March 2016 newsletter

1

DIRECTORS AND ADVISORS EDITION THE SCHOOL OF CHILDCARE GOVERNANCE NEWSLETTER

VOL. 1 ISSUE 1 MARCH 2016

Governance and Guidance for Directors and

Advisors of Nonprofit Corporations

This course will serve as a guide, or introduction to board governance

for Directors and Advisor’s to nonprofit childcare organizations. This

course has been developed from text prepared by a subcommittee of

the Committee on Nonprofit Corporations of the Business Law Section

of the American Bar Association. The purpose of this course is to

provide a thorough understanding and review of the responsibilities of

nonprofit organization volunteer directors and advisors. The course will

provide descriptions of general legal principles as they apply to

nonprofit corporations and also, on a more practical level, offers what

we hope will be useful suggestions and procedures for both the

individual director and the corporation which he or she serves.

Click here to ENROLL IN COURSE NOW!

GOVERNANCE TODAY

Volunteers Are Agents of the Corporation for Whose Acts the Corporation May Be Liable Volunteers working on

behalf of a nonprofit corporation are agents of the nonprofit corporation in the eyes of the law. That is, their acts or omissions

and their care or negligence in performance of their activities as volunteers are, within limits, considered to be the acts or

omissions of the nonprofit corporation. As a general rule, the nonprofit corporation will not be exonerated from liability arising

from the conduct of the agent simply because the organization is a nonprofit corporation or because the agent was uncom-

pensated or a volunteer. Page 2

CHANGES IN STATE STATUTES

Changes to New York Nonprofit Governance Law Effective July 1, 2014 On July 1, 2014, certain substantial chang-

es to New York nonprofit law will take effect, and will require compliance by all nonprofit organizations incorpo-

rated in New York, as well as certain nonprofit organizations doing business or soliciting donations in New York

even if incorporated elsewhere. Page 3

BEST PRACTICES FOR CHILDCARE DIRECTORSHIP

Protection of the Volunteer from Individual Liability

Volunteers may also be sued individually for injuries they cause while acting in a volunteer capacity. The nonprofit corpora-

tion should consider what it should do to protect its volunteers in such situations. Page 4

WHAT’S NEW AT THE IRS

WHEN A NONPROFIT IS PROFITABLE

Often, when people think of a nonprofit organization they automatically assume it is tax exempt; however, that is not always

the case. Certain exempt nonprofit organizations are liable for tax if they … unrelated business taxable income, which is

discussed in detail below. The tax that organizations must pay on this income is called the unrelated business income tax

(UBIT). UBIT is designed to prevent exempt entities from avoiding a tax liability on a busi-

ness activity that a regular nonexempt entity would have to pay during the ordinary course

of business. Page 5

INDUSTRY UPDATES:

ABOUT US:

Hello my name is Larry Montgomery, Sr. I am the

Executive Director of the School of Childcare

Governance, its founder and one of its founding

instructors, I am the President and CEO of Emerging

Business Group, Inc., the school’s principal Consulting

group, the Host of the Authors Corner a internet radio blog

and the Publisher of “The Directors and Advisers Edition”

this monthly news and information newsletter.

I am honored and humbled that you took the time to read through this news-

letter to this point. I hope you have enjoyed and found interest in its content

and I ask that you feel free to submit your comments and suggestions as

well as other articles of interest through our “Directors and Advisers Ex-

change”.

REGISTER 5 At one time and GET

25% OFF

D&A Course’s between 4/1/2016 and 4/15/2016

Courses must be completed before 9/1/2016. No Refunds for any reason.

2



GOVERNANCE TODAY

Volunteers Are Agents of the Corpora on for

Whose Acts the Corpora on May Be Liable

Volunteers working on behalf of a nonprofit corpora on are agents

of the nonprofit corpora on in the eyes of the law. That is, their

acts or omissions and their care or negligence in performance of

their ac vi es as volunteers are, within limits, considered to be the

acts or omissions of the nonprofit corpora on. As a general rule,

the nonprofit corpora on will not be exonerated from liability aris-

ing from the conduct of the agent simply because the organiza on

is a nonprofit corpora on or because the agent was uncompen-

sated or a volunteer.

Nonprofit corpora ons can be and are held responsible for the ac-

ons of their volunteers and are expected, within reason, to fore-

see and address the risks associated with the use of volunteers.

The poten al risks include situa ons in which a volunteer is used

to represent the nonprofit corpora on to the public

or in providing services consistent with the organiza on’s purpos-

es—for example, a program in which the nonprofit corpora on

sends volunteers into homes to provide services, uses volunteers

INDUSTRY UPDATES:


25% OFF



DIRECTORS & ADVISERS EXCHANGE:

Share your governance experience, expertise, clout and resources to the world

through our newly populating “Directors and Advisers Expertise Exchange. The D&AE

is designed to assist new nonprofit corporation directors, advisers and seasoned

directors and advisers who want to be of service and or benefit to peer nonprofit

corporation boards and auxiliaries around the globe.

Please contact our Executive Director with your desire to be of peer service an-

nouncement to be shared online in real time, and someone will get back to you within

24 hours with a link to an our Blog where people like you share their experiences,

connections, challenges, successes and most importantly make referrals across

conference tables, city limits and state lines so we all can be the best we can be.

Join today its free just email us your resume and a brief statement on your vision for

childcare in 2050.

Email us at [email protected]

to work in a posi on of

trust with vulnerable indi-

viduals such as minors or

the developmentally disa-

bled, or uses volunteers

to drive or to perform oth-

er poten ally dangerous ac vi es.

Minimizing the Liability of the Corpora on

Due to Acts of a Volunteer

Because of the poten al for liability involved in the use

of volunteers, the nonprofit corpora on should devel-

op standards, guidelines and procedures for the use of

volunteers rather than enlis ng the assistance of volun-

teers on a random or sporadic basis. This does not

mean that there must be a large number of staff

devoted to development and administra on of a volun-

teer program. Rather, the decision to use and the use

of volunteers should include an evalua on of the re-

quirements for each volunteer posi on and wri en

standards for selec on, training, and supervision of the

organiza on’s volunteers.

Selec on of volunteers: wri en standards

Nonprofit corpora ons should develop wri en stand-

ards for the selec on of volunteers. Depending on the

nature of the volunteer posi on, the standards for se-

lec on may include educa on, experience, training re-

quirements, considera on of the volunteer’s ability to

commit me to the posi on, and the volunteer’s suita-

bility for the par cular posi on, such as working with

children. The nonprofit corpora on should then use

these standards to verify a volunteer’s suitability for

the posi on. This can include requiring a wri en volun-

teer applica on form, personal interview, background

check, driving record, reference check, or other meth-

od to verify that the volunteer is an appropriate indi-

vidual for the posi on. If a criminal or other back-

ground check is determined to be necessary for a vol-

unteer posi on, the nonprofit corpora on should ob-

tain a signed release from the applicant authorizing the

nonprofit corpora on to obtain the necessary infor-

ma on from the appropriate agencies. The board

should consult with legal counsel in preparing the re-

lease form.

3

CONSULTATIVE SERVICES:



CHANGES IN STATE STATUTES

Changes to New York Nonprofit Governance Law Effective July 1, 2014 On July

1, 2014, certain substantial changes to New York nonprofit law will take effect,

and will require compliance by all nonprofit organizations incorporated in New

York, as well as certain nonprofit organizations doing business or soliciting dona-

tions in New York even if incorporated elsewhere.

The New York Nonprofit Revitalization Act of 2013 (the “Act”) represents the most

significant update to New York’s nonprofit laws in 40 years, and is intended to

enhance nonprofit governance and oversight to prevent fraud and improve public

trust, as well as to reduce unnecessary and outdated burdens on nonprofit organ-

izations. As summarized in this memorandum, the Act requires all nonprofit or-

ganizations to review existing governing documents, policies and internal con-

trols. Actions Required by July 1, 2014 The following summary outlines the steps

all New York nonprofit organizations (and, where indicated, certain nonprofits in-

corporated elsewhere) should take to ensure compliance as of July 1, 2014: �

Adoption or Amendment of Conflicts of Interest Policy. Every nonprofit organiza-

tion incorporated in New York must have in place as of July 1, 2014 a Conflicts of

Interest Policy including, at a minimum: a definition of conflict of interest; conflict

disclosure procedures for board or committee oversight; a prohibition on conflict-

ed parties influencing deliberation or voting on the matter presenting the conflict;

and procedures for addressing, documenting, and disclosing related party trans-

actions. The Act provides that organizations that have adopted a Conflicts of In-

terest Policy as required by federal, state or local law that is substantially con-

sistent with the Act’s requirements will be deemed in compliance with the Act.

Note, however, that even existing policies based on the IRS sample should be

reviewed for compliance with the Act. � Related Party Transactions; Compensa-

tion. In addition to the above, other substantive provisions of the Act relate to con-

flicts of interest and fairness in compensation practices. To ensure compliance, it

is best practice to include in your organization’s Conflicts of Interest Policy, by-

INDUSTRY UPDATES:

General Board Training

Organizational Strategic Planning

Board Capacity Assessment and Training for Efficiency

Organizational Marketing and Program Growth Planning

Community Assessment and Management for Growth Planning

Feel free to forward your request for a consultative proposal and see

page 6 for travel dates and locations.



25% OFF



laws or appropriate committee

charter the following: a definition

of “related party transaction”;

procedures for disclosure of in-

terests by directors, officers, or

key employees; and, mechanics

for scrutinizing a proposed relat-

ed party transaction. With respect to compensation paid to mem-

bers, directors, or officers, no person who may benefit from a given

compensation policy may be present at, or participate in, delibera-

tion and voting with respect to such compensation.

Prohibition of Employees Serving as Board Chair. Effective as of

January 1, 2015, the Act will bar any employee of the organization

from serving as chair of the board or holding a title with similar re-

sponsibilities. � Adoption or Amendment of Whistleblower Policy.

Nonprofit organizations incorporated in New York, having 20 or

more employees and annual revenue of at least $1 million (as

measured by the prior fiscal year), must adopt a whistleblower poli-

cy or amend any existing policy to comply with the requirements

listed below.

The whistleblower policy must include the following: procedures for

reporting violations or suspected violations of laws or corporate

policies; designation of an employee, officer, or director to adminis-

ter the policy; and, distribution of the policy to directors, officers

and employees as well as volunteers who provide substantial ser-

vices to the organization. � Review and Amendment of By-laws.

The Act eliminates the distinction between “standing” and “special”

committees of the board. Instead, all board committees will be

standing committees, to which the board may delegate all or part

of its authority, and on which only voting members of the board

may serve. Committees of the corporation, on which non-board

members may serve, may not be delegated any board powers, or

the authority to bind the board. All references to “special commit-

tees” should be removed from by-laws, such that the only permit-

ted committees are standing committees of the board and commit-

tees of the corporation. � Audit Oversight Requirements. Under

both current law and the Act, organizations that have a certain min-

imum amount of revenue generated in New York and are regis-

tered to solicit contributions from the public are required to file au-

dited financial statements with the New York Attorney General,

whether incorporated in New York or elsewhere (such require-

ments generally will not apply to private foundations).

The Act introduces specific oversight functions for the financial au-

dit which must be performed by independent directors of the board

or a committee comprised solely of independent directors. These

functions include retention of an independent auditor, oversight of

the implementation of the audit, and oversight of the conflict of in-

terest and whistleblower policies (subject to certain exceptions if

the latter function is performed by an independent committee of the

board).

If an organization expects to have annual revenue over $1 million,

the board or audit committee must also review the procedures of

the audit prior to its execution and review and discuss the audit

with the independent auditor upon its completion, including risks

and weaknesses in internal controls, restrictions on the auditor’s

activities or access, disagreements between the auditor and man-

agement, and the adequacy of accounting and financial reporting

processes. If an audit committee performs the audit function, it

must report its activities to the board.

We recommend that the above requirements be reflected in the by-

laws or audit committee charter.

4

WHAT TO EARN MONEY?

TEST DRIVE A COURSE:

If you are a free thinker who has taken one of our courses please send us your

suggestions for additional courses. If we like your suggestion and are able to se-

cure the necessary expertise to deliver a quality course at a reason price we will

contact you to test drive the course.

What that means is once we have the course designed and laid out we will solicit

your help and that of a few others to critique it, develop questions and identify

benefits prior to making it available to the marketplace.

So what is in it for you other than being the one with the great idea? How about

we have you join our team on a part time basis. That we can work together on any

other ideas you may have. Who knows teaching and course development just

might be your second career.

Please feel free to email at the address below and type in “Course Recommenda-

tion” in the subject line. Then tell us all abut it. Thanks.




BEST PRACTICES FOR

CHILDCARE DIRECTORSHIP

Protection of the Volunteer from Individual Liability

Volunteers may also be sued individually for injuries they

cause while acting in a volunteer capacity. The nonprofit cor-

poration should consider what it should do to protect its vol-

unteers in such situations.

Statutes Protecting Volunteers

Most states have volunteer protection statutes limiting the lia-

bility of volunteers. Although the scope of the protection dif-

fers somewhat from state to state, most states provide at

least some degree of immunity from civil liability for a volun-

teer if the volunteer acts within the scope of the volunteer’s

duties, in good faith, and the injury is not caused by the will-

ful or wanton conduct of the volunteer. 1 There is also a fed-

eral Volunteer Protection Act, passed in 1997, which pro-

vides some liability protection for volunteers of a nonprofit or-

ganization or governmental agency. In general, under the

federal statute, a volunteer will not be held liable for harm

caused by the volunteer, if the volunteer was acting within

the scope of his or her responsibilities, the volunteer was

properly licensed or certified (if appropriate or required), the

harm was not caused by the volunteer’s

willful or criminal conduct, gross negligence or reckless con-

duct, and the harm was not caused by the volunteer operat-

INDUSTRY UPDATES:


25% OFF



ing a vehicle for which the operator must have

a license or that must be insured.2 The feder-

al statute preempts state law to the extent that

it is inconsistent with the federal statute un-

less the state law provides additional protec-

tion from liability relating to volunteers.

The board of directors should make sure it un-

derstands the scope of available state and

federal statutory protection for volunteers by

consulting with legal counsel knowledgeable

in the area. To the extent (which is often sub-

stantial) that such statutes do not provide

complete protection, the board should evalu-

ate whether the corporation has adequate in-

surance coverage for volunteer activities. The

board should also consider alerting volunteers

to the potential need for personal insurance

coverage for their own activities. (See further

discussion in D&A Introduction to Nonprofit

Governance Course section 404-Insurance

for Volunteers”.)

5



WHAT’S NEW AT THE IRS

WHEN A NONPROFIT IS PROFITABLE

By: Meredith N. Pratt, CPA, is a staff accountant in the Tax Services practice of Lattimore Black Morgan & Cain, PC (LBMC).

Often, when people think of a nonprofit organization they automatically as-sume it is tax exempt; however, that is not always the case. Certain exempt nonprofit organizations are liable for tax if they have unrelated business taxa-ble income, which is discussed in detail below. The tax that organizations must pay on this income is called the unrelated business income tax (UBIT). UBIT is designed to prevent exempt entities from avoiding a tax liability on a business activity that a regular nonexempt entity would have to pay during the ordinary course of business.

What is unrelated business income?

Code §512(a)(1) defines unrelated business taxable income as "gross in-come derived by any organization from any unrelated trade or business regu-larly carried on by it, less the deductions allowed." Code §513(a) defines an unrelated business as "any trade or business the conduct of which is not sub-stantially related to the exercise or performance by such organization of its charitable. . . . or other purpose."

In simpler terms, unrelated business income is the profit derived from any trade or business activity that is performed on a regular basis by an exempt entity that is not substantially related to the exempt purpose of the organiza-tion. For example, if an exempt organization engages in a one-time profitable, unrelated activity, it will not be liable for the UBIT because the activity is not conducted on a frequent and continuous basis in a comparable manner to a nonexempt entity as required by Reg. §1.513-1. This is true even though the activity is unrelated to the exempt purpose of the organization. If, however, the activity is performed on a recurring basis and is unrelated, the exempt organization will be subject to UBIT.

Reg. §1.513-1 states that in order for a trade or business activity to be relat-ed to the exempt purpose of the nonprofit, it must have a causal relationship, and it also must "contribute importantly" to the exempt purpose of the entity. This can only be determined on a case-by-case basis and is therefore very subjective. You must consider the size of the business activity in relation to the size of the exempt function and whether or not the size of the business activity is larger than what would be considered necessary to achieve the de-sired goal of the activity.

There are also many activities that are specifically excluded from the defini-tion of an unrelated trade or business by the IRS. These include activities performed by unpaid volunteers, activities that are principally for the conven-ience of members or employees, and activities involving the sale of donated merchandise. The types of income that are excluded include dividend and interest income, royalties, and rents from real property.

If an organization does conduct an unrelated trade or business, they are al-lowed to take certain deductions that are directly connected to the activity when computing unrelated business taxable income. These include normal income tax deductions, such as depreciation, salaries, and other similar items. Dual-purpose expenses that are related to the exempt function of the organization and to the unrelated business must be allocated between the

INDUSTRY UPDATES:


25% OFF



two functions.

How do you calculate UBIT?

Organizations with unrelated busi-ness income (after applicable deduc-tions) of $1,000 or more are required to file a Form 990-T, along with supporting schedules. According to Code §511(a), UBIT is calculated using corporate tax rates provided in §11 of the Internal Revenue Code. Organizations subject to the UBIT are also allowed to take many of the same tax credits as for-profit entities, including the General Business Credit and the Foreign Tax Credit. If an ex-empt organization is expected to owe $500 or more in UBIT, it is required to make estimated tax payments using Form 990-W.

Special rules

There is a special rule regarding advertising revenue received by an exempt entity. Revenue derived from advertising in a printed publication produced by an exempt organization is generally tax-able and reported on Schedule J of Form 990-T. However, there are exceptions to this general rule. In order to be exempt from taxation, the advertising activity generating the revenue must be regularly carried on, significantly related to the organization's ex-empt purpose, and conducted mainly by volunteers. If it does not meet any of the above requirements, then the advertising reve-nue is unrelated business income under §513(a) and it is subject to the UBIT.

Taxable gross advertising revenue is reduced by direct advertis-ing costs and any readership costs that are in excess of circula-tion income. Gross advertising revenue is simply any amount re-ceived from the advertising activities that are unrelated to the ex-empt purpose of the organization. Reg. § 1.512(a)-1 describes circulation income as "the income attributable to the production, distribution, or circulation of a periodical (other than gross adver-tising income), including all amounts realized from or attributable to the sale or distribution of the readership content of the periodi-cal." Circulation income also includes an allocable portion of dues or fees received by the organization from its members.

Reg. §1.512(a)-1(f)(6) defines direct advertising costs as "all ex-penses, depreciation, and similar items of deduction which are directly connected with the sale and publication of advertising" of the exempt organization. Readership costs are any expenses related to the publication that are not allocated to direct advertis-ing costs. If the advertising activity of the publication produces a net loss (direct advertising costs in excess of advertising in-come), then the organization is allowed to use this to offset other unrelated business income.

There is also a special rule that requires income generated from debt-financed property to be included in an exempt organization's unrelated business income. Code §514(b)(1) defines debt-financed property as "any property which is held to produce in-come. and with respect to which there is an acquisition indebted-ness at any time during the taxable year." However, if "substantially all" of the property is used to support the exempt purpose of the organization, then the income is not required to be included in unrelated business income. Reg. §1.514(b)-1 states that property will be substantially related if "85 percent or more of the use of such property is devoted to the organization's exempt purpose." If the property is used less than 85 percent of the time for exempt purposes, then only that specific percentage of in-come can be excluded from unrelated business income, as op-posed to the entire amount if the "substantially all" requirement is met.

Even though nonprofits do not typically operate with the objec-tive of generating profits, there may be a time when income is generated that is unrelated to the organization's exempt purpose. Organizations need to be proactive when it comes to planning activities that could possibly generate unrelated business income and should always consider the tax implications that could come from these activities. Therefore, it is extremely important for tax-exempt organizations be aware of UBIT and when it is required.

6

UPCOMING COURSES:

1) FUNDRAISING AND FUND DEVELOPMENT PLANNING FOR CHILDCARE PROGRAMS

2) MARKETING AND OUTREACH FOR NONPROFIT CORPORATIONS—CHILDCARE PROGRAMS

3) STRATEGIC PLANNING FOR CHILDCARE ORGANIZATIONS

4) MANAGING VOLUNTEERS IN NONPROFIT CHILDCARE CORPORATIONS

5) ENVIRONMENTAL HEALTH AND SAFETY IN THE CHILDCARE FACILITY

Please email us to pre-register your program and save upwards of 25% each grouping of 5 students or more.

Thanks



TRAINING LOCATIONS, DATES, TIMES: CONTACT US:


25% OFF



Email: [email protected]

Web-site: www.school-of-childcare-

governance.teachable.com

www. Emergingbusinessgr.wix.com/childcare-

governance

New York Avenue,

Baldwin, New York 11510

Telephone: (877) 572-4930 ext. 0

STATE CITY

New York Long Island

New Jersey Newark

Connecticut Hartford

Maryland Baltimore

Delaware Wilmington

Washington DC To Be Announced

North Carolina Charlotte

DATE

March

April

May

June

July

August

September

South Carolina To Be Announced October

Georgia Atlanta November

Florida Panama City December

Alabama Birmingham January 2017

Documents

March 2016 newsletter