CNC Nonprofit Organization Management 3

Question 1

Under IRS regulations, what is the maximum percentage of a 501(c)(3) public charity's activities that can be devoted to lobbying without jeopardizing its tax-exempt status under the substantial part test?

Accepted Answer

No specific percentage — 'insubstantial' is the standard

Answer

The IRS uses a facts-and-circumstances 'substantial part' test with no bright-line percentage, though organizations can elect the 501(h) expenditure test for clearer limits.

Question 2

A nonprofit is planning to lay off 20% of its staff due to budget cuts. Which stakeholder group should the executive director consult FIRST?

Accepted Answer

The board of directors

Answer

Major staffing decisions require board approval or at minimum board notification, as the board holds fiduciary responsibility for the organization's operations.

Question 3

What is the term for a nonprofit's policy that allows the board to access restricted reserves only under predefined financial hardship conditions?

Accepted Answer

Operating reserve policy

Answer

An operating reserve policy defines the target reserve level and the conditions under which reserves may be drawn down to cover operational shortfalls.

Question 4

Which board committee is typically responsible for recommending the executive director's compensation package?

Accepted Answer

Compensation or HR committee

Answer

A compensation or HR committee reviews benchmarking data and recommends executive pay to ensure it is reasonable and defensible against IRS private benefit scrutiny.

Question 5

A nonprofit merges two programs into one to reduce redundancy and cut costs. This is an example of which organizational management strategy?

Accepted Answer

Program consolidation

Answer

Program consolidation combines overlapping services to improve efficiency and reduce administrative overhead while maintaining mission delivery.

(CNC) Certified Nonprofit Consultant Practice Test

(CNC) Certified Nonprofit Consultant Practice Test

CNC Nonprofit Organization Management 3