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Not For Profit/Exempt Organizations Blog

Recaps from Proskauer’s 20th Annual Trick or Treat Tax Exempt Seminar

Posted in Governance

Proskauer’s 20th Annual Trick or Treat Seminar was held on Friday, October 30.

The Seminar discussed:

  • Non-Profit Revitalization Act of 2013: Recent Developments and Outstanding Issues
  • Recent Developments in Independent Contractor Misclassification
  • Purpose Investing for Charities
  • Benefits Update

Amanda Nussbaum welcomed everyone to the 20th Annual Trick or Treat Seminar, commented on some of the trends in nonprofit law over the last twenty years, and introduced the presenters.

Here are some key points from each presentation:

Non-Profit Revitalization Act of 2013: Recent Developments and Outstanding Issues

Roger Cohen discussed recent developments related to the Non-Profit Revitalization Act of 2013 (the “NPRA“), focusing on the New York Attorney General’s guidance concerning the NPRA’s provisions addressing conflict-of-interest and whistleblower policies.  He noted that while the NPRA appears to require board approval of all transactions between a not-for-profit corporation and a related party, and specified procedures for transactions where a related party has a substantial financial interest, the Attorney General’s guidance notes that certain arrangements that “are of a sort that do[] not usually require Board action or approval” may be exempt from at least some of these requirements.  The four types of transactions are: (1) de minimis transactions; (2) transactions or activities undertaken in the ordinary course of business by staff of the organization; (3) benefits provided to a related party solely as a member of a class that the corporation intends to benefit as part of the accomplishment of its mission; and (4) transactions related to compensation of employees or directors or reimbursement of reasonable expenses incurred by a related party on behalf of the corporation.  Roger discussed a number of the ambiguities in this guidance, including whether transactions in these four categories are exempt from just the heightened approval requirements applicable to transactions where a related party has a substantial financial interest or are exempt from board approval altogether.

Truly Spooky: Recent Developments in Independent Contractor Misclassification

Guy Brenner presented on recent developments in independent contractor misclassification.  He reminded the audience that organizations need to understand that this continues to be a high risk area.  The federal government, state governments and the plaintiffs’ bar are all focused on this issue.  And the risks are high.  Guy noted that organizations that misclassify workers as independent contractors face a host of fines and penalties that can be crippling.  For these reasons, he recommended that organizations be vigilant on this issue by conducting self-audits protected by the attorney-client privilege to assess their risk and determine how best to manage those risks.

Purpose Investing for Charities

Elizabeth Mills discussed the current interest of charities and philanthropists in purpose or mission-related investing, as opposed to grantmaking.  She noted that private foundations have long had available the option of program-related investments, in which no significant purpose of the investment is making money.  However, few private foundations make program-related investments despite proposed updated IRS regulations describing modern program-related investments.  Elizabeth explained that today’s trend is to make investments that may provide an attractive return but also fulfill at least one, and possibly more, charitable purposes.  She stated that the IRS recently recognized that such investments won’t be jeopardizing investments when made by private foundations, stating that a foundation may accept a lower rate of return on an investment that helps to achieve charitable purposes.   This factor also is appropriate in prudent investing under the Uniform Prudent Management of Institutional Funds Act (UPMIFA).  Elizabeth also noted that states are authorizing new types of business entities, such as low-profit limited liability companies (L3Cs) and for-profit benefit corporations, for these investments but the need for one of these special vehicles should be carefully considered.

Benefits Update

Paul Hamburger discussed Affordable Care Act (“ACA”) compliance for employers.  He emphasized that for ACA compliance, the rubber is meeting the road.  Employers need to understand their exposure under the “pay-or-play” mandate to possible penalties and how to mitigate exposure to those penalties.  This is particularly true in the area of utilization of staffing agency workers.  Paul noted that employers then need to make sure they understand their IRS reporting obligations and make sure they are ready for the first set of forms to be filed by January 31, 2016.  Finally, he stated that employers need to anticipate the possible impact of the so-called “Cadillac Tax” — a 40% non-deductible excise tax on the value of health coverage in excess of statutory limits.  Although the tax does not apply until 2018 at the earliest, any plan design modifications will take time to design and implement.