Robinson Law Offices P.C. experienced nonprofit tax-exempt attorneys will counsel you on the unique legal issues related to nonprofit Board of Trustees. First, you will learn that the corporate terminology is different in a nonprofit rather than a for-profit.
We refer to the people on the managing board as trustees, not directors. Officers are still officers. And, of course, since there are no owners in a nonprofit, there are no stockholders or shareholders. But there may or may not be members in a nonprofit corp.
Nonprofit Tax Exempt Board Composition or Makeup
Our nonprofit tax-exempt attorneys will guide you in the process of choosing people to help manage the affairs of the nonprofit organization. These trustees will be several individuals who will compose the board of trustees. Of course, you want to look for qualified, experienced, trustworthy individuals.
Our tax-exempt attorneys will counsel you to not look for these trustees only among family members or your personal business partners. You should never have a majority of the board composed of people that are related by blood or marriage. If you did, the IRS considers that to be a captive board or one that will not vote or exercise judgment independently.
We counsel you to have an odd number of people serve on the board. This way the board of trustees’ votes cast will not result in a tie. We maintain that you should not have more than two people who are related on the board as long as there is at least five people total (so that the related members are a minority vote).
U.S. Residence or citizenship of trustees
Robinson Law Offices P.C. nonprofit tax-exempt lawyers can guide you on other trustee questions you may have such as citizenship. As long as the trustee is qualified under state law and capable of fulfilling his or her fiduciary duties, their citizenship, and residency should not be an issue for the IRS. Form 1023 does not have a question that would require the citizenship/residency of a trustee to be disclosed, although you must provide an address for each trustee.
Citizenship and residence are usually not raised during the 1023 application review. Other than non-relatedness, there are very few requirements that the IRS imposes on trustees. However, there may be some exceptions triggered if a trustee is from a country known to be associated with terrorist activity or on some type of government watch list.
Liability of Trustees
As nonprofit tax-exempt attorneys, we are frequently asked about trustee liability. When asking someone to serve on your board, they may want to know about liability before saying yes. Many boards carry insurance for errors and omissions. Generally, under most state laws trustees may serve on boards of nonprofits without fear of personal liability for any actions taken, unless such action amounts to “gross negligence”.
States want to encourage people to serve as nonprofit tax-exempt trustees. This is normally a volunteer non-compensated position. Gross negligence is a very high standard of malfeasance, and behavior at that standard would have to demonstrate clear intention. Thus it is rare to find cases where trustees are prosecuted under state law for acts of malfeasance.
The Internal Revenue Code provides that trustees of certain 501(c)(3) organizations can be held personally liable for some rather sizable excise taxes if the organization makes “improper” expenditures, such as for lobbying or political activities. This also would be a rare instance, because any board that is consulting with proper legal counsel can easily steer clear of such violations.
You can trust the nonprofit tax-exempt 501C3 attorneys at Robinson Law Offices P.C. to guide your organization in these and other matters. Call us for a free nonprofit consultation today.
