Milwaukee Legal Initiative for Nonprofit Corporations (M-LINC)

1. Milwaukee Legal Initiative forNonprofit Corporations (M-LINC) Governance policies workshop January 28, 2010 Nonprofit center of milwaukee With support from the Helen Bader FoundationH

2. The New Form 990 • Will your nonprofit have to fill out the newly revamped IRS Form 990 this year for the first time? • If so, the new IRS Form 990 asks whether your nonprofit has adopted a number of governance policies. • What governance policies do you currently have in place?

3. Background on Form 990 Revision • Senate Finance Committee concern over nonprofit abuses (2004 to 2006) • Independent Sector – NP community suggestions • Pension Protection Act of 2006 • IRS revamped Form 990 in 2008 • Overall goal of more transparency and accountability for nonprofits • Many governance policies not required under federal or state law, but the fact that they are asked about in Form 990 makes them more than a good idea • Remember: Form 990s are public documents accessed by journalists and donors

4. Form 990 Series – Filing Phase-In The new Form 990 series returns are effective for 2008 tax years (returns filed beginning in 2009).  To allow organizations time to adjust to the new forms, the IRS is phasing in the new returns during a three-year transition period.  During the transition, an organization’s annual filing requirement depends on its financial activity.  The charts below indicate the general exempt organization filing requirements during the transition period. •  2007 Tax Year (Filed in 2008 or 2009) •  Gross receipts normally ≤ $25,000   990-N •  Gross receipts > $25,000 and < $100,000, and Total assets  < $250,000   990-EZ or 990 •  Gross receipts ≥ $100,000, or Total assets ≥ $250,000   990 • 2008 Tax Year (Filed in 2009 or 2010) •  Gross receipts normally ≤ $25,000    990-N •  Gross receipts  > $25,000 and < $ 1 million, and Total assets < $2.5 million   990-EZ or 990 •  Gross receipts ≥ $1 million, or Total assets ≥ $2.5 million   990 •  2009 Tax Year (Filed in 2010 or 2011) •  Gross receipts normally ≤ $25,000   990-N •  Gross receipts > $25,000 and < $500,000, and Total assets < $1.25 million    990-EZ or 990  •  Gross receipts ≥ $500,000, or Total assets ≥ $1.25 million   990 •  2010 Tax Year and later (Filed in 2011 and later) •  Gross receipts normally ≤$50,000    990-N •  Gross receipts > $50,000 and < $200,000, and Total assets < $500,000     990-EZ or 990  •  Gross receipts ≥ $200,000, or Total assets ≥ $500,000   990

5. The Form 990 • http://www.irs.gov/pub/irs-pdf/f990.pdf

6. Governance Policies Directly Asked About in Form • Such policies include: • Conflict of interest, • Records retention and destruction, • Joint venture, • Whistleblower, • Affiliates (if any)

7. Other Policies that are Referenced… • Minutes • Executive compensation • Travel and other expense reimbursement • Loans • Audit • Disclosure of corporate records • Material diversion of corporate assets • Outside income • Review of Form 990 • Gift acceptance

8. Create Your Own Policies • M-LINC can provide your nonprofit with models of most of these referenced policies. • Please work with M-LINC or a qualified attorney or accountant for revise and adopt for your particular nonprofit.

9. Conflict of Interest Policy • Asked about in Form 990, Part VI, Question 12 a-c • Covers officers, directors and some committee members • Duty to disclose • Focus is not on avoiding conflicts of interest but having in place an appropriate procedure for handling conflicts • Note:  different (and more strict) rules for private foundations (self dealing rules under IRC 4941) • Nonprofits must keep records of how they handle conflicts of interest in meeting minutes • Annual disclosure statement • Periodic review of compliance with policy

10. Records Retention and Destruction Policy • Asked about in Form 990, Part VI, Question 14 • Source:  Sarbanes-Oxley Act • Point:  retain records for a reasonable length of time • Records are defined to include email and other electronic documents, as well as hand written notes • Permanent:  annual reports, bylaws, articles of incorporation, board meeting minutes, annual audits • 3 year:  correspondence, credit card reports • 7 years:  bank deposit slips, employment and termination agreements, donor records and acknowledgment letters • Back up important documents and store off site • Document destruction - responsible person, suspend if investigation • Periodic review of compliance with policy

11. Joint Venture Policy • Asked about in Form 990, Part VI, Question 16 a-b • Covers a venture with a taxable entity • Evaluate the joint venture under tax law and focus on safeguarding the exempt status of the nonprofit with respect to the joint venture

12. Whistleblower Policy • Asked about in Form 990, Part VI, Question 13 • Source:  Sarbanes-Oxley Act of 2002 • Model policy available on Wegner LLP website

13. Affiliates (if any) Policy • Asked about in Form 990, Part VI, Question 9b • List affiliates • Describe control relationship between nonprofit organization and the affiliate(s) • Describe how the nonprofit organization monitors and/or controls the affiliate. • How are reports obtained, reviewed? • Are manuals used to govern the affiliates activities? • Focus on control/reporting to protect the tax exempt status of the nonprofit organization

14. Corporate Minutes Policy • Referenced in Form 990, Part VI, Question 8 • Purpose of the policy is to promote transparency and internal knowledge • Model policy requires minutes of all board meetings as well as of meetings of committees with authority to act on behalf of the board • Minutes shall contain a description of any action taken, when the action was taken and who made the decision. • List committees with board authority

15. Executive Compensation Policy • Referenced in Form 990, Part VI, Question 15 a-b and Schedule O • Review by independent persons • Comparability data • Contemporaneous substantiation, likely in meeting minutes • CEO, Executive Director and officers and key employees are covered by policy • Schedule O - describe process for review and approval

16. Travel and Other Expense Reimbursement Policy • Referenced in Form 990, Part VII, Question 5 and Schedule J • Focus on compensation over $150,000 - triggers additional disclosure requirements in Schedule J • Compensation includes salary and all benefits • Also triggered by payments from unrelated organizations for services to the nonprofit • Questionable benefits include first-class air travel, travel for companions, housing allowance, health and social club dues • If the nonprofit provides such benefits, does the organization have a written policy?  If no, explain. • Substantiation of expenses before reimbursement • Submit receipts for expenses exceeding $25

17. Loans Policy • Referenced in Form 990, Part IV, Question 26 and Schedule L • IRS asks about loans outstanding at the end of the nonprofit's tax year • Must list the name of the person receiving or making the loan, the purpose of the loan, whether the loan is in default, if it was approved by the full board or a committee, if there was a related written agreement • WI Statutes require board approval and benefit to the nonprofit organization via the loan • Model policy has a general prohibition on loans except in rare circumstances • If loans are made, the loan must be documented in writing prior to the transfer of money and must obtain board approval in advance of making the loan and review the loan before the end of the organization's fiscal year

18. Disclosure of Corporate Records Policy • Referenced in Form 990, Part VI, Question 19 • The goal of the policy is promoting transparency for donors and the general public • Disclosure of the Form 1023, 990 and 990 T is required under the Internal Revenue Code • Disclosure of other corporate documents on a case-by-case basis

19. Material Diversion of Corporate Assets Policy • Referenced in Form 990, Part VI, Question 5 • The model policy states that the nonprofit organization shall report all material diversions of the organization's assets • Definition of diversion of corporate assets and material within model policy • Report all diversions the organization "became aware of during the tax year" • Disciplinary action if appropriate • Disclosure to the parties involved, the full board of directors, the funders (where appropriate) and the IRS in the Form 990 • Disclosure shall include the nature of the diversion, amount or the type of property taken, corrective actions taken to address the matter and other pertinent circumstances • Optional - disclosure shall not list the names of the individuals who diverted such assets

20. Outside Income Policy • Referenced in Form 990, Part VII, Question 5 • Generally prohibited • Defined as income from an unrelated organization for services rendered to the nonprofit organization • Mandatory reporting to Executive Director if received • Mandatory reporting on nonprofit organization's Form 990 • Model policy contains a definition of an unrelated organization

21. Review of Form 990 and Wisconsin Annual Report Policy • Referenced in Form 990, Part VI, Question 10 • Model policy covers both the Form 990 and the Wisconsin Annual Report • Goal of the model policy is submission of accurate and comprehensive forms • Provide auditor with all information necessary • Review first draft with the auditors • Present final report to full board of directors at least three days prior to submission • Optional:  require written acknowledgment of review by full board or the executive committee • Submit reports on time

22. Gift Acceptance Policy • Referenced in Form 990, Part IV, Question 29 and Schedule M • Triggered by more than $25,000 in non-cash contributions • Model policy available via Wegner LLP website

23. Contact Information Karin Holmberg Werner, JD Director of the Milwaukee Legal Initiative for Nonprofit Corporations Marquette University Law School Office 22 – Lower Level of the Library karin.werner@marquette.edu (414) 288-5536 M-LINC www.nonprofitlinc.org (414) 288-6631 mlinc@marquette.edu