	Nonprofit News You Can Use
Issue 3 (Winter '05)		The Newsletter of the Law Firm for Non-Profits, P.C.

1 The Advance Ruling Period and Publicly Supported Charity Status
2 Internet Board Meetings and Electronic Communications
3 Charities Can Be Sued for Serious Errors 4 What is the Dollar Worth of a Volunteer?
5 Legal notices
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1. The Advance Ruling Period and Publicly Supported Charity Status
Nothing is more confusing to newly recognized 501(c)(3) publicly supported charities than the Advance Ruling Period. This is a critical aspect of a public charity's exempt status, yet questions abound that often go unanswered: What it the Advance Ruling Period? What does it mean for your nonprofit? What must we do before it ends? Is our 501(c)(3) status temporary? We have prepared a Management Memo to answer these and other questions regarding this difficulty to understand concern. Download the Management Memo.

2. Independent Contractor or Employee?
One of the most perplexing issues for nonprofits is whether they can classify some employees as independent contractors instead of employees? This is a particularly important question for smaller nonprofits. Now, the IRS and California Employment Development Department have put together a free interactive CD-ROM entitled "Employment Status Course" to help answer your questions and make wise determinations.

To order a free copy, send an email to dbest@edd.ca.gov with your name, mailing address, and the number of copies required. Additional resources for nonprofit employers can be found at:

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3. Charities Can be Sued for Serious Errors
What protections do directors of nonprofits have from the gross negligence of their organizations? The Virginia Supreme Court apparently thinks none. In a case involving a patient of a nonprofit hospice who died after she received inadequate medical treatment, that court ruled that the nonprofit can be sued despite state law that protects nonprofits charities and their directors from negligence.

While this ruling only applies to Virginia nonprofits, it is a reminder of both the policy oversight role directors MUST exercise and the need for adequate and appropriate insurance.

4. "Automatic" Excess Benefit Transactions
Independent Sector, a support and advocacy group for the nonprofit community has calculated the value of volunteer time. Basing their figures on Bureau of Labor Statistics non-supervisorial and non-farm payroll statistics, Independent Sector calculated the value of an hour of volunteer time in 2003 as $17.19. Click here to read the article.

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5. Penalties for Inaccurate 990s
In prior years, the IRS has elected not to impose penalties on nonprofits that file erroneous tax returns. That is no longer the case. In an announcement late last year, the IRS announced that it will now assess penalties on nonprofits that file incomplete tax returns.

The IRS recommends many things nonprofits can do to insure that their tax returns are complete. Among the most important is to properly report fundraising expenses. The IRS believes that 1/4 of 501(c)(3)s either fail to report any fundraising expenses or report them inaccurately. Essentially, if your organization does any fundraising, the IRS believes it not credible that there are no fundraising expenses. This may trigger a red flag that could result in penalties, or perhaps even an audit.

Other hints to avoid incomplete 990s include:

The following tips apply to all Form 990 filers:

Filing Form 990 or 990-PF, as appropriate, electronically.

Properly address and fill-in the information required on the new Part X of Form 990 regarding personal benefits contracts. These include any insurance contract that benefits, directly or indirectly, a donor who gave the organization funds to pay the premium.

Fully complete the new Schedule B to Form 990. With the new form, nonprofits list all contributors of more than $5,000 (measured by their aggregated contributions over the filing period). However, publicly supported charities that meet the one-third support test of section 170(b)(1)(A) should include only contributions aggregating more than 2 percent of the annual total.

Thoroughly complete Part III, the Statement of Program Service Accomplishments. Many organizations leave this section blank (!) or use a one sentence to describe all activities. This is considered inadequate.

Complete Part V requiring information about payments to officers, directors, trustees and key employees. This is, in practice, self-reporting of section 4958 "Excess Benefits Transactions." (To learn more about Excess Benefits Transactions, please see Board Member Beware.)

527 organizations must complete both Form 1120-POL and Form 990.

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