Monday, October 27, 2014

Going Global: Operating Charitable Programs Abroad

Philanthropy in the US has always carried a distinctly global mindset.  US-based nonprofits have a lengthy and impressive history of not only sending money, goods, and volunteers to help those in need, but also operating overseas to directly conduct their missions.  Legal and practical issues may vary considerably.  Several basic pro-active steps, however, apply to nearly every nonprofit contemplating international activities.

Research, Research, Research

            The first step is to research the specific country in which the organization would like to serve.  Find out whether there are particular risks for nonprofits and their volunteers working in the country.  Research requirements for visas and work permits.  Check the US Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals List and Terrorist Exclusion List, as well as Department of State advisories, to avoid partnering with organizations linked to terrorism.  Understand whether plans for doing charitable work are feasible in the specific country.

            Additionally, understand the legal requirements in both the US and the foreign country.  For example, note that while foreign charitable organizations may secure tax-exempt status in the US, donors may not deduct contributions to these organizations.  Charities organized in the US, on the other hand, may perform charitable activities in foreign countries and provide funds to foreign organizations without risking loss of tax-exempt status or causing contributions to be non-deductible, subject to some specific rules.  These rules differ depending on whether the US organization is directly performing the activities or is providing funds to a foreign organization.  Talk to a knowledgeable attorney about how US tax law affects the structure of the new international endeavor. 

            Pay close attention to legal requirements in the foreign country, as well.  If a US entity is doing charitable work in the country, does it need to register with a government entity?  When establishing a new entity in the country, what are the legal requirements?  Are there laws governing employees living in the country, particularly regarding the withholding of income taxes or social security and other benefits?  How do such foreign laws overlap with US law?  Some countries already have established totalization treaties with the US addressing these employment-related issues.

            Nonprofits may need local counsel in the foreign country, in addition to their US counsel, to ensure compliance with all legal requirements in the foreign country.  It may be difficult to find good local counsel due to differing requirements for attorneys in other countries, but doing so can be key to operating a successful international program.

Make Friends with the Locals

            In determining the structure of the international program, consider the culture of the country in which the organization wants to work.  Is the country friendly to US organizations?  Would it help to set up an intermediate organization in a neutral country or to register the organization with a government entity?  Will cultural concerns prevent the organization from being up front about ties to a particular religion or ideology?  If so, will it be necessary to set up a new charity with no “formal” ties to a US organization that provides funding?

            Additionally, talk to other nonprofit organizations already working in the country.  Ask about issues they have encountered and how they have dealt with them.  Consider hiring citizens of the country who have local know-how.  Establish a connection with the US embassy in the country.  Embassy representatives may know about local organizations with which it is safe to partner.  Such representatives may also know of local attorneys with solid reputations, or how to address issues that arise with local government.  Think about whether it would also be beneficial to directly establish good relations with the local government, but be careful about doing so in countries with volatile political climates.

Be Proactive – Manage the Risk

            Establishing risk-management policies is particularly important when it comes to finances.  Increase your awareness regarding money-laundering scams, for which nonprofit organizations are a common target.  Set up reporting and accountability mechanisms, both as good practice and to comply with US legal requirements.  Establish safeguards controlling how funds will be transferred from a US entity to a foreign one.  Keep in mind that traditional banking systems typically provide the most protections and that funds should only be transferred as they are needed.

            Particularly when partnering with other organizations, it is also important to have an exit strategy.  Make sure to have a clear contract with any local partners that controls what happens when things don’t go as planned.  Be prepared for the worst-case scenario, and have a plan in place in case you have to shut down the project.  Know when it is time to leave, either because the work is complete or because it has become impossible to meet the organization’s charitable goals.

            Finally, be aware that this list is not comprehensive.  Be sure to talk to an attorney with extensive knowledge of the legal issues related to international charity work.  Establishing new programs can be a daunting task, but the steps above and solid legal counsel will put you well on your way to doing good work across the globe.

For further information about international charity work and other important issues affecting nonprofit organizations, please contact one of our attorneys at 312.626.1600 or, or visit us on the web at

Monday, October 20, 2014

Around the Sector: The Five Hundred-Thousand Dollar Question with Sherry Quam Taylor

The W&O Blog occasionally goes outside the firm to seek helpful insight from other experts and innovators in the nonprofit sector.  This guest post is by Sherry Quam Taylor of QuamTaylor LLC.  Sherry provides organizational and development counsel to equip nonprofit leaders with tangible strategies to grow into the next phase of their mission. 

Nonprofit organizations are so often staffed with sacrificial leaders striving hard toward achieving admirable missions.  They are full of passion and great ideas to make an even greater impact in the world.  At the same time, many are struggling to grow beyond their initial successes. Research indicates that 74% of the 1.4 million charitable organizations registered in the U.S. never reach the $500,000 mark in revenue.  Most of these never hire more than five employees (Source: Urban Institute’s Center on Nonprofits and Philanthropy).  This leads me to ask: 

Why is the $500,000 mark such a sticking point?  The same approach, tactics, and methods that once served the organization well during start-up will not propel them to the next phase of growth.  Something has to change.  It often it takes an outsider’s perspective to bring clarity to problem areas and processes that may have worked at one time, but aren’t working anymore.  Often the solutions are not too far out of reach, but leaders are too overwhelmed or in too deep and are blind to the issues.  

What are some of the most common areas holding back organizations from growing past this threshold?  Many executive directors voice similar challenges and concerns about this growth plateau.  If this sounds familiar, there are an initial four questions I’d advise you to ask:

1.  Are you always reactive and never proactive?  Often, when organizations start, a leader has no option but to be reactive.  Ten volunteers appear and want a task, a donor emerges and needs financial back-up, or a speaking opportunity arises – and it’s tomorrow!  But there comes a time when a leader has to make a conscious decision to become proactive by pressing pause and putting a strategy in place that will grow the mission and organization long term.

2.  Have you stretched your staff too thin for too long?  When nonprofits are small, the staff count is,too.  Although each staff member likely will wear multiple hats, there comes a time when a leader must determine if the organization’s mission can grow without adding additional manpower.  One solution is to implement a six-month timesheet initiative to identify the sticking points.  What recurring tasks are drowning your staff?  What percentage of staff time is spent on revenue-generating activities?  What time-intensive tasks could you outsource?  A leader must treat every hour of time as a valuable resource that should be spent wisely.  

3.  Are you treating all your donors the same?  Each of your donor groups has different needs.  A constituent that gives a $10,000 annual gift and one that gives $25 per month need to be treated differently to ensure retention.  Is it time to invest in software to help you plan and track donor engagement?  Are you customizing each donor’s experience with your organization?  If you are not, then you will likely see donor retention fade.  On the other hand, through strategic engagement, reporting, and expressions of gratitude, you can remind and affirm donors why they chose to support your organization in the first place.

4. Did your mission drift over the years?  When organizations are small and growing, it is common to have a donor, volunteer, or business come alongside to offer free advice or services.  This well-meant assistance can be extremely valuable, almost crucial at times.  What seemed like a simple request, however, can turn into a hassle that can push your mission off-course.  For example, a donor has an idea to start a retail business where proceeds would benefit your organization through the use of your volunteers.  Soon it turns into a giant management headache where valuable staff time and focus is being pulled away from your mission.  You know your organization’s needs the best.  Don’t be afraid to tell people the best way they can support you.

The formula to grow a nonprofit organization is complex and multi-faceted, but solutions will become clear with patience and counsel from someone who’s been through the process successfully.  As I tell all of my clients, together, we can do this.

For further information concerning nonprofit formation and growth strategies, please contact Sherry Quam Taylor at:

QuamTaylor LLC

For information concerning the legal aspects of nonprofit formation, governance and related issues, please contact one of our attorneys at or 312.626.1600, on visit us on the web at

Thursday, October 16, 2014

Supreme Court’s Same-Sex Cert. Denial: Tacit Refusal with Massive Implications

The Supreme Court of the United States recently refused to hear federal appeals from five states concerning the legality of same-sex marriage.  As explained in the Chicago Tribune, “When the Supreme Court declines to hear a case — known as "denying cert" — it can seem anticlimactic.  Instead of dramatic oral arguments and protests outside the court, we get a written notification that the decision of an appeals court will stand.  But sometimes, denying cert is an earthquake.  And that's what happened last week.  The court denied cert in same-sex marriage cases from Indiana, Wisconsin, Utah, Virginia and Oklahoma…    Argument over same-sex marriage is all but over,” Chicago Tribune, October 8, 2014. 
            Given the nature of federal courts’ jurisdiction, the Tribune could be right.  Federal circuit courts of appeal have jurisdiction over more than one state.  When a federal court of appeals makes a decision affecting one state, generally that decision is binding on all the states within that circuit’s jurisdiction.  In this case, the circuits involved cover 30 states.  The Supreme Court’s refusal to hear an appeal of the circuits’ decision effectively legitimizes same-sex marriage in those thirty states.  Since the Supreme Court’s denial of cert, another federal district court judge has also struck down laws banning same sex marriage in Alaska.  Same-sex marriage therefore eventually could be the law of the land in all fifty states.

Potential collision course for religious organizations

For many churches, other religious institutions, and faith-based organizations, these appellate court decisions – coupled with the Supreme Court’s cert denial – conflict with sincerely religious beliefs.  The First Amendment provides protection for religious liberty interests.  Accordingly, churches and other religious institutions are generally considered exempt from laws related to sexual orientation and gender identity.  Such exemptions do not necessarily extend, however, to other faith-based organizations, such as para-church ministries.  Many states, counties, and municipalities have increasingly included sexual orientation as a protected class in nondiscrimination statutes, with only limited protections for religious organizations.  

With respect to a for-profit business, no religious liberty protections whatsoever exist.  On this basis, for example, the New Mexico Supreme Court recently held that a photography company had engaged in sexual orientation discrimination when it declined, on religious grounds, to photograph a same-sex commitment ceremony.  See Elane Photography, LLC v. Willock, 2013-NMSC-040.

These statutory restrictions typically cover employment, places of accommodation, and housing.  Religious organizations thus should be particularly mindful regarding use of facilities.  Federal and state laws prohibit discrimination in “public accommodations.”  The definition of “public accommodation” could soon expand from “essential services,” (such as public carriers, motels, restaurants, etc.) to “all activities in commercial and civic law.”  Such an expanded definition could encompass a wide range of services, such as coffee shops, camping programs, and counseling centers.  While no church-owned sanctuaries or conference centers have been deemed “public accommodations” yet, but instead are private property, it may well be only a matter of time for a legal test case. 

Action items:  Evaluation and hard decisions

            The changing legal landscape affecting same-sex marriage, sexual orientation, and gender identity makes it all the more important that nonprofit leaders carefully evaluate organizational documents, operational policies, and activities in light of these new laws.  Specifically, nonprofit boards can take the following actions to protect the organization and reduce the risk of legal liability.

1.              Seek to understand the emerging legal landscape so as to best protect the organization.  In some cases, the organization’s policies or activities may be illegal under new laws or at least subject to challenge.  Experienced legal counsel in these areas can provide information and guidance to assist nonprofits in navigating these challenging waters. 

2.              Evaluate organizational charter documents, internal operations, and activities provided to others to ensure that they are consistent and accurately reflect the organization’s values. 

3.              Evaluate the organization’s programming to ensure that the entity’s activities do not expose the organization to liability.  Facility rentals, for example, may be an important revenue stream for organizations, but such activities may expose an organization to liability under the “public accommodation” theory if not properly structured and executed. 

4.              Carefully develop and implement other organizational policies to further reduce legal exposure for the entity and to allow the nonprofit to operate consistently with its sincerely held beliefs.  For example, if religious aspects are important to a particular job (e.g., a counselor at a faith-based organization, who is expected to live out sexuality-related Biblical requirements), then the job description should reflect such requirement and the basis therefor (e.g., to provide counseling consistent with the organization’s sincerely held religious beliefs, to be an effective role model, etc.).

For further information concerning the changing laws concerning same-sex marriage and nondiscrimination statutes, issues of public accommodation, and other important issues affecting nonprofit organizations, please contact one of our attorneys at 312.626.1600 or, or visit us on the web at

Friday, October 10, 2014

Defying the IRS Preaching Ban: Good Politics?

On Sunday, October 5, 2014, hundreds of religious leaders preached politics from the pulpit -- part of a now annual tradition and nationwide protest against the IRS’s ban on nonprofit involvement in political campaign activity.  Known as “Pulpit Freedom Sunday,” the event is organized by the Alliance Defending Freedom.  While tax practitioners, scholars, and religious leaders often question the IRS ban’s constitutionality, active violation of the ban warrants great caution and discretion.             Believers need not – and should not be required to – cabin their faith, but they need to proceed carefully within the present legal, political, and cultural context.

            A Short History Lesson.  Long before Section 501(c)(3), or even the U.S. Tax Code itself, was enacted, our country’s religious institutions enjoyed religious liberty protection from government interference.  As the U.S. Supreme Court observed in the landmark case of Walz v. Tax Commission (1970):

Few concepts are more deeply embedded in the fabric of our national life beginning with pre-revolutionary colonial times, than for the government to exercise at the very least this kind of benevolent neutrality toward churches and religious exercise generally, so long as none was favored over others and none suffered interference.

As U.S. Supreme Court Justice O’Connor further observed, the early American leaders “accorded religious exercise a special constitutional status,” with all agreeing that “government interference in religious practice was not to be lightly countenanced.”  City of Boerne v. Flores (1997).  Religious institutions may be subject to the state in limited ways (e.g., payroll taxes, health and safety regulations), but all such intrusions must be strictly scrutinized and limited so as to not overreach.

            Muzzling Political Speech.  In the 1950s, then U.S. Representative Lyndon Johnson reportedly became upset when a charity supported his opponent with tax-deductible contributions.  As a result, Johnson pushed through an amendment to Section 501(c)(3), which bans all political campaign activity of public charities, including churches and other religious institutions.  This restriction has been upheld as part of the price tag of such tax-favored status.  (See, e.g., Branch Ministries v. Rossotti (D.C. Cir. 2000).)

            Fast forward to 2010, when the U.S. Supreme Court decided the landmark Citizens United case and upheld a Section 501(c)(4) nonprofit’s right to “speak” through politically related activity.  Since that ruling, the IRS, the current Presidential administration, and others have sought to restrict free speech rights of such groups.  Such efforts seem to be based on a perceived abuse of the political process through excessive spending.  Several Congressional leaders have proposed an amendment to the First Amendment to restrict politically related speech. 

            Increasing Criticism of Religious Institutions.  With that historical backdrop, the practice of political speech by religious leaders is even more potentially problematic, given the following three emergent factors:

            First, the IRS has indicated its willingness to resume its previously dormant practice of auditing religious institutions.  This news comes out of the recent settlement of a lawsuit filed by the atheist organization Freedom From Religion Foundation against the IRS.  Due to outdated federal regulations, the IRS had essentially ceased all auditing of churches, including those that may have engaged in prohibited political campaign activity.  This is no longer the case.  According to settlement-related IRS correspondence, the IRS has its eyes on 99 churches that may be in legal trouble. 

            Second, religious institutions (as well as other nonprofits) are increasingly finding themselves mired in financial scandal involving mismanagement – even theft – of their charitable assets.  But for First Amendment religious freedom reasons, and unlike all other public charities, they are not required to file the annual IRS Form 990s.  Many political and other leaders have thus called for increased accountability, positing other interests above religious liberty values.  

            Third, enter the groundswell of legislative activity, court rulings, and debates over same-sex unions, sexual orientation, and gender identity.  The result: an increasing clash between proponents of such beliefs and people with sincerely held theological and other opposing religious beliefs about human sexuality and our societal well-being.   

            Prudence.  What does prudence warrant?  Caution and discretion.  This is not an ideal time to push for a judicial or IRS showdown on the political campaign prohibition for religious institutions.  Recent 5-4 Supreme Court decisions on religious liberty and free speech demonstrate that protection of religious institutions’ First Amendment rights is by no means assured.  (See, e.g., Burwell v. Hobby Lobby (2014); Federal Election Commission v. Wisconsin Right to Life (2007).)  In addition, the IRS has demonstrated that it cannot be trusted to protect constitutional freedoms, particularly in light of the 2013 scandal regarding its improper handling of tax-exemption applications filed by conservative organizations.  Further, with the apparently growing intolerance of religious liberty, this is not the time to thumb one’s nose at the political campaign prohibition.

            What can and should religious institutions do?  First, respect and obey the law, insofar as such obedience is consistent with one’s conscience.  Second, preach one’s beliefs, doctrine, and values wholeheartedly and fully.  Preach and teach from the Bible, the Koran, and other sacred texts about the key underlying issues: caring for the poor, sanctity of life, sexuality, the environment.  This kind of communication can be done without reference to a specific political candidate or party.  (Such approach may otherwise be quite practically prudent to avoid divisive partisanship.)  Likewise, exhort listeners to follow religious doctrine and live out religious values.  Such exhortation can be performed as sincere religious adherents, or simply as citizens. 

            For more information regarding legal aspects of religious institutions, political discourse, and other nonprofit issues, contact one of our attorneys at 312.626.1600 or, or visit us on the web at