Why a Critical 990 Review Could Protect Your Mission and Tax-Exempt Status

As the May 15 deadline looms for calendar-year nonprofits, filing your Form 990 may feel like just another compliance box to check. But in today’s charged political climate, this document carries far more weight than many realize. The 990 is not just a financial report, it’s a public declaration of who you are, what you stand for, and whether you still deserve the privileges of tax-exempt status.

Meanwhile, regulators and watchdogs are actively mining 990 returns for reasons to investigate certain nonprofits or revoke their tax-exempt status. If your organization works with immigrants, advocates for social justice, supports global causes, or is funded by foundations labeled “progressive,” your 990 could become the starting point for scrutiny.

This article explains why your 990 matters more than ever, highlights the red flags that raise questions, and offers practical steps to protect your organization before you click submit. Whether you’re defending your values or just aiming to stay off the IRS radar, it starts with understanding how the 990 shapes your narrative.

Your 990 Is the First Stop in Any Investigation

In today’s environment, nonprofits are increasingly targeted for who they serve and what they stand for. Public officials and political commentators have used terms like “aiding illegality,” “supporting terrorism,” or “engaging in public nuisance” to describe organizations that serve migrants, promote racial equity, support LGBTQ+ communities, or operate globally.

Recent statements from elected officials, letters from congressional committees to the IRS, and evolving regulatory guidance reflect a growing interest in redrawing the boundaries of what qualifies as charitable to justify stripping nonprofits of their tax-exempt status. This increased attention is tied to renewed interest in the “illegality doctrine,” a legal principle that allows the IRS to revoke tax-exempt status if a nonprofit engages in illegal activity or violates established public policy.

The most prominent example remains Bob Jones University v. United States, where the Supreme Court upheld the IRS’s decision to revoke the University’s tax exemption based on its racially discriminatory practices. Although this doctrine has not been widely used in recent decades, regulators are revisiting it as a tool to challenge advocacy-focused organizations.

Because the 990 offers a detailed snapshot of your mission, leadership, programs, finances, and funding sources, it is often the first place regulators look to justify further scrutiny or challenge a nonprofit’s tax-exempt status. What you choose to include (or omit) can shape a narrative that questions whether your organization continues to meet the requirements for exemption. That narrative can then trigger audits, public inquiries, or even efforts to revoke your status.

Red Flags That Trigger Deeper Review

So what exactly are regulators looking for? While no single issue guarantees scrutiny, there are common red flags that tend to raise questions:

Missing or Incomplete Schedules

When a required schedule is omitted, even inadvertently, the IRS may assume the organization is hiding risky or noncompliant activity. This can trigger an automated compliance check or open the door to a broader inquiry.

Mission Creep and Unrelated Business Activities

Maintaining mission alignment is essential to preserving tax-exempt status. The IRS expects a clear and well-documented connection between your current activities and the charitable purpose described in your Form 1023. If your organization begins operating programs that fall outside that scope or ventures into commercial activities, it may raise concerns about whether those efforts serve a charitable purpose. In some cases, it can also trigger questions about impermissible private benefit or unrelated business activity. A sustained departure from your stated mission may prompt the IRS to examine whether the organization still operates primarily for exempt purposes.

Foreign Expenditures

Schedule F requires reporting on grants and activities abroad. If your organization operates in politically sensitive or sanctioned regions, you must also comply with rules from the Office of Foreign Assets Control (OFAC), which regulates transactions involving certain countries and foreign entities. Incomplete disclosures or vague reporting may raise compliance concerns that extend well beyond the IRS.

Lobbying Activity

Organizations that engage in lobbying must carefully track and accurately report their expenditures. The 501(h) election provides a safe harbor for certain advocacy, but the protection only applies if you stay within legal limits and report your activities properly. Misreporting, underreporting, or exceeding thresholds can lead to penalties or an audit.

Lobbying is of particular interest to regulators because it blurs the line between charitable advocacy and political influence. If your organization funds grassroots coalitions or fiscally sponsored campaigns, be especially cautious. These efforts can raise red flags if not properly documented or clearly connected to your charitable purpose.

Political Activity

501(c)(3) organizations are strictly prohibited from supporting or opposing candidates for public office. Even a speaker’s comments at an event or a social media post that appears partisan can draw scrutiny. On the Form 990, Part IV, Question 3 asks whether your organization engaged in any political activity. A “yes” answer may put your status at risk, but an inaccurate “no” answer could be seen as a false statement, carrying its own consequences.

Grantmaking Practices

All grants must support your exempt purpose. Whether you’re funding a grassroots initiative, fiscally sponsored project, or international partner, you need to document the relationship, require reports, and demonstrate alignment with your mission. Grants that are vague, undocumented, or off-mission can invite IRS scrutiny, and in serious cases, may result in sanctions or jeopardize your exemption.

Funder Exposure

Some private foundations and funders have become lightning rods for political criticism. If your organization receives support from any of them, it’s important that your 990 shows a clear, independent narrative about your charitable work. Your grant agreements should confirm that the funds advance your mission, and that your organization (not the funder) retains control over how they’re used.

Conduct a Legal and Governance Review Before Filing

A meaningful review of the 990 involves more than proofreading for errors or reconciling financial figures. It’s an opportunity to assess how your organization is positioned in today’s regulatory environment, and to make strategic adjustments before the return becomes part of the public record. This includes reviewing how your programs are framed, how your funding relationships are documented, and whether your disclosures are consistent with your stated exempt purpose.

For example, if your organization has expanded into new areas that aren’t clearly linked to your original mission, you may need to reframe those activities, clarify how they advance charitable goals, or update your mission. If you’re engaging in advocacy or coalition work, make sure your expenditures are properly categorized, that your 501(h) election (if applicable) is accurately reflected, and that narrative descriptions do not overstate or mischaracterize your role. For international work, it’s critical to confirm that documentation and oversight meet IRS and OFAC expectations, particularly when operating in high-risk jurisdictions.

A governance review should also include confirming that key policies (i.e., conflicts of interest, compensation, document retention, etc.) exist in writing and are aligned with what’s reported on the return. When these elements are inconsistent, incomplete, or outdated, they may invite additional questions.

Once filed, your Form 990 becomes part of the official record. At that point, even well-intentioned corrections may not prevent further scrutiny.

A critical review helps ensure your return is complete, accurate, and consistent with your charitable mission. It also allows your organization to catch and correct issues before they become concerns or form the basis to make your organization a political target.

The Board Must Review the 990 and Document That Review

Part VI, Question 11 of the Form 990 asks whether the board reviewed the return before it was filed. A “no” answer suggests weak governance. A “yes” without proof can be just as problematic.

The board has a fiduciary duty to oversee the organization’s operations and ensure compliance with the law. Reviewing the 990 is part of that duty. It allows directors to verify that the return accurately reflects the mission, discloses any legal or financial risks, and aligns with the organization’s public messaging.

Best practice is to add the 990 review to the board’s agenda, circulate the draft ahead of time, allow for questions and discussion, and document the review and approval process in the minutes.

Best Practices for Smarter 990 Filings

  • Start early and allow time for legal and board review. Request an extension if necessary because rushed filings increase the risk of omissions or inconsistencies.
  • Clarify your mission to ensure it reflects your current programs, partnerships, and funding priorities. Consider whether reframing your exempt purpose could reduce exposure to regulatory scrutiny.
  • Review disclosures related to grants, foreign operations, lobbying, and advocacy to confirm they are complete, accurate, and supported by documentation.
  • Use Part VI as a governance checklist and ensure that written policies (e.g., conflicts of interest, compensation, whistleblower, and document retention) align with what is reported.
  • Amend if material errors are found after filing. Silence or inaction may raise more concern than transparency. Consult legal counsel before filing an amended return, particularly if your organization has received any IRS correspondence or is under review.

Final Thought: Protecting Mission and Status

A thoughtful, well-documented review of your 990 supports your organization’s ability to fulfill its mission and maintain tax-exempt status. It provides an opportunity to confirm that your disclosures comply with IRS requirements, reflect your actual operations, and demonstrate sound governance. In a climate of increased regulatory attention, investing the time to review your 990 carefully is a practical step to help your organization stay focused on its purpose without unnecessary disruption.

If a regulator contacts your organization, acknowledge the request but do not respond substantively until you have consulted legal counsel. How you handle that first communication can affect the scope and direction of any inquiry.

Court Victory Offers Important Reminder for Partition Actions

Almost 30 years ago, our client and his business partner together purchased a three-story residential apartment building as tenants in common. The client devoted substantial time and effort to management of the building and the two partners split the rent profits. In 2019, the business partner passed away without a will, and the decedent’s siblings were issued letters of administration over the estate by the surrogate court.

The administrators offered to sell the decedent’s interest in the property to our client for a price far above market value. After he declined to meet the estate’s asking price, the estate administrators filed a Supreme Court action seeking (i) a declaration that they (as administrators of the Estate) owned a 50% interest in the property; and (ii) a court order forcing a partition sale of the Property. Soon thereafter, the estate administrators filed a motion for summary judgment on their claims.

Court’s Decision

 In its February 4, 2025, Decision and Order, the court denied the estate administrators’ motion on grounds that plaintiffs had failed to establish that they were distributees of the decedent and did not otherwise identify all the distributees of the decedent.

It is black letter law that when a property owner dies intestate, “…title to real property automatically vests in his or her distributees as tenants in common. This vesting by descent occurs by operation of law at the time of the decedent’s death, regardless of any failure to appoint an administrator or to file new deeds, or, if an administrator is appointed, without the necessity for any act by the administrator.” In the case at bar, the court determined that title to the decedent’s ownership interest in the building had passed to his distributees automatically, as a matter of law, when the business partner died intestate.

On their motion, the plaintiffs did not establish that they were the decedent’s distributees. And a plaintiff can only establish his or her right to summary judgment on a cause of action for partition and sale by demonstrating their ownership and right to possession of the property.

Furthermore, the plaintiffs did not identify the names of all person(s) who may have been the decedent partner’s distributees. They did not submit any documentary evidence establishing whether any children, spouses, or parents survived the decedent, and did not provide evidence regarding any other siblings who may have survived the decedent.

The court’s decision offers a simple, but valuable, reminder that a partition action must name all parties who have an ownership interest in the subject property.

Court Victory Highlights the Importance of Understanding a Contract’s Terms and the Conditions for Obtaining Equitable Relief

Our client, the seller of a five-story mixed use building, entered into a contract with a Time of the Essence (TOE) closing date. The purchaser was not ready to close by the TOE closing date, but by amendments to the contract, the parties twice extended the purchaser’s time to close.

As the final TOE closing date approached, the purchaser again refused to close, alleging for the first time that the seller had misrepresented in the contract whether any lease renewal or extension options had been granted to the building tenants. The purchaser refused to show up at the scheduled closing. The seller declared the purchaser in default and cancelled the contract.

The purchaser (through its purported contract assignee) then filed  a lawsuit against the seller seeking  specific performance, a declaratory judgment and injunctive relief, while also filing a notice of pendency to cloud the property’s title.  The purchaser alleged that the seller’s purported misrepresentation constituted a breach of contract. Our firm promptly filed a motion to dismiss on behalf of the seller.

Court’s Decision

 In its October 16, 2024 Decision & Order, the court granted the seller’s motion to dismiss the purchaser’s claim for equitable relief in its entirety and directed the county clerk to cancel the notice of pendency. The court’s decision offers valuable insights into the enforcement of contractual terms.

  1. Purchaser’s Readiness to Close: The court dismissed the purchaser’s claim for specific performance, finding that the purchaser was not “ready, willing and able” to close on the TOE date. The court emphasized that the purchaser’s assertion of readiness – conditional on the seller correcting the alleged misrepresentation – was insufficient to satisfy the standard, since it amounted to a willingness to actually appear, i.e., to show the ability and readiness to close, only under changed circumstances.
  2. Contractual Bar to Specific Performance: Furthermore, the court determined that the purchaser was contractually barred from seeking specific performance based on its particular claims. The contract of sale provided that the purchaser could only pursue specific performance if the seller had “willfully” defaulted. Here, the court found that even if the  misrepresentation had occurred, it did not constitute a “willful” default. Thus by its terms, the contract only allowed the purchaser to sue for recovery of its down payment.

Key Takeaways

The decision serves as  a reminder of the importance of understanding all of the wording in a contract’s terms and conditions, even if it seems to be simply “legalese.” In this case, our client’s rights were upheld because the purchaser’s claims could not override the clear terms of the agreement requiring a “willful” default in order to enforce an equitable remedy.  The court’s ruling reinforces the principle that contracts must be enforced as written.

The decision also highlights the importance of a purchaser being truly “ready, willing and able” to perform if they claim a default by the seller under a contract. The purchaser’s inability to demonstrate such readiness at the TOE deadline prevented it from demanding specific performance by the seller even if its attempt to introduce new issues at the eleventh hour were ultimately to be upheld.

Habitat Magazine- Repairs: When disputes arise around repair responsibilities

Updating Documents is key:

Conflict often arises around who is responsible for various types of co-op repairs and maintenance. Boards need to look at their governing documents to help figure this out, but often they do not spell out the relative responsibilities when it comes to items such as floors, windows and pipes behind walls. Water damage is another contentious issue. Boards should review their documents and make changes that shift repair responsibilities to shareholders to ensure that insurance obligations aren’t in conflict — and communicate those changes clearly to residents.

Click Here To Read The Full Article In Habitat Magazine

Habitat Direct Link:

New Law Extends Statute of Limitations for Unlawful Discrimination – Including Housing Discrimination

A new law, passed on February 15, 2024, extends the time for New Yorkers to file a complaint with the New York State Division of Human Rights. The new legislation has extended the time to file an unlawful discrimination claim from one year to three years – and housing providers should take note.

The Division of Human Rights touches on various aspects of life in New York State, from employment to housing. State residents are guaranteed a right to fair housing, which means all housing providers – such as landlords and real estate agents – are prohibited from discriminating against housing applicants in the sale, renting, or leasing of housing based on race, national origin, sexual orientation, or citizenship or immigration status, in addition to several other protected statuses.[1] Any unequal treatment, bias, or harassment based on these immutable characteristics amounts to a violation of New York State’s Human Rights Law.

Raising the Liability of Housing Providers

Practices such as predatory lending, biased appraisals, and “steering” – where a real estate salesperson directs customers of a certain background to neighborhoods where residents are of the same background – can all run afoul of New York State’s Human Rights Law. With this new amendment to the law, those wishing to file unlawful discrimination claims for incidents occurring on or after February 15, 2024, can do so within three years of the alleged incident. In addition to broadening the rights of victims of discrimination, the new law raises the responsibility and liability of housing providers to always abide by the State Human Rights Law.

[1] In addition to the protected statuses noted above, New York State’s Human Rights Law also protects against housing discrimination based on: Age; Arrest Record; Creed; Color; Disability; Domestic Violence Victim Status; Gender Identity or Expression; Familial Status; Lawful Source of Income; Marital Status; Military Status; Sex, and Sexual Orientation.

The Final Water Meter Reading: Closed but not really

For those buying or selling property in New York City (other than a cooperative or condominium unit), the final water meter adjustment is often the last closing figure agreed to by the parties. Frequently this adjustment comes after the closing.

The New York State Bar Association form contract generally provides that water charges and sewer rents will be apportioned as of midnight the day before the day of closing and that the seller must furnish a final water meter reading prior to closing. This is an easy concept to understand – the seller pays for the water they have used, and the purchaser is responsible for all of the water bills from the date of closing.

However, achieving a truly equitable adjustment of the water charges is not always so simple. In fact, it often requires some additional planning on behalf of the seller as well as taking extra precautions on behalf of the purchaser.

Obtaining a final water meter reading is not an instantaneous process.

When a seller orders a final water meter reading from the New York City Department of Environmental Protection (DEP), they are sometimes informed that it will take a DEP inspector weeks or even months to get out to the property. Meanwhile, the seller and buyer might want to close the transaction much sooner.

For a long time, parties would proceed to closing and either have the title company take a water escrow or establish a post-closing escrow between the buyer and seller based on the property’s previous water bills. The assumption was that the final water bill would be similar to the previous bills.

But in recent years, we have seen dramatically higher final meter readings.

Based on conversations with many of our title company colleagues, we have found that, on multiple occasions, the final readings differ drastically from the charges on previous water bills. These differences have ranged from thousands to tens of thousands of dollars. The variety of reasons for the discrepancies include inadequate estimated bills, old meters that have not been properly serviced and leaks at the property resulting in high charges.

As a result, purchasers have been saddled with the nightmare task of tracking down the seller to pay for the additional water charges, looking to their title company to pay the charges, or being forced to cover the additional cost themselves. Many title companies have vastly increased their escrows as a condition of omitting an exception to insurance coverage on the title policy (which can be a requirement under the purchase agreement), or force buyers and sellers into post-closing escrow agreements without a predicable outcome for the final charge.

What can buyers and sellers do to minimize their risk?

Generally, sellers should plan to order a final water meter reading anywhere from a month to two months prior to the anticipated closing date. Purchasers should have a discussion with their attorney and chosen title company about the protections they can insert into their respective purchase or post-closing escrow agreements, especially if the need to close the transaction is imminent.

Smith, Buss & Jacobs LLP’s transactional real estate department brings extensive experience and a personal, client-centric approach to assisting property buyers and sellers on a wide range of issues. If you have questions or concerns related to a real estate transaction, feel free to give us a call.

Update On Corporate Transparency Act Filing Requirements for Boards; Lawsuit to Exempt Community Associations Filed in Virginia Federal Court

CTA UPDATE: As we stated in our August 2024 E-Blast, efforts to exempt “homeowners associations” from the Corporate Transparency Act (“CTA”) have so far failed. Therefore, most co-ops, condos and homeowners associations in New York will need to file “Beneficial Ownership Forms” with FinCen (the Treasury Department’s Financial Crimes Enforcement Network) by January 1, 2025.

Below are our answers to questions that we keep getting about Board filing requirements:

Do Condo Boards Have to File? In our opinion, YES. There are technical arguments why New York Condos may not fall under the statute – for example, Condo governing documents are not filed with the state in order to organize; Condos are not specifically named as mandatory filers in FinCen’s FAQ’s (FinCen uses the phrase “homeowners associations” rather than “condominiums”); or Condos should be deemed to be exempt non-profits. But condo associations in most other states do fall under the umbrella of the CTA (so FinCen will resist a NY State-specific exemption); the IRS uses the term “homeowners association” globally to describe co-op corporations, condo associations and HOA’s (so there’s federal precedent in other statutes); and condos have been denied non-profit status under the Tax Code many times. So the arguments cut both ways. On balance, we don’t think Condos can escape the statute; therefore legally, we reluctantly recommend that Boards file.

The statute imposes significant fines and penalties against persons who willfully fail to file.  In practice, though, and given how many condo associations around the country are protesting the requirement, FinCen may well give a condo association a last chance to file without penalty the first time they question a Condo Board that pleads ignorance or uncertainty about whether they’re covered under the CTA.

Exemptions for Large Businesses.  If you happen to be part of an association with more than $5,000,000 in annual operating revenue and more than 20 full-time employees, then Congratulations, you are exempt from filing. There are a few of these in New York State.

What Do We File?  You will need to furnish at least five pieces of info: Name; Address; Birthdate; a “unique identifying number and issuing jurisdiction from an acceptable identification document such as a driver’s license or passport; and an Image of that document.

If the Reporting Company (i.e., the association) is filing for you, you have to furnish that info to the Reporting Company so that it can be uploaded with their filing. Alternatively, you can file independently with FinCen as an individual. FinCen will issue you a unique FinCen Identifier Number that you can substitute in place of providing your info to the Association. To create your own account, start here https://login. gov/create-an-account/. You’ll still need all the info that FinCen requires for companies filing on your behalf.

Who Will File for Me? Managing agents, law firms, and other entrepreneurs are already lining up to submit filings on your behalf. They will certainly charge a separate fee for chasing down all of the Board members and getting their info. It may make the most sense for management do to this, though, since the Reporting Company filings need to be updated when Board members change.

What is the Real-Life Impact of the CTA on Community Associations? Many Board members rightfully feel queasy about contributing to a vast federal database that will keep track of their personal information based solely on their participation as volunteers for their communities. They see no connection between the information they’re providing and preventing money laundering or terrorism (the stated purposes of the CTA) and worry about confidentiality.

On the other hand, two recent news stories about fraud and money laundering by Boards and management in Florida condos and HOA’s (HERE) show that community association finances can be abused. And ironically, we furnish similar information to doctors, insurance companies, department stores, and other persons seeking to verify our identities for other purposes. Governmental agencies (and others) also have easy access to any state’s driver’s license database.

In sum, the CTA is compelling us to consider in a new context the question of where to draw the boundaries for disclosure of what we consider private information to distant, abstract bureaucracies.

COMMUNITY ASSOCIATIONS INSTITUTE FILES FEDERAL LAWSUIT TO INVALIDATE THE CTA BENEFICIAL OWNERSHIP FILING REQUIREMENTS FOR HOMEOWNER’S ASSOCIATIONS.

Earlier this year we reported on a federal court in Alabama declaring the CTA unconstitutional (See our April 1, 2024, E-Blast), Unfortunately, that decision was limited to the plaintiffs in the Alabama case.

On September 10, 2024, the Community Associations Institute (“CAI”) filed a separate suit in the Eastern District of Virginia federal court, seeking to exempt community associations from the reporting requirements under the Act. The complaint asserts that the information reporting requirements for Boards under the CTA represent an unconstitutional invasion of privacy and an unreasonable “search” under the Fourth Amendment; that functionally, homeowners associations are “non-profits” in the sense contemplated by the CTA; that the need for individual Board members to provide personal information chills free speech and impairs associational rights; and that the requirements violate other federal legal and administrative rules. CAI is seeking a preliminary injunction against enforcement while the underlying complaint is heard. To read the full Complaint, go (HERE) and the motion for a preliminary injunction, go (HERE).

 

Spending Wisely: Balancing Operational Success and Donor Trust in Nonprofits

In the nonprofit world, every dollar counts. The funds that organizations raise are not just numbers on a balance sheet; they represent the trust and generosity of donors who believe in a mission. But what happens when questions arise about how those dollars are spent?

A recent New York Times article titled “A Pattern of Lavish Spending at a Leading L.G.B.T.Q. Nonprofit“ by Emily Steel, has sparked a conversation about financial ethics within the sector. The article highlights extravagant spending at a prominent L.G.B.T.Q. nonprofit and offers insights into how organizations can balance operational effectiveness with the need to maintain donor trust and uphold the principles of responsible stewardship.

 Clarify Mission and Align Spending

When it comes to spending, a nonprofit’s mission should serve as the primary touchstone. Every expenditure, whether on staff, programs, or infrastructure, must be justifiable in terms of how it advances the organization’s objectives. However, spending on luxury accommodations for staff retreats might raise eyebrows if it’s not clearly connected to the organization’s purpose – and communicated transparently to stakeholders.

 Implement Strong Financial Policies and Controls

Operational effectiveness often requires spending money – whether on talent, tools, or infrastructure. But without clear financial policies and controls, there’s a risk of overspending or misallocating funds.

Nonprofits should develop and enforce comprehensive financial policies that include guidelines on what constitutes acceptable expenses, how funds should be allocated, and who has spending authority. These policies should be regularly reviewed and updated to reflect the organization’s current needs and external regulatory changes. In addition, implementing strong internal controls, such as requiring multiple approvals for significant expenses, can help prevent misuse of funds.

 Prioritize Transparency and Communication

Nonprofits that openly share their financial practices and processes are more likely to maintain the confidence of their supporters. This means providing clear, accessible financial reports that detail how funds are being used, as well as the impact of those expenditures. Regular communication with donors about how their contributions are making a difference can reinforce the connection between spending and mission fulfillment.

 Benchmark Compensation and Expenses

Nonprofits must ensure that executive pay, and other significant expenses are reasonable and aligned with industry standards – specifically, industries within the nonprofit sector. Benchmarking is an effective and essential tool in this regard. Implementing a practice of comparing their compensation packages and spending to similar organizations ensures that the nonprofit is offering fair and reasonable compensation – and helps protect it from potential criticism and regulatory scrutiny.

 Foster a Culture of Ethical Stewardship

Ultimately, balancing operational effectiveness with donor trust requires a culture of ethical stewardship throughout the organization. This means instilling a sense of responsibility in every employee, from the executive team to entry-level staff, about the importance of managing donor funds with integrity.

Leadership plays a key role in setting the tone. By modeling ethical behavior and making value-based decisions, leaders can encourage a broader commitment to prudent financial management across the organization. Regular training on ethical issues, including conflicts of interest and the appropriate use of funds, can reinforce these principles. In addition, creating an environment where staff feel comfortable raising concerns about financial practices can help prevent issues before they escalate.

 Engage the Board in Oversight

The board of directors is an indispensable ally in maintaining the balance between operational effectiveness and donor trust. Boards should be actively involved in overseeing financial practices, including approving budgets, reviewing major expenditures, and ensuring compliance with legal and ethical standards. Board members also bring an outside perspective that can help identify potential issues and ensure that spending aligns with the nonprofit’s mission and strategic objectives.

 Evaluate and Adjust Regularly

Nonprofit environments are dynamic. Changing donor expectations, regulatory requirements, and operational challenges require nonprofits to regularly evaluate their financial practices and make adjustments as needed. This might involve rethinking how resources are allocated, scaling back certain expenses, or exploring new revenue streams to support the organization’s mission. By remaining adaptable and responsive to both internal and external factors, nonprofits can ensure that they continue to operate effectively while upholding the principles of prudent stewardship.

 Nonprofits that are committed to maintaining these best practices can not only protect the integrity of their organizations but also honor the trust and generosity of their donors – ensuring long-term success and impact.

For more information, please reach out to: Nancy Durand

Email: NDurand@sbjlaw.com

 

Legal Update: Corporate Transparency Act, Eviction for Good Cause Law

Corporate Transparency Act Update – Filing Requirements for Co-ops, Condos and HOA’s

CTA UPDATE. Unfortunately, it looks like most Co-op’s and HOA’s will not be able to escape filing “Beneficial Ownership Information” under the Corporate Transparency Act (“CTA”). The Financial Crimes Enforcement Network of the Treasury Department (“FinCen”) is responsible for enforcing the CTA. In a July 25th letter responding to the Executive Officer of the Community Associations Institute, the Deputy Director of FinCen stated that since HOA’s are not listed as exempt from filing under the CTA, they are considered “reporting companies” until further notice. (Community Associations Institute is a national organization that provides advocacy and educational services for condos, co-ops and HOA’s.) For the full text of the letter, go Here.

The letter also stated that FinCen is authorized to grant further exemptions if it determines that requiring Beneficial Ownership Information from a class of entities would not serve the public interest, and would not be highly useful in national security efforts to detect money laundering. FinCen is “considering” CAI’s request for exemption of HOA’s. However, the written agreement of the Attorney General and the Secretary of Homeland Security would also be needed to grant an additional exemption. So until that exemption is granted, HOA’s, their Board members and senior officers remain reporting companies.

What about Condos? As detailed in prior E-blasts, Condos in New York might argue that they are not formed by filing with a state agency, so they aren’t “reporting companies.” However, we reluctantly recommend that Condo Associations file regardless. First, in most other states Condos are formed through state filings. Second, the New York Department of State has recently begun to demand that copies of Condo Declarations also be filed with them, which might satisfy the “filing with state agency” criterion. Third, the definition of “Homeowners Associations” under the Internal Revenue Code also includes condominiums, so there is other federal precedent for treating Condos as HOA’s. In addition, if a Board of Managers has incorporated, the Board likely needs to file on its own.

How to File. One way to start the filing process is to go to https://boiefiling.fincen.gov/, which allows you to file independently. You’ll need the tax ID for the Association and filing info for the Board members including a driver’s license, passport or other government-issued ID. Another way is to go on the Internet, where several companies offer to handle your filing requirements for a fee. (If you google “CTA beneficial ownership filing support” you’ll see several companies.) Your management company may also start offering that service for an additional fee.

What if We Don’t File? The deadline for filing is January 1, 2025. The law provides that entities that “intentionally” file false or misleading information can pay fines up to $10,000 or imprisonment for up to two years. At this point, we can’t say whether a Board member who refuses to provide their personal information would be individually liable or if the reporting company would incur liability for omitting that information because they can’t get it. Undoubtedly any company that files for you would require you to indemnify them against any liability for a false or incomplete filing.

Exemptions for “Large Operating Companies” Still Available. A large operating company has more than $5,000,000 in operating revenue and more than twenty (20) full-time employees. So if your Association happens to qualify on both counts, you are still exempt from filing under the CTA.

Do Co-ops and Condos Have to File under the Eviction for Good Cause Law Effective August 18, 2024?

Fortunately, it does not apply to landlords in buildings operated as cooperatives or condominiums, or whose tenants have received a “red herring” offering plan. Note that the exemption from the law also covers individual landlords of units in cooperatives or condominiums who are leasing or subleasing their units. HOA’s also are not ordinarily subject to the law unless the HOA itself owns and rents more than ten units (but their individual homeowners may be).

The form of Notice that must be used is the same for an exemption as for a non-exempt lease. That makes it ridiculously complicated and poorly constructed.

We are recommending that exempt landlords work with the cover letter and form of Notice that we have attached, [See Here and Here]. The format has been cleaned up by us to state as clearly as we can make it that the subject lease is exempt, while still using the required statutory language.Many other types of landlords still remain exempt, e.g., “small” landlords. You should check the statute for exemptions see [Here].

Non-exempt landlords could use a cleaned-up form for non-exempt leases, e.g., [See Here] to view , or simply use the poorly formatted form provided in the statute [See Here]. Either way, make sure to fill in the relevant sections of the form before you attach it. New York City has created a detailed website purporting to explain the law, go to https://www.nyc.gov/site/hpd/services-and-information/good-cause-eviction.page page. Unfortunately, it too is difficult to navigate and also lacks a form of notice for landlords.

In the meantime, for more information, please reach out to:

Ken Jacobs

kjacobs@sbjlaw.com

Giving Back Can Be Rewarding – Professionally and Personally

Written by Ilene H. Guralnick

Being a lawyer is rewarding in and of itself, but many attorneys find themselves wondering what they can do to give back to the communities in which they live and work. One way to make a positive impact is to offer your services pro bono.

Working pro bono can be transformative.

Pro bono work can foster a sense of personal fulfillment that goes well beyond the pursuit of billable hours. It allows you to gain a deeper understanding of the impact of legal advocacy, and to narrow the justice gap by providing counsel to individuals who lack access to quality legal services.

In addition, participating in pro bono work often leads to collaboration with other legal professionals and community leaders. These connections can expand your professional network and offer the chance to meet people who may one day need your services.

Attorneys looking to give back have a variety of opportunities.

Communities often have legal volunteer organizations in need of free services, and many larger cities have pro bono organizations that align with specific interests and skillsets, such as housing, immigration, criminal and family law. A good place to start is with your local bar association. These organizations often have dedicated pro bono programs or committees that connect attorneys with opportunities suited to their expertise.

I have been a volunteer with the New York City Bar Association and the Brooklyn Bar Association for nearly 30 years. The New York City Bar Legal Referral Service (LRS) requires attorneys to meet or exceed high standards of experience and qualifications, and demonstrate a commitment to doing the work. Once approved to serve on a panel, you are notified about each client referral. Initial consultations last for up to 30 minutes and the fee is $35 or free, depending on the type of case. Additional fees are negotiated if you and the client continue to work together.

The Brooklyn Bar Association Lawyer Referral Service is similar, and focuses on referrals to attorneys in the five Boroughs of New York as well as Nassau, Suffolk, Rockland, and Westchester Counties. The maximum client consultation fee is $25.

Volunteer attorneys are always in demand.

I have been fortunate in my career to represent thousands of clients throughout New York State in all matters involving Real Estate – from representation of cooperative housing corporations, condominium boards, and middle and low-income tenant associations to commercial and residential leasing matters and code enforcement proceedings.

With the current state of the housing market, these are skills people need. In a given week, I may get a call from a couple who received a mortgage foreclosure notice and wants to know how it affects them; a landlord who needs help understanding recent changes in the law; and someone standing outside a courthouse who has been illegally evicted.

Being able to use my experience to make a positive difference in other people’s lives has been immensely rewarding. And the demand for volunteer attorneys is greater than ever. I encourage you to reach out to your local bar association or visit their website to explore available programs.