Category Archives: Legal

Attacking Donor Advised Funds

MoneyLockedUpPerhaps it’s a sign of the success of donor advised funds that they’re getting more negative press.

A commentary in the “New York Times” by an author for “ProPublica” took sharp aim at the rapid growth of donor advised funds portraying this as a harmful development.

As described in the preceding post on this site (click here), donor advised funds permit a donor to take a deduction for tax purposes when money is put into the fund even if the money never makes it to a charity.

The commentary suggests that donors and large money managers, who manage the funds, may have little incentive for the money to get to charities once the tax deduction has been obtained.  The money may simply accumulate.

This reminds me of the historical criticism of wealthy families creating their own charities to obtain tax deductions without immediate use of the funds in some charitable endeavor.

In either the donor advised fund or wealthy family charity situation, the donations are irrevocable.

A charity seeking capital should identify and pursue these pools of money to learn just what would elicit a donation.

I conclude that  it’s better to have the funds in these irrevocable pools than to have lost the money to some other form of deduction.

To read the commentary from “ProPublica”, click here.


Non-profit’s Trade Secrets

TVScreenShotIn a recent situation, the Red Cross maintained the confidentiality of what it deemed its trade secrets but may have damaged its image in the process.

Because much of the non-profit world takes a very different view and shares a great deal with others, this example stands out.

Now when one Googles “Red Cross”, several stories are about this issue.  The stories generally paint the Red Cross in a poor light.

Following Hurricane Sandy, the New York State’s Attorney General requested information as to how the Red Cross spent relief donations.

ProPublica, an independent, non-profit newsroom that produces journalism in the public interest, filed a public records request for the information the Red Cross provided to the New York AG (see link to article below).

After 0bjection by the Red Cross that its response to the New York AG was confidential and should be protected as “trade secrets”, the AG declined to release the information other than a small portion deemed not confidential.

In this and in other recent court cases, non-profit organizations have been granted confidentiality for information such as donor lists, operating procedures and internal strategies.

An article by Orrick’s Trade Secrets Group on JDSupra, the online legal magazine, highlights some key considerations on this issue.

“Two take-aways from these cases:

First, charities, non-profits, and publicly-funded entities should not ignore the opportunities they may have to protect their hard-earned donor lists and (maybe) other proprietary information as trade secrets.

Second, these types of organizations should consider their unique public relations concerns before claiming trade secret protection.”

The Red Cross is a big organization that gets donations from the broad, uniformed public so this issue is not likely to have much impact on it but for other non-profits, this is an issue to consider.

Copy and paste the link below to go to the Orrick article on JDSupra.

Copy and paste the link to the ProPublica article.


So, How Much Lobbying Can We Do?

SquarMilnerLogoOK, perhaps not a universal non-profit question.

But for those non-profits with the resources and inclination to lobby, this is a very useful article from SquarMilner, the accounting firm.

The WordPress link function is not working now so you’ll likely have to cut and paste the following link into your browser to get to the article. Sorry.

New York State Not-for-Profits Law Gets Overhaul


MarcumBlogLogoGovernor Andrew Cuomo has signed the New York Nonprofit Revitalization Act of 2013 (“Act”) which is the first major sweeping change for New York’s not-for-profit entities in four decades. The intent of the new Act is to allow for an easier formation process, improve governance and operations, modernize not- for-profit corporate laws and reduce the reporting burden for smaller nonprofit organizations.

The Act applies to nonprofits incorporated in New York, however, the significant area of the Act relating to financial reporting and regulatory compliance applies to all nonprofits registered in New York for charitable solicitation purposes.

Nonprofit organizations have until July 14, 2014 to implement the new provisions. A summary of the most significant changes include:


  • Nonprofits are now required to adopt a Conflict of Interest Policy and every corporation with annual revenue in excess of $1 million with twenty or more employees must adopt a Whistleblower Policy as well. The policy must include procedures for reporting violations and it must be disseminated to employees, volunteers, officers and directors annually.
  • The Act prohibits nonprofits from entering into a transaction with a related party unless the nonprofit board determines the transaction is fair, reasonable and in the nonprofits best interest. The Act creates the definition and procedures for “related party transactions” and what must be considered when these types of transactions arise, such as exploring an alternative approach to the extent available, obtaining board approval by majority vote, prohibiting the participation of the interested party from deliberations and documenting the approval and alternative considerations. Furthermore, the Attorney General is given the power to enforce actions against unlawful transactions or transactions deemed unreasonable and not in the best interest of the nonprofit.
  • Reasonable compensation is still permitted within the Act, however, no individual can participate or vote in the committee or board meetings if their compensation is affected.  
  • No employee of the nonprofit may serve as Board Chair. This provision has an extended effective date of January 1, 2015 to allow more time to identify and appoint a new chair.

Financial Oversight and Compliance:

  • All organizations registered for charitable solicitation that are subject to the mandatory audit requirements with the Attorney General must have a designated audit committee of the board comprised of independent directors (newly defined in the statute) responsible for retaining an independent auditor and reviewing the results of the audit. The audit committee is also responsible for overseeing the adoption, implementation and compliance of the Conflicts of Interest and Whistleblower Policies.
  • The annual gross revenue threshold for triggering a mandatory independent audit is increased from $250,000 to $500,000 as of July 1, 2014. This threshold will be increased again as of July 1, 2017 to $750,000 and a further increase to $1 million as of July 1, 2021.
  • The annual gross revenue threshold triggering a review report by an independent auditor is raised from $100,000 to $250,000 as of July 1, 2014. However, the Attorney General has retained the right to request an audit after reviewing the report.


  • Nonprofits will be permitted to send board and membership meeting notices by fax or email. The use of videoconferencing is also now permitted for board members participation in meetings unless restricted by the corporation’s certificate of incorporation or bylaws.
  • Electronic communication may be used for waiver of notice, proxy designations and for members and directors to give unanimous written consent in lieu of an in-person meeting.

Corporate Law:

  • The Act eliminates the Type A, B, C and D classifications to either “charitable” or “non charitable” entities. Those nonprofits previously formed as Type A, B, C or D are not required to submit any filings for this new classification. Types “B and C” and some Type “D” which were formed for charitable purposes will automatically get the classification of “charitable”. Type “A” and all other Type “D” entities will be considered “non- charitable”.
  • The new law streamlines certain corporate actions such as amending the certificate of incorporation, mergers, sales of significant assets, and dissolution by allowing the Attorney General to approve such transaction in lieu of obtaining court approval.
  • The Act changes the requirement for certain organizations with an educational purpose whereby they no longer have to file with the New York State commissioner of education unless they are a nonprofit operating school, library, museum or historical society. This would not apply to colleges and universities. 

Nonprofits affected by the Act should review their internal control policies and governance practices to update based on the new requirements going into effect for 2014. Let Marcum’s nonprofit team assist in developing an understanding of the statutory changes so that your organization is informed and compliant.

A special thanks to article contributor Marla Esan, Senior Manager, Tax & Business Services.



Carolyn Mazzenga
Long Island

Janis Cowhey McDonagh
New York

Ronald Finkelstein
Long Island

Donald Butler

Sheri Lejman

John Schuyler