Category Archives: Arizona Nonprofit Corporations

Choosing a Fiscal Sponsor

A fiscal sponsorship is often a great idea for small charities that do not have the resources to apply for their own tax-exempt status. It allows them to receive tax deductible donations from donors to accomplish their mission without having to expend their resources on administrative duties. However, as the recent International Humanities Center scandal has shown, it can be dangerous to get into bed with a fiscal sponsor without first performing some basic due diligence. Continue Reading

Forming a 501(c)(3) Booster Club

Section 501(c)(3) of the Internal Revenue Code allows for tax exemption for organizations organized and operated to foster national or international amateur sports competition so long as no part of the net earnings inure to the benefit of any private shareholder or individual. A parent run booster club must be organized so that it benefits the entire class of athletes or participants and does not benefit certain individuals over others. Continue Reading

Start-up Nonprofits Beware: Ensure your Tax Preparer is Registered with the IRS

Charities should be aware that it is now illegal for anyone to receive compensation for preparing a return for someone else if they have not obtained a PTIN from the IRS first; a paid preparer who is not registered with the IRS is perpetrating fraud. If a charity chooses to work with an unregistered paid preparer, it opens itself up to IRS scrutiny and, possibly, denial of tax exemption plus additional attorneys’ fees to resolve any issues arising from the initial filing. Charities also need to keep in mind that the organization, regardless of whether or not a paid preparer was used, is ultimately responsible for the information in it’s exemption application. Continue Reading

Repurposing An Existing Nonprofit

Often prospective clients call us wanting to know whether we know of any dormant nonprofits that are going out of business that they could take over. The idea is that taking over an existing entity avoids the hassle and expense of incorporation, creating a governance structure and obtaining tax-exempt status for a brand new entity. Presumably, a new board of directors would be substituted in place of the old board and new officers would be elected. Continue Reading

Nonprofit Law Jargon Buster – Voting Members vs. Self-Perpetuating Boards

When considering whether to include voting members in a nonprofit corporation, it is important to understand that voting members of a nonprofit corporation are generally analogous to shareholders of a business corporation. Voting members have statutory rights under state law; therefore, it is important to clarify the right of members to avoid inadvertently creating a voting membership class and vesting ultimate control in the members when that is not your intention. Once a membership has been established, it may be difficult to eliminate, and it may be impossible without the consent of the members. Continue Reading

Nonprofit Law Jargon Buster: What is Proxy Voting?

Proxy voting is legal mechanism for a member of a voting body to delegate his or her voting right to another member of the voting body. In the context of nonprofit corporations, voting bodies include the board of directors as well as voting members. Some nonprofit corporations rely on proxy voting because it allows directors or members who have confidence in the judgment of other directors or members to vote for them and allows the voting body to convene a quorum of votes when it is difficult for all members of the voting body to attend. In proxy speak, the individual delegating his or her voting authority is referred to as the “principal” and the individual exercising the delegated voting authority is referred to as the “proxy” for the principal. Continue Reading

Nonprofit Business Planning – Steal All the Underpants!

Finding support and funding in the nonprofit world is often more challenging than finding funding for a for-profit venture. In addition, contrary to the belief of many nonprofit founders, foundation grant dollars do not grow on trees and are, in fact, the most competitive and scarce source of funding available. Continue Reading

Nonprofit Law Jargon Buster: Social Welfare Organizations

A social welfare organization is an nonprofit organization exempt under Code Section 501(c)(4). It is similar to a 501(c)(3) organization in that its income is generally exempt from tax and is subject to the same limits on private inurement and excessive payments to insiders. It is different, however, in that contributions to it are not deductible as charitable contributions and it is able to conduct unlimited lobbying activities. Section 501(c)(4) exempts:

* nonprofit civic organizations operated exclusively for the promotion of social welfare; and
* local associations of employees whose earnings are devoted to charitable, educational, or recreational purposes. Continue Reading

Arizona Law Change – New Small Raffle Exception

Arizona recently amended its gambling laws to make it easier for political organizations, political clubs, booster clubs, and civic clubs to hold small raffles. The changes to the law actually give political organizations, political clubs,  booster clubs, and civic clubs more leeway to conduct small raffles than most charitable organizations. Current Law.  Current law divides… Continue Reading

Nonprofit Bylaws – What to Include and What to Leave Out

It is important to take a thoughtful approach when drafting or revising bylaws. Boards and board committees sometimes spend months or even years trying to draft the perfect set of bylaws . Too often, they look to bylaws of other nonprofit organizations or samples gleaned from the Internet with no regard to whether the bylaws match the structure and style of the organization or comply with state and federal law. Unfortunately, this approach usually leads to confusion, delay, and conflict on the board. The better practice is to work with a knowledgeable attorney from the beginning, starting with a compliant template, and tailoring it to the needs of your organization. Continue Reading

Who Owns a Nonprofit Corporation?

Let’s be clear about one thing. No one owns a nonprofit corporation.[1]

While there is no outright ownership, there is control. One of the fundamental questions I ask when forming a new nonprofit corporation is how board members will be selected. This is a key question because those who hold the power to select board members retain the ultimate authority over the corporation.

The possibilities are limited by the nonprofit corporation statute in the state where the corporation is domiciled. Continue Reading

Caveat Emptor – Legal Document Preparers

In my practice representing nonprofit and tax-exempt organizations, there are often themes that emerge. Over the last few weeks I have had a spate of calls from would be nonprofits that paid either a nonprofit start-up “consultant” or a document preparation company to form their nonprofit and handle their IRS filings. In each case, the work product that made it to my office required substantially more work to fix than it would have taken to do properly the first time around. You get what you pay for, and sometimes, you pay dearly for what you get. Before hiring someone to help you with the legal and tax aspects of starting a nonprofit, make sure they are licensed to provide the type of assistance they are offering, have specific experience representing nonprofits, and are in fact representing you rather than helping you to commit malpractice on yourself.

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Arizona Corporation Commission Changes Impacting Nonprofit Corporations – Good News and Bad News

First, the Bad News Recent reductions in the Arizona Corporation Commission’s budget are impacting nonprofit corporations doing business in Arizona in the following ways: Increased Turn-around Time. The turn-around time for filings will likely increase over the next six to twelve months, with regular filings taking as much as 250 days to be processed and expedited… Continue Reading

Part II: Starting a Nonprofit in Arizona – Forming the Entity

Once a non-profit founder has surveyed the non-profit landscape and found a legitimate need, recruited an initial board, created business and fundraising plans, and scraped together some start-up funding, he or she is ready to proceed. In Arizona, it usually makes the most sense to form the entity as an Arizona non-profit corporation. The steps required to form a nonprofit in Arizona are covered. Continue Reading

Part I: Starting a Nonprofit in Arizona – Laying the Groundwork

I receive several calls a week from people who want to start a new non-profit. Looking back on my legal career, I realize that many of the tax-exempt organizations I helped to create early on never got off the ground. Today, I consider it part of my responsibility to the potential new client and to the sector to educate would be founders on the realities of the marketplace. What follows is a walk through the typical discussion that I have with potential founders. Continue Reading