Nonprofit Law Basics
The term for a legal status granted by the IRS that exempts an organization from federal income tax.
What is… A 501(c)(3) status?
Explanation: A 501(c)(3) is a tax-exempt status for organizations operating for charitable, educational, religious, or scientific purposes.
The term for a policy that requires nonprofits to report unethical or illegal activities within the organization.
What is... A Whistleblower Policy?
Explanation: A whistleblower policy provides protection for individuals who report misconduct.
The best practice for protecting youth in a nonprofit program.
What are... Background checks for all staff and volunteers working directly with youth?
Explanation: Background checks help ensure that individuals with inappropriate behavior histories are not given access to vulnerable populations.
True or False: Nonprofits can engage in unlimited lobbying activities as long as it aligns with their mission.”
Answer: False
Explanation: While some lobbying is permitted, excessive political activities can risk a nonprofit’s tax-exempt status.
True or False: Nonprofits are legally required to have a Conflict of Interest policy.
Answer: True
Explanation: Nonprofits must have this policy to ensure that decisions are made without personal interest influencing the process.
True or False: A nonprofit is legally required to report any suspected child abuse, even if it’s just a suspicion.
Answer: True
Explanation: Most states have mandatory reporting laws for anyone working with youth.
What is one of the main requirements for maintaining 501(c)(3) status?
A) Not generating any income
B) Not using donations for business ventures
C) Restricting profits from being used for charitable purposes
D) Avoiding private inurement or private benefit
Answer: D: Avoiding private inurement or private benefit
Explanation: Private inurement means that a nonprofit’s net earnings cannot benefit private shareholders or individuals.
Which of the following is a best practice for financial transparency in nonprofits?
A) Making the annual budget available to the public
B) Conducting annual audits
C) Publishing all meeting minutes online
D) Requiring board members to submit expense reports
Answer: B: Conducting annual audits
Explanation: Annual audits provide a review of the nonprofit’s finances, helping to detect issues and ensure accountability.
Which of these is a key component of a youth safety training program?
A) Teaching how to spot bullying
B) Only discussing emergency contact procedures
C) Requiring youth participants to sign waivers
D) Supervising youth remotely
Answer: A: Teaching how to spot bullying
Explanation: Youth safety training should cover all potential risks, including bullying and harassment.
The federal agency is primarily responsible for regulating and overseeing nonprofit organizations.
What is… The Internal Revenue Service (IRS)?
Explanation: The IRS grants tax-exempt status and ensures compliance with tax laws.
Scenario: A board member owns a company that wants to sell services to the nonprofit. What compliance policy should be referenced?
Answer: Conflict of Interest Policy
Explanation: This policy ensures that the board member’s personal financial interest does not interfere with their role in the organization.
Scenario: A youth participant’s parent has requested all information about their child’s activities in a program, including a copy of the volunteer’s daily logs. Should the nonprofit comply?
Answer: Yes, but redact sensitive information about other minors if it’s in the same document.
Explanation: While parents have a right to know about their own children, the nonprofit must protect the confidentiality of other youth participants.
Scenario: A nonprofit organization wants to support a candidate for local office. How can they do so without jeopardizing their tax-exempt status?
Answer: They cannot support any political candidates. Nonprofits can participate in voter education and advocacy for issues but not endorse specific candidates.
Explanation: Supporting a candidate would be considered political activity, which is prohibited for 501(c)(3) organizations.
The federal law that requires organizations to safeguard the privacy of personal information and implement a data breach notification policy.
What is... The Gramm-Leach-Bliley Act (GLBA)?
Explanation: The GLBA focuses on protecting nonpublic personal information collected by financial institutions, which can sometimes apply to nonprofits.
Scenario: A volunteer receives a message from a youth participant through their personal social media account. How should the volunteer respond?
Answer: They should inform the participant that all communication must occur through official nonprofit channels, and report the contact to a supervisor.
Explanation: This ensures transparency and protects both the youth and the volunteer.