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Complying With Nonprofit Laws During A Crisis

Complying with Nonprofit Laws During a Crisis

When a crisis hits, it hits without warning, and it knows no boundaries.  It takes a mighty collective force to deal with a crisis in the most effective way. The best way to confront a large-scale crisis is for government, private, and nonprofit organizations to work together.

Nonprofit organizations may be tempted to shut down during a crisis, but many nonprofit organizations do their best work during the times when they’re needed most. Circumstances may require nonprofit organizations to scale down temporarily due to the lack of resources, but it’s important for them to remain open even under the direst situations.

The existing nonprofit laws at the federal, state, and local levels still hold during a crisis. Also, new nonprofit laws may spring up suddenly at any level of government during a crisis to help contain it. In addition to new nonprofit laws, nonprofits serve their constituents better when they stay current with guidance from government agencies, including local agencies.

State Laws Are the Primary Governing Authority for Nonprofit Laws

While there are tax considerations for nonprofits at all levels of government, the primary governing authority for nonprofits is the state government.

As a rule, there’s no consideration for loosening up laws for nonprofit organizations during times of crisis. At all times, nonprofit organizations must continue to have the minimum number of required board members on their boards and they must continue holding meetings during the crisis. Boards must also continue to meet the criteria for 501(c)(3) organizations and file the appropriate paperwork.

Is a Governor’s Executive Order the Same as a Law?

One of the important questions that has come to light since the COVID-19 outbreak is the role of the governor’s office. Governors serve the role of the chief executive officer of their state or region. Their responsibilities extend to implementing state laws and overseeing the state executive branch.

The scope of a governor’s duties varies from one state to another in accordance with state constitutions, legislation, and tradition. The power to issue executive orders and take emergency actions is a weighty gubernatorial responsibility that varies from state to state. Governors may issue executive orders during times of crisis when there are no existing laws to protect the citizens of their state.

The COVID-19 crisis has motivated a number of state governors to issue executive orders to shut down certain types of businesses to prevent the spread of the virus and then reopen them in phases. State leaders seek information and guidance from federal, state, and local agencies in making their decisions.

The Centers for Disease Control and Prevention (CDC) provides information by scientists that specialize in disease control. State governors often rely on the most current information as provided by the CDC, along with information provided by federal, state, and local public health agencies when making decisions for the health and well-being of their citizens.

Laws for Donations

Certain areas call for heightened alert during times of crisis. Nonprofits need to be mindful of their mission, donations, and the risk of fraud.

During times of crisis, nonprofit organizations may be able to deviate from their primary mission to provide disaster relief with some limitations.

Disasters can motivate some people to take advantage of a crisis. Legitimate nonprofit organizations have a responsibility to warn their donors, members, and constituents about the risk of fraud. It’s not uncommon for new organizations to spring up, posing as nonprofits, to fraudulently receive donations. It’s a good practice to communicate with your donors on how to identify suspicious links embedded in unsolicited emails that may be linked to fraudulent websites.

Be mindful that certain organizations outside the United States might not be recognized as tax-exempt by the IRS. As of September 2017, the IRS issued new regulations that apply to overseas organizations to explain the definition of a “good faith determination”  that would make them equivalent to a United States nonprofit charitable organization.

Good Practices for Donations During a Crisis

Nonprofit organizations often get strong responses from people wanting to make a difference in their own way. By providing clear communication to their funders and donors, nonprofits can maximize their resources and make the greatest impact they can.

For example, people may want to donate items such as blankets, clothing, and nonperishable food items. Nonprofits may want to clarify how donors can best support them, which is often by making a monetary donation. Donors may not consider that it takes additional capacity to transport, sort, and distribute material items. By getting monetary donations, your nonprofit may be able to negotiate discounts on the items they need which will stretch the donations further.

It’s also prudent to advise your donors that if they want to do their own fundraiser, they need to relay the donations to a qualified nonprofit organization and document their donations properly. This will ensure that donors can deduct their contributions.

Anyone can make disaster relief payments to help another person cover personal, family, living, or funeral expenses that are reasonable and necessary when their primary place of residence is located in a disaster area. Funds may also be used to repair housing.

Other Financial Considerations

Nonprofit boards should also be aware of rules for compensation and their interactions with other people and entities during times of crises.

While leaders, staff, and volunteers may work diligently during times of crises, nonprofit organizations aren’t allowed to offer excessive compensation for their time and dedication. Another important term that nonprofit boards should be familiar with is inurement, which is an illegal activity that occurs when a nonprofit organization gives money to an insider without justifying that the funds pertain to the organization’s mission.

It’s common for nonprofit organizations to conduct business with other businesses that have to pay taxes. Nonprofits are still required to pay taxes on normal business transactions just the same as other types of businesses.

There are certainly a number of things that nonprofit boards need to consider during times of crisis. As long as nonprofits follow all applicable federal, state, and local laws for nonprofit organizations, they can rest assured that they’ll be in compliance with tax laws.

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