affiliates are associated with the DPS.

The Travis County Probate Judge Guy Herman appointed a temporary receiver and froze THPA’s assets at $490,000.00.  The total amount of money improperly used was not acknowledged in the suit because Abbott plans to make that a part of the ongoing investigation.  The suit has not yet been adjudicated.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

May A Homeowners’ Association be Qualified as a 501(c)(4) Entity?

A homeowner’s association for a condominium complex may qualify for status under 501 (c)(4) of the Internal Revenue Code (IRC) under certain circumstances.

Most importantly, it must operate for the benefit of the general public.  However, if there is a significant degree of private benefit served by the homeowner’s organization, it will not qualify.  An excellent discussion of this is contained in http://www.irs.gov/pub/irs-tege/eotopicr82.pdf.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

How Does a Nonprofit Corporation Commence Its Legal Existence in New York?

New York has a statute that anyone starting a nonprofit should read.  It is located at NY. NPC. Law Section 405.

The statute states, among other things, that a certificate of incorporation must be filed with the New York Department of State.  Thereafter, the non-profit corporation must hold an organizational meeting to elect directors, adopt by-laws and transact other business, such as authorizing a bank account to be opened; the execution of agreements; and appointing officers.  Under certain circumstances, there may also be a requirement to register with the office of the Attorney General, Charities Bureau.

It is important to note that in addition to all this, the corporation must also apply to the federal (as opposed to state) government for 501(c)(3) status.  This is done through a 1023 form supplied by the Internal Revenue Service (IRS).  See http://www.irs.gov/charities/article/0,,id=96109,00.html.  This is important to allow donors to deduct their donations.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

The Requirement for Small Nonprofits to File IRS Form 990-N

It is important to keep in mind that there are filing requirements that apply to nonprofit corporations with revenue of not more than $50,000.00.  Such organizations are required to file a IRS Form 990-N e-postcard.  As the IRS previously stated:

“The Pension Protection Act of 2006 made two important changes affecting tax-exempt organizations, effective the beginning of 2007. First, it mandated that all tax-exempt organizations, other than churches and church-related organizations, must file an annual return with the IRS. The Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement. Second, the law also required that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status. The IRS conducted an extensive outreach effort about this new legal requirement but, even so, many organizations have not filed returns on time.” 

“If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.”

Internal Revenue Services Bulletin: 2011-25 (June 20, 2011), Transitional Relief Under Internal Revenue Code Section 6033(j)For Small Organizations.

It is critical that nonprofit entities with revenue under $50,000.00 comply with this requirement.   

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC