Nonprofit Legal & Ethical Considerations Flashcards

Which federal law prohibits nonprofit organizations from engaging in illegal discrimination in programs receiving federal financial assistance?

Answer: Title VI of the Civil Rights Act of 1964

Title VI of the Civil Rights Act prohibits discrimination based on race, color, and national origin in programs and activities receiving federal financial assistance.

A nonprofit's conflict of interest policy is MOST effective when it:

Answer: Requires annual disclosure, mandates recusal procedures, and is consistently enforced

An effective conflict of interest policy requires annual disclosure of interests, clear recusal procedures, and consistent enforcement to actually prevent improper transactions.

Under IRS rules, a 501(c)(3) may engage in lobbying activities:

Answer: To an insubstantial degree, or within the expenditure limits of the 501(h) election

501(c)(3) organizations may lobby as long as it is not a substantial part of their activities, and many elect the 501(h) expenditure test for clearer, measurable limits.

A nonprofit wishes to compensate its CEO at $350,000 annually. To best protect against IRS excess benefit challenges, the board should:

Answer: Conduct a comparability study using data from similar organizations and document its approval process

The IRS provides a 'rebuttable presumption of reasonableness' when boards use comparability data and document their deliberations in a formal approval process.

Which ethical framework aligns most closely with the concept of acting in the best interests of the community a nonprofit serves, even when it is costly to the organization?

Answer: Principled mission-driven stewardship

Mission-driven stewardship holds that nonprofit leaders must prioritize the welfare of those they serve, placing community benefit above organizational convenience or financial self-interest.

A state attorney general investigates a nonprofit for misuse of charitable funds. The attorney general derives authority to do so from:

Answer: The state's parens patriae authority to protect charitable assets held in the public interest

State attorneys general have parens patriae authority to act as guardian of charitable assets because nonprofits hold resources in trust for the public benefit.

When a nonprofit dissolves, its remaining assets must be:

Answer: Transferred to another tax-exempt organization with a similar mission

Upon dissolution, a 501(c)(3)'s assets must be distributed to one or more organizations with compatible tax-exempt purposes, as required by both IRS regulations and most state nonprofit laws.