Recent news headlines have highlighted several critical factors important to maintaining exempt status. Specifically, the Clinton Foundation scandal and the nonprofit lobbying efforts supporting the Comcast/Time Warner merger serve as reminders that independence, transparency and adherence to conflict of interest policies are crucial to the success of a nonprofit.
The Clinton Foundation has said it will likely amend several years of Form 990 tax returns to properly disclose over 1,000 foreign government donations, representing millions of dollars, received while Hillary Clinton was Secretary of State. Beyond the fact that this is a potential political ethics violation for the Foundation, non-disclosure of donors violates the IRS rules for public disclosure of certain funding sources and erodes trust in all financial reporting from the organization. Many of the undisclosed donations were from foreign governments that potentially benefitted from decisions Hillary Clinton was able to make during her term as Secretary of State. While the omissions could certainly be attributable to sloppy tax preparation, interest has been piqued in whether favors were given in exchange for the government donations.
Similarly, nonprofit recipients of Comcast’s charitable donations were allegedly recruited to send letters to government officials supporting the Time Warner/Comcast merger. While there is no proof a direct request was made, there is a strong likelihood that Comcast indirectly influenced nonprofits it supports. Other businesses have been accused of sending letter templates to nonprofits they support, with the implied suggestion that funding will not continue if the nonprofit doesn’t help the business plead its case.
These issues may seem like large organization issues, but any organization can have a substantial donor providing a large percentage of the organization’s support. The key is to avoid undue influence from the donor. Ensure that your funding sources are diversified enough that you won’t feel pressured to use your charitable status or the status of any officers/directors to serve the private interest of a donor. In many cases, benefitting a donor could result in a large IRS penalty for misuse of charitable funds, but it could also result in the loss of exempt status for the organization if there is a pattern of private benefit.
The benefit may not be intentional on the part of the donor, but it is the job of the nonprofit to watch out for conflicts of interest in transactions with board members, key employees and donors. All activities of your organization should be undertaken because they further the mission of your organization and are in the best interest of the organization, not solely because they help ensure continued funding from donors. Be sure all activities are disclosed on Form 990 – you can always use Schedule O to explain any questionable transactions.
While your nonprofit may not make national headlines for its mistakes, you certainly want to avoid the negative publicity and potential loss of exempt status that could result from being accused of sloppy reporting, hiding transactions or directly benefitting a private interest outside of your client base.
