Non Profit Report - October 2013

Date: October 31, 2013

Top-7 Social Media Issues for Associations
By: Eileen Morgan Johnson, Esq.

Association executives should be aware of potential legal risks social media can pose for their associations.

1. Copyright infringement. Associations can be sued for copyright infringement for content posted on their website. The Copyright Act provides for treble damages and attorney fees for copyright infringement. In severe cases criminal penalties may be imposed. Associations relying on the fair use doctrine for protection should ensure the content meets the fair use requirements, which are more limited than popularly believed.

As hosts of user-generated content, associations can take advantage of provisions of the Digital Millennium Copyright Act for protection from copyright infringement claims due to material posted on their website or social media pages. Adhering to the act, associations should establish notice-and-takedown procedures and promptly remove content when notified of infringement by the copyright owner.

2. Employment claims.

Pre-employment: The use of social media in pre-employment screening generally is permissible, so long as the employer has not bypassed applicant profile privacy settings or based its employment decision on legally protected characteristics.

Unauthorized disclosure of confidential information: The potential for unauthorized disclosure of the employer’s confidential information has increased significantly with the instantaneous transmission of social media sites.

Harassment and disgruntled employees: Postings by employees that criticize their employer, the employer’s product, supervisors or coworkers could be grounds for disciplinary action or termination. The association is responsible for the actions of its management staff. Under state and federal labor laws designed to protect unions, employees have a right to communicate about working conditions.

Ownership: Ownership of social media profiles and content should be clearly stated in a written agreement when a staff member is tasked with maintaining the association’s social media presence.

3. Third-party content. The federal Communications Decency Act of 1996 shields associations from liability for content posted by others unless the organization induces or uses the problematic content in some way. For additional protection, associations should monitor third party postings by having a reporting system in place for complaints, respond quickly to complaints, and prompt removal of unlawful postings.

4. Insurance. Your current insurance policies (such as directors and officers, media, and errors and omissions policies) should be examined to ensure coverage is current and extends to claims resulting from social media use. Obtain a separate social media coverage policy if necessary.

5. Online solicitations. Charitable organizations conducting online fundraising should know that state charitable solicitation laws apply to both traditional and Internet-based fundraising. Forty states and DC require charities to register with a state agency before soliciting contributions from residents of that state. Online solicitations have the potential to reach donors everywhere. Charities may have an obligation to register and report online fundraising activities in multiple jurisdictions.

6. Endorsements and testimonials. The Federal Trade Commission’s Guides Concerning the Use of Endorsements and Testimonials in Advertising require disclosure of any connection between the endorser (an association’s member or employee) and the advertiser (the association). The guides prescribe the information that must be disclosed.

7. Antitrust. Associations must guard against unintentional antitrust violations that can occur when members post comments or participate in online chats about pricing, allocation of territorial divisions, boycotts, admission to membership and bid rigging. Such discussions pose a real danger, since associations frequently bring competitors together. The antitrust laws can be violated simply through informal communications involving an implied understanding among the parties to hinder competition. Action immediately should be taken to halt such discussions and remind users of the organization’s policy on the use of its social media sites. Unlawful discussions on the organization’s website should be removed immediately once discovered.

This article originally appeared in the September issue of the Association TRENDS newsletter.

IRS Self-Declarers Questionnaire Raises Interesting Question in Wake of EO Unit Scandal Print Article
By: Doug Boedeker, CPA, CMA, Partner

One of the quirks of the United States Tax Code is that entities designed to be exempt from income tax under Code Sections 501(c)(4), (5), or (6) are not required to specifically apply to the IRS for recognition of their tax-exempt status.  Instead, these organizations can simply start their operations, “self-declare” that they are functioning as exempt entities, and file the appropriate 990-series forms with the IRS at the end of their fiscal years. 

In practice, it is common for a new 501(c)(4), (5), or (6) entity to file Form 1024, Application for Recognition of Exemption under Section 501(a), and request formal recognition by the IRS that the organization is designed to operate as a tax-exempt entity.  But, the filing of a Form 1024 is not a requirement.  As a result, the IRS was concerned that organizations could be improperly self-declaring themselves as “tax-exempt”.

So, in March 2013, the IRS announced that it had sent an informational questionnaire to 1,300 self-declared 501(c)(4), (5), and (6) organizations.  The stated purpose of the questionnaire was to increase the IRS’ understanding of the types of organizations that self-declare and how they satisfy the requirements of tax-exemption.   

However, just two months later, the news broke that the IRS’s Exempt Organizations Unit (EO) had potentially delayed or denied exemption applications of 501(c)(4) organizations based on the applicants’ political views.  The revelations of the trouble within the EO Unit have raised many questions about the IRS’ ability to administer the complex laws regarding what constitutes a tax-exempt entity.  Outside of potential improper conduct by EO Unit employees, the main issue at hand was whether organizations were planning on engaging in “too much” political activity in order to be properly considered tax-exempt. 

The irony of all this is that the organizations caught up in the scandal were the ones that actually bothered to seek upfront recognition with the IRS by filing a Form 1024.  One has to presume that if an entity took the time to complete a 1024, it must have believed it was properly set-up in order to be recognized as tax-exempt.  However, the EO scandal clearly showed that what constitutes an acceptable level of political activity is extremely subjective.  If the political activities question is so nebulous that teams of lawyers, accountants, and EO administrators struggle with it, how is a politically active self-declaring entity to know whether it is operating within the bounds of the law?

So, one has to wonder what kind of information the IRS has received from the questionnaire’s responses.  The IRS has not yet announced if and when it will make the general results of the self-declarer questionnaire available to the public.  It will hardly be surprising if the data from the questionnaires serves to provide further evidence that there is a desperate need for additional guidance and clarity regarding the political activities of exempt organizations. 

For now, we will have to wait and see.

Doug Boedeker is a partner in Tate & Tryon’s Audit and Assurance Services department and can be reached at