In this Issue:
· Remote Membership Meetings Authorized Under New Maine Law
· Nonprofit Dark Money Wins At U.S. Supreme Court
· Time to Give a Nudge to Donor Advised Funds
· E-Bulletin Information
Remote Membership Meetings Authorized Under New Maine Law
During the pandemic some Maine nonprofits have been twisted into knots trying to figure out whether remote Board and membership meetings are permitted. I first wrote about this issue in my May 2020 E-Bulletin.
Fortunately, the Maine Legislature has provided clarity by passing a new law that expressly authorizes full or partial online membership meetings. Note that the new statute only covers membership meetings, and not Board meetings. But Board meetings can already be held remotely under a separate provision of the Maine Nonprofit Corporations Act, so long as everyone can hear each other.
In order for a remote membership meeting to be valid, the nonprofit must establish guidelines and procedures for such meetings. These guidelines must include reasonable measures to: (1) verify that each person participating remotely is indeed a member or proxy holder; (2) ensure that the members have a reasonable opportunity to participate in the meeting and to vote on submitted matters; and (3) to maintain records of any votes or other actions.
I searched online and didn’t find a perfectly suitable set of sample guidelines and procedures for a typical nonprofit membership organization. But this site (see Section II) comes pretty close if the term “members” is substituted for “trustees.” And see here for a great set of best practices on how to prepare for and manage remote membership meetings.
In addition to allowing remote meetings, the statute also allows a Board to override the Bylaws in determining when and where a membership meeting can beheld. This provision is helpful because many Bylaws establish a fixed time and location for such meetings. Although these details might have seemed like a good idea at the time, often they are no longer suitable as the organization has evolved.
Nonprofit Dark Money Wins at U.S. Supreme Court
A recent Supreme Court decision was an unfortunate win for those seeking to expand dark money in the nonprofit sector. In Americans for Prosperity Foundation v. Bonta, the Court held that the State of California could not require organizations to report its major donors to the State Attorney General as part of the charitable solicitation registration process. The state required that all organizations registering to fundraise in California include a copy of its IRS Form 990 Schedule B, a document that lists the names and addresses of any donor who gifts $5,000 or more in the filing year.
Chief Justice Roberts’ six-to-three majority opinion found that the reporting requirement was unconstitutional because it unnecessarily burdened donors’ First Amendment rights and was not narrowly tailored to an important government interest. Although the opinion recognized the importance of preventing fraud in the charitable sector, that goal did not justify requiring the reporting of “an enormous amount of sensitive information collected through Schedule Bs.” The opinion further notes that the State rarely used the Schedule B information to initiate fraud investigations, and could obtain the same donor information in a more targeted way such as by subpoena or audit letter. It also didn’t help that the Attorney General’s lax cybersecurity practices allow for data breaches of the confidential information.
On its own, this decision does not alter the way most states or the IRS regulate the charitable sector. In addition to California, only New Jersey and New York required including Form 990 Schedule B in their charitable solicitation filings. But some of us in the nonprofit world, including me, fear that this decision will have long-term spillover effects that will make it harder to detect fraud and other forms of noncompliance, and easier to hide “dark money” influences on political activities. For instance, the Court’s reasoning might very well pave the way for a challenge to the section of the Internal Revenue Code that requires the confidential reporting of major donors to the IRS on the Form 990 Schedule B. As Justice Sotomayor wrote in her dissent, “Today’s analysis marks reporting and disclosure requirements with a bull’s-eye. Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment ‘privacy concerns.’” And see here for more on the dark money implications.
Time to Give a Nudge to Donor Advised Funds
Speaking of money, Senator Angus King has recently joined an effort to enact new spending requirements for Donor Advised Funds (DAFs). DAFs were established many years ago as a way for a donor to claim an income tax charitable deduction while not having to commit to a specific charitable recipient. The DAF serves as an intermediate holding organization for the donated funds; the funds can never be returned to the donor but are intended to be passed on to other charities.
Upon their inception, DAFs seemed like a promising charitable vehicle, another tool in the philanthropic toolbox. But over time, many in the nonprofit world have come to view them as a disservice to the charitable sector. The problem is that DAFs are not required to make any distributions to charitable organizations according to any time schedule. Thus, donors are parking massive amounts of money (upwards of $140 billion) in these holding organizations for years on end. Meanwhile, the DAFs can be run by reputable organizations such as the Maine Community Foundation, or by big-business entities such as Fidelity or Schwab. In either case, the DAFs have no incentive to make gifts to working charities unless requested by the original donors, both because they earn management fees on the parked funds and because they wish to maintain good relations with the donors. So the money just sits there, indefinitely warehoused and doing no good for the charitable sector.
Recently, a group of philanthropists has formed the Initiative to Accelerate Charitable Giving in order to push for reforms of DAFs and private foundations. You can read here about the Initiative’s proposed reforms, which include a 15-year time limit for DAFs to disburse donations to working charities. In turn, Senator King has stepped forward with a Republican colleague to sponsor the Accelerate Charitable Efforts Act, which by and large follows the Initiative’s proposals. Please take a moment to thank Senator King for co-sponsoring this important bill that would benefit working charities, and let Senator Collins know you’d like her to follow suit.
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