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Employing the disabled and other low-income individuals?

Selling gift baskets from needy third-world countries?

If this nonprofit sounds like a model of social enterprise, that's because, well, it is. 

And besides exemplifying the triple bottom line, it also illustrates how the commercial character of such ventures can cause serious trouble with the IRS.

Click through the jump to read some key points from the Service's explanation for denying this nonprofit tax-exempt status under 501(c)(3).  Remaking charity in the image of commercial business can yield certain benefits, but failing to respect the design logic of nonprofit form can create far more trouble than your business plan may anticipate.

One of my law class students asked me about certain popular arguments made by tax protestors. It's a subject well known to pretty much anyone who has ever clerked for a federal appeals court, because the courts get a fair number of these cases coming through every year and they always lose. Big.

The IRS explains why in its comprehensive new point-by-point refutation of the leading tax protestor arguments.

Craig Weinrich of the Nonprofit Coordinating Committee of New York left a comment below with some useful resources.  So no one misses it, here it is, with links:

NPCC usually gets about a dozen calls a week on starting a nonprofit, and although we do not assist in this area, aside from the checklist, we refer people onto Community Resource Exchange (www.crenyc.org) who have a fantastic book called "From Vision to Reality" as well as workshops and consultants to help. Additionally, we refer people to both Lawyers Alliance for New York (www.lawyersalliance.org) and New York Lawyers for the Public Interest (www.nylpi.org) for legal assistance.

No vocab list today.  Instead, here are some helpful references:

• Nolo's intro article covering basic elements in forming a nonprofit organization. 
  
• The Foundation Center's instructive tutorial (with sample documents) on starting a nonprofit.
  
• A thorough checklist of "things ya gotta do" from the Nonprofit Coordinating Committee of New York
  

Jack Siegel runs a blog on nonprofit corporate governance that is essential reading for anyone who needs to know the latest in the field.  For example, here's a story about how one Massachusetts nonprofit managed to avoid serious penalties in an investigation by the State AG.

The issue:  whether the charity had paid excessive compensation by approving a 1.265 million dollar retention bonus.  The AG

ultimately was comfortable with the process because of the following factors: (i) the board was consistently involved in setting Spaulding's compensation and reviewing his performance; (ii) independent comparables were used by the compensation committee in developing Spaulding's pay package; (iii) there was no evidence that Spaulding attempted to assert undue influence; (iv) the amounts of the deferred bonus were consistently disclosed in regulatory filings; and (v) with one exception, the minutes reflected the major decisions.

Re the last point, Siegel highlights a recommendation that I also make to my nonprofit law classes:

The most significant problem that Spackman [the AG] pointed to was a missing set of minutes for an important meeting (the May 3, 2001 one). Spackman made it very clear that the decision, including the reasoning behind it and the economic analysis, should be reflected in the minutes of the board and the committee. This simply reinforces our continuing belief that meeting minutes should be more detailed than many lawyers currently prefer. In our view, boards and their lawyers make a serious mistake when they claim they are avoiding potential board liability by stripping meeting minutes of any meaningful content. As we continue to observe practices, we find that more detailed minutes often would have avoided embarrassment and provided a solid defense for board decisions.

Yadda yadda yadda:

The words just keep on comin'.  Several of the linked items today are excerpts from Bruce Hopkins' Law of Tax-Exempt Organizations (although from the previous edition to the one most current).  When you want detailed info on questions related to exempt orgs, private foundations and charitable deductions, you should think about taking at look at Hopkins' comprehensive volumes from Wiley, which are also available to read for free at the Foundation Center library. 

More vocabulary with basic instructional links:

Here are the periodicals I mentioned in class last night:

• Chronicle of Philanthropy
• Exempt Organization Tax Review
• Nonprofit Times
• Nonprofit Quarterly

Also, here's the Foundation Center website.

Yesterday in my law class we reviewed how good record-keeping can be key to defending a lawsuit against a nonprofit's directors and officers.

But what if you lose?  Or, even if there isn't a lawsuit, how can you minimize the risk of loss for your organization's leaders?

Directors and officers insurance.  More here.