Presented By:
Nancy Merz Nordstrom, EIN Program Manager
Don Yesukaitis, Learning in Retirement Institute, George Mason University
John Fahey, Institute for Learning in Retirement, Old Dominion University
Connie Criscuolo, ElderStudy, Mary Washington College
Karl Fontenot, Institute for Learning in Retirement, Old Dominion University
(Moderator)
Participants of this workshop learned about liability of LLIs for accidents
at scheduled functions. They also looked at the advantages and disadvantages
of incorporation.
Please contact presenters for more detailed information.
Nancy Merz Nordstrom, EIN Program Manager
As the resource and communications network for all the 300+ LLIs who belong,
EIN has been compiling information and answers from LLIs on these topics
over the last several years. That information was passed out and discussed.
Many different questions were answered. All the material in the handout
can be found on the EIN web site under the Forum Compilations Index.
Don Yesukaitis, Learning in Retirement Institute, George Mason
University
Some Do’s & Don’ts for Not-for-Profit (NPO) Board Members
to Consider
DO:
• Be wary of NPOs where board members are inattentive to operations,
don’t attend meetings or exercise their fiduciary responsibilities
without reasonable care.
• Carry both general liability and directors and officers insurance.
• Avoid the appearance of or actual/potential conflicts of interest
as a board member.
• Educate yourself on how the organization operates.
• Attend board meetings regularly.
• Be prepared to contribute not only your money but also your time
and your talent.
DON’T
• Rubber-stamp decisions.
• Serve if you are unable to regularly attend board meetings.
• Skip board meetings.
• Ignore complaints, e.g., discrimination or sexual misconduct.
Federal Voluntary Protection Act of 1997 (VPA)
• There are not only state statutes that can provide legal liability
protection to NPO board members but the Federal government’s
VPA also can offer some relief.
• Essentially the VPA exempts volunteer workers of NPOs and government
entities from liability for harm caused by their actions or
omissions if:
• They act within the scope of their responsibilities
• The harm wasn’t caused by willful or criminal
misconduct, gross negligence, reckless misconduct or
conscious, flagrant indifference
to the rights or safety of the injured individual
• The harm wasn’t caused by the unpaid worker
operating a motor vehicle or other vehicle
• The Act doesn’t protect volunteers in situations where they
violate Federal or state civil rights laws.
• Nor is there protection if drugs or alcohol are involved or there
are sexual offenses.
Directors and Officers Insurance
• Even with laws that enact statutory limits on the liability of
some boards, the organization can still be sued and incur
legal defense costs.
• Claims involving employees are common across the country. For
example, claims involving:
• Discrimination
• Wrongful discharge
• Sexual or racial harassment
• Hiring, promotions and compensation
• Failure to supervise
• Defamation
• Board members can be vulnerable to these suits when they approve
personnel policies that are alleged to violate the law.
• Nonprofits can and apparently are being sued by donors over the
use of their donations.
• Boards are also being sued over board decisions and injury allegedly
caused by mismanagement.
Points to Consider:
• Board members, officers, volunteers and employees plus the entity
should be insured.
• Be sure defense costs will be advanced.
• Broad coverage for employment practices could be very important
since these are the source of many suits.
• The policy should be non-cancelable.
• Intentional wrongdoing damages normally not paid.
Some Web Sites to Consider:
Nonprofit Risk Management Center – www.nonprofitrisk.org
Charity Navigator – www.charitynavigator.org
Internal Revenue Service – www.irs.gov
Business for Social Responsibility – www.bsr.org
http://members.aol.com/exempts/status/dodont.html
Key Words:
Charities & Nonprofits
Conflicts of Interest
Intermediate Sanctions
Connie Criscuolo, ElderStudy, Mary Washington College
In 2002 Mary Washington ElderStudy in Fredericksburg, Virginia, decided
to apply for 501(c)(3) tax exempt status. ElderStudy had been established
in 1993 as an outreach of Mary Washington College.
At that time it was under the College's tax exempt status, and they controlled
all the ElderStudy finances. Our Treasurer had to go through the College
to get every check he needed to pay for anything. This became very cumbersome.
The ElderStudy Board of Directors decided to set up their own checking
account for the organization to pay the bills, and withdrew ElderStudy
funds from the College's financial accounting system. No one realized
at that time that this meant ElderStudy would no longer be tax exempt
under the College.
The College's name was on our checking account. In 1999 we discovered
that, because the College had no control over our funds, we did not come
under their tax exempt status. We started worrying whether we were in
trouble regarding nonpayment of taxes. We had not filed anything with
the IRS for six years. Some of the Board members thought the solution
was to go back under the College. Others did not. This became a very divisive
issue for the Board of Directors.
We appointed a Research Committee consisting of the nine incumbent Board
members and the three newly elected ones to study the issue. The Committee
discussed options of doing nothing, paying whatever taxes might be due
each year, going under the College, or applying for 501(c)(3) tax exempt
status. It soon became a choice between the latter two options.
We had interviews with relevant College representatives who advised us
that their financial system was set up for a large governmental entity
and was not really appropriate for an organization like ElderStudy. The
state mandated financial accounting requirements were restrictive. If
subordinated under the College, the College would own our funds, which
would not be refundable, and we would not earn any interest on the funds.
But we were welcome to become subordinated under the College if we wanted
to do that. They assured us that if we chose to apply for 501(c)(3) it
would not change our relationship with the College. We did ultimately
choose to apply for 501(c)(3), and, indeed, we are still affiliated with
the College and share their facilities such as rooms, audiovisual equipment,
Web site, post office, voice mail and employees.
Another consideration of the Research Committee was whether we needed
to be incorporated in order to get the 501(c)(3) tax exempt status. We
consulted Nancy Merz Nordstorm and the EIN Forum. It seemed that most
of the ILLs (ILRs at that time) who had their own 501(c)(3) tax exempt
status were also incorporated under state law as non profit organizations.
We found out by contacting IRS that this is not required by the IRS for
501(c)(3) status.
There are, however, advantages to organizations incorporated under state
law as non profits. They do not have to pay state sales taxes. And there
is some liability protection for officers and directors and the organization
itself. But ElderStudy does very little purchasing so the sales tax exemption
would not help us much. And the Volunteer Protection Act of 1997 ( http://www.casp.net/pl105-19.html)
protects the directors and officers as well as direct service volunteers.
However, the Volunteer Protection Act does not protect the organization
itself from liability, only the volunteers. Nor does it protect the volunteers
from being sued by the organization. We considered purchasing insurance
to cover liability for the organization, but the insurance would soon
cost more than we were worth.
Protection from liability for breach of contract issues was not an issue
because our all-volunteer organization does not have employees. We do
have a capital reserve in the form of a Certificate of Deposit, but do
not keep funds in addition to that. We do not have our own building or
other assets to be protected. Incorporation would have only cost about
$300 in fees, but it did not seem to be necessary for us. We could still
get incorporated if we changed our minds.
The Research Committee came up with a summary report that went out to
the general membership. Then we had a vote by the membership on whether
to again be subordinated under the College or to apply for a 501(c)(3)
tax exempt status on our own. The membership voted overwhelmingly in favor
of applying for a 501(c)(3) status of our own.
We filled out the Form 1023 and prepared the required documentation ourselves
which took about a month. We sent it in with the $500 application fee.
We received our 501(c)(3) tax exempt status letter about two months after
submitting the application. No penalties were imposed because we had been
operating all along in compliance with the rules for a tax exempt organization
even though we had not formally applied for it.
We had considered hiring an attorney or a CPA to do the forms, but once
we got started it wasn't as tough as we had thought it would be to do
it ourselves. There is a step by step guide to preparing the Form 1023
on the IRS Web site. And we learned a lot about our organization, too.
One thing we found out was that by letting us use their classrooms free
of charge, the College was saving ElderStudy $12,000 a year. In the letter
IRS sent to us confirming our tax exempt status they stated we would not
have to fill out Form 990 or 990EZ yearly as long as our yearly income
stayed at or below $25,000 and we did not change our purpose or method
of operating.
Bottom line: We chose to apply for 501(c)(3) tax exempt status so we
would own our own funds and handle our own financial transactions. It
did not change our relationship with the College. We did not incorporate
because we felt the Volunteer Protection Act of l997 covered all the personal
liability we needed for officers and directors inasmuch as we do not have
employees, nor do we need the state sales tax exemption. We did not purchase
liability insurance for the organization because we do not have large
assets. The college's insurance covers visitors to the College campus
where all our classes are held. Private auto insurance covers drivers
liability.
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