Non Profit Report - July 2011
Jeff Glassie Joins WTP
We are delighted that Jefferson C. Glassie has joined our Nonprofit Organizations and Associations practice group as both a partner and co-chair of the group. (He brought an associate with him, Megan Spratt – more on Megan below.)
Jeff, who came to us from Pillsbury LLP, enjoys a stellar reputation both nationally and internationally. He has over 25 years' experience representing associations and nonprofit organizations on a wide range of legal matters, including antitrust, tax, certification, accreditation, contracts, employment, merger, intellectual property and corporate issues. In addition, he has significant experience in international legal issues as applied to nonprofits – in fact, he wrote a book on the topic, International Legal Issues for Nonprofit Organizations (2nd Ed.). He also is a co-author of Certification and Accreditation Law Handbook (2nd Ed.). Jeff will be very familiar to members of the American Society of Association Executives, since he's a former chair of the Legal Section and three time chair of the annual Law Symposium.
Jeff says he's really happy to have joined Whiteford. "The firm has both a great nonprofit practice and also the wide range of other specialties that our nonprofit organization and association clients need, from employment law and employee benefits, to tax and litigation, not to mention strong international and intellectual property practices. I represent a wide range of membership organizations and associations, and I like the firm's ability to offer these synergies to benefit our clients."
State Franchise Law Applied to Girl Scouts Raises Issues of Applicability to Other Nonprofits
by Stephen M. Schaefer
In a decision dated May 31, 2011, the U.S. Court of Appeals for the Seventh Circuit applied state franchise law to the Girl Scouts of the United States of America and its affiliates. The Seventh Circuit held that the national Girl Scouts organization, a nonprofit incorporated by an Act of Congress, violated the Wisconsin Fair Dealership Law by dissolving a local Wisconsin chapter of the national organization "without good cause."
The national organization attempted to dissolve the chapter as part of a territorial reorganization intended to increase ethnic and racial diversity. However, the chapters are not subsidiaries of the national organization. Rather, the national organization issues a "charter" to the chapter, thereby authorizing the chapter to use the Girl Scout trademarks and sell the famed cookies.
The chapter filed suit to prevent the national organization from taking away its territory, which would not have put the chapter out of business, but would have precluded the chapter from representing itself as affiliated with the national organization or otherwise using the Girl Scout trademarks. The chapter claimed that the national organization's action violated the Wisconsin Fair Dealership Law. That law, originally targeted at for-profit franchises, states that the grantor of a dealership may not "terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without good cause." Despite language in the chartering documents between the national organization and the chapter to the contrary, the lower court found that the Wisconsin Fair Dealership Law prevented the national organization from dissolving the chapter without showing "good cause." The national organization argued that the decision to dissolve the chapter was protected by the First Amendment. In addition, the national organization argued that it was not subject to the Wisconsin Fair Dealership Law, since it was a nonprofit organization.
The Court of Appeals rejected the argument that the national organization's nonprofit status insulated it from the Wisconsin Fair Dealership Law. The Court stated: "From a commercial standpoint the Girl Scouts are not readily distinguishable from Dunkin' Donuts." The Court found the Wisconsin Fair Dealership Law applicable to both nonprofit and for-profit entities, and the Court found no basis for exempting the national organization.
Nonprofit organizations with chapters and affiliates need to review their affiliate structure and the state franchise laws in the jurisdictions where they have affiliates. The structure used by the Girls Scouts is a common one for nonprofit organizations and many organizations' chartering documents state that the affiliate's charter can be terminated "without cause." State franchise law may provide to the contrary.
by Stephen M. Schaefer
New Form 990 Filing Tips Released by IRS
On June 27, 2011, the Internal Revenue Service released new filing tips for completing Part VI of IRS Form 990. Part VI requires a tax-exempt organization to provide certain information regarding its governance practices.
Of note, the filing tips clarify that an exempt organization is not required to obtain approval of its full governing body when adopting governance policies, including conflict of interest, document retention and destruction, and whistleblower policies. The current Form 990 instructions state that the questions in Section B of Part VI regarding policies can only be answered affirmatively, if the organization's entire governing body has adopted the policies. However, the tips clarify that a committee of the governing body may approve such governance policies, if the governing body delegated authority to that committee to adopt the policies.
In addition, the filing tips clarify that the policies and governance practices described in Part VI are not required by the Internal Revenue Code. However, the filing tips state that the IRS will use the information reported to assess an organization's noncompliance and risk of noncompliance with federal tax law. The filing tips also acknowledge that the Internal Revenue Code does not require an organization to provide a copy of its Form 990 to its governing body or require the governing body to review the Form 990 prior to its filing, notwithstanding the fact that Part VI specifically asks questions regarding the organization's review process of the Form 990 prior to its filing.
275,000 Organizations Have Tax-Exempt Status Revoked
On June 8, 2011, the Internal Revenue Service released a list of approximately 275,000 organizations that automatically lost their tax-exempt status because the organizations failed to file the legally required annual returns or reports for the past three years. If an organization appears on the list, IRS records indicate that the organization has an annual filing requirement, but that the organization has not filed the required returns or reports for 2007, 2008 and 2009.
The Pension Protection Act of 2006 requires most tax-exempt organizations to file an annual return or report with the IRS. For small tax-exempt organizations, a filing requirement was imposed for the first time in 2007. The law automatically revokes the tax-exempt status of any organization that does not file required returns or reports for three consecutive years. The IRS believes that most of the organizations listed are no longer in operation.
In addition to releasing the list of revoked organizations, the IRS issued guidance on how organizations can apply for reinstatement of their tax-exempt status, including retroactive reinstatement. Existing organizations that seek to have their tax-exempt status reinstated must complete an application and pay an application fee regardless of whether they were originally required to file such an application. Small tax-exempt organizations with annual gross receipts of $50,000 or less may be eligible to pay a reduced application fee.
IRS Increases Mileage Rate
The Internal Revenue Service has increased the optional standard mileage rate to 55.5 cents per mile for all business miles driven from July 1, 2011 through December 31, 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes. The rate in effect for the first six months of 2011 was 51 cent per mile. The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use, instead of tracking the actual costs of operating an automobile. The rate for providing services for charitable organizations, which is set by statute, remains at 14 cents per mile.
Megan Spratt & Eric Nastasi Join WTP
In addition to Jeff Glassie, we are delighted to welcome Megan Spratt, an associate in the Nonprofit Organizations and Associations practice group, and Eric Nastasi, Counsel in the Corporate section, to the firm. Megan worked with Jeff for several years at Pillsbury and has focused her practice in representing nonprofit organizations and associations. Eric is an international corporate and business attorney, who has served as both in-house and external general counsel to high tech corporations. Despite that for-profit experience, Eric is keenly interested in nonprofit institutions, including arts organizations, scientific research facilities, and museums.