Nonprofit Legal & Ethical Considerations Flashcards

Under the IRS intermediate sanctions rules (IRC § 4958), who is considered a 'disqualified person' for a public charity?

Answer: Someone who exercises substantial influence over the organization's affairs

A disqualified person is anyone who has substantial influence over the organization, such as executives, major donors, or board members with significant control.

Which document establishes the foundational rules governing a nonprofit's internal operations and leadership structure?

Answer: Bylaws

Bylaws establish the internal governance rules, including board composition, meeting procedures, officer duties, and voting requirements.

A nonprofit's executive director approves a vendor contract with a company owned by her spouse without disclosing the relationship. This is best described as:

Answer: A conflict of interest that should have been disclosed

Any financial relationship between an officer and a vendor creates a conflict of interest that must be disclosed regardless of pricing fairness.

What is the primary legal significance of a nonprofit achieving 501(c)(3) status?

Answer: Donations to the organization become tax-deductible for donors and the org is exempt from federal income tax

501(c)(3) status grants federal income tax exemption to the organization and allows donors to deduct contributions on their federal tax returns.

Which IRS form must most tax-exempt nonprofits file annually to maintain their exempt status?

Answer: Form 990 series

The Form 990 series (990, 990-EZ, or 990-N depending on revenue size) is the annual information return required of most tax-exempt organizations.

The 'private benefit' doctrine prohibits a 501(c)(3) organization from:

Answer: Providing more than incidental benefit to private individuals or entities

The private benefit doctrine requires that a 501(c)(3)'s activities primarily serve public interests, with private benefit being only incidental.

A nonprofit board member who personally loans $50,000 to the organization should:

Answer: Recuse from any board votes related to the loan and document the transaction thoroughly

Board members with financial transactions with the organization must disclose, recuse from related votes, and ensure the transaction is documented as fair market value.