BRUCE R. HOPKINS is a senior partner with the firm Polsinelli Shughart PC. He is also the author or coauthor of more than twenty-five books, all published by Wiley, including The Law of Tax-Exempt Organizations, Ninth Edition; The New Form 990; and Nonprofit Law Made Easy. Hopkins earned his juris doctorate and master of laws degrees at The George Washington University. He has practiced law for forty years and is a member of the District of Columbia and Missouri bars. VIRGINIA C. GROSS is a shareholder of Polsinelli Shughart PC. Ms. Gross concentrates her practice in the field of nonprofit law and is a frequent writer and speaker on nonprofit issues. She is listed in The Best Lawyers in America for nonprofit organizations/charity law for 2008 and 2009. She is a coauthor of The New Form 990, published by Wiley. Ms. Gross earned her juris doctorate at the University of Texas. She is a member of the District of Columbia, Texas, Missouri, and Kansas bars.

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• Book Citations xixPreface xxiChapter One: Federal and State Law Fundamentals 11.1 State Law Overview 11.2 Formation of Organization 51.3 Board of Directors Basics 91.4 Principles of Fiduciary Responsibility 131.5 Duties of Directors 151.6 Board Composition and Federal Tax Law 16Chapter Two: Board Members: Responsibilities and Liability 212.1 Board of Directors Governance Principles 212.2 Role of Officers 332.3 Key Employees 352.4 Management Companies 352.5 Board Member Responsibilities 362.6 Protections against Personal Liability 392.7 Minimizing Board Member Liability 41Chapter Three: Nonprofit Organizations' Governance Principles 453.1 Governance Philosophy in General 453.2 Sarbanes-Oxley Act 463.3 Watchdog Agencies' Standards 513.4 California's Nonprofit Integrity Act 663.5 Senate Finance Committee Staff Paper 673.6 U.S. Treasury Department's Voluntary Best Practices 703.7 Committee for Purchase Proposed Best Practices 723.8 Panel on Nonprofit Sector Recommendations 733.9 Boards of Exempt Credit Counseling Organizations 743.10 Draft of IRS Good Governance Principles 743.11 American National Red Cross Governance Modernization3.12 Panel on Nonprofit Sector Good Governance Principles 793.13 Redesigned IRS Annual Information Return (Form 990) 863.14 IRS LifeCycle Educational Tool Principles 863.15 Commentary 91Chapter Four: Governance and the Redesigned Form 990 934.1 Governing Body and Management 944.2 Policies 1044.3 Disclosure 108Chapter Five: Nonprofit Governance Issues 1115.1 Perspectives on Nonprofit Governance 1115.2 Governing Board Size 1135.3 Governing Board Composition 1165.4 Role of Governing Board 1215.5 Organization Effectiveness and Evaluation 1245.6 Board Effectiveness and Evaluation 1255.7 Frequency of Board Meetings 1265.8 Term Limits 1275.9 Board Member Compensation 1295.10 Audit Committees 1305.11 Other Committees 1325.12 Compliance with Law 1325.13 Categories of Expenditures 1345.14 Disclosures to Public 1365.15 Mission Statements 1395.16 Codes of Ethics 1405.17 Conflict-of-Interest Policies 1415.18 Whistleblower Policies 1445.19 Document Retention and Destruction Policies 1455.20 Fundraising Practices 1465.21 Role of IRS in Governance 148Chapter Six: Policies and Procedures for Good Governance 1576.1 Sources of Policies and Procedures 1576.2 IRS Focus on Policies and Procedures 1596.3 Discussion of Specific Policies and Procedures 1606.4 Colleges and Universities 1786.5 Other Policies 179Chapter Seven: Nonprofits in the Spotlight: Governance Case Studies 1817.1 The American National Red Cross 1817.2 The Smithsonian Institution 1837.3 American University 1877.4 J. Paul Getty Trust 1887.5 University-Affiliated Medical Centers 1897.6 Lessons Learned 191Chapter Eight: Law for Nonprofit Board Members: A Primer 1958.1 Nonprofit Organizations 1958.2 Tax-Exempt Organizations 1968.3 Categories of Tax-Exempt Organizations 1968.4 Tax-Exempt Organizations Law Basics 1998.5 Legislative Activities Law 2028.6 Political Activities Law 2038.7 Public Charities and Private Foundations 2048.8 Reporting Rules 2068.9 Disclosure Rules 2078.10 Unrelated Business Rules 2078.11 Subsidiaries 2098.12 Joint Ventures 2108.13 Other Aspects of Law of Exempt Organizations 2128.14 Charitable Giving Rules 2138.15 Federal Law as to Fundraising 2148.16 State Law as to Fundraising 2158.17 IRS Audits 2158.18 Bankruptcy 222Chapter Nine: Governance Legal Audit 2239.1 Inventory of Basics 2239.2 Governance 2259.3 Policies and Procedures 2269.4 External Relationships 2289.5 Tax-Exempt Status 2299.6 Private Inurement Doctrine 2309.7 Private Benefit Doctrine 2319.8 Excess Benefit Transactions 2329.9 Self-Dealing Rules 2359.10 Actions by Organization 2359.11 Public Charity Classification 2369.12 Private Foundation Rules 2399.13 Donor-Advised Funds 2409.14 Endowment and Other Funds 2409.15 Legislative Activities 2419.16 Political Campaign Activities 2439.17 Other Forms of Advocacy 2459.18 Subsidiaries 2459.19 Bifurcation Basics 2459.20 Tax-Exempt Subsidiaries 2469.21 Taxable Subsidiaries 2469.22 Revenue from Subsidiary 2479.23 Joint Venture Basics 2479.24 Joint Ventures—Other Elements 2489.25 Unrelated Business Analysis 2499.26 Commerciality Doctrine 2509.27 Annual Information Returns 2509.28 Disclosure Requirements 2529.29 Considerations for Lawyer Conducting Legal Audit 253Index 255

BRUCE R. HOPKINS is a senior partner with the firm Polsinelli Shughart PC. He is also the author or coauthor of more than twenty-five books, all published by Wiley, including The Law of Tax-Exempt Organizations, Ninth Edition; The New Form 990; and Nonprofit Law Made Easy. Hopkins earned his juris doctorate and master of laws degrees at The George Washington University. He has practiced law for forty years and is a member of the District of Columbia and Missouri bars. VIRGINIA C. GROSS is a shareholder of Polsinelli Shughart PC. Ms. Gross concentrates her practice in the field of nonprofit law and is a frequent writer and speaker on nonprofit issues. She is listed in The Best Lawyers in America for nonprofit organizations/charity law for 2008 and 2009. She is a coauthor of The New Form 990, published by Wiley. Ms. Gross earned her juris doctorate at the University of Texas. She is a member of the District of Columbia, Texas, Missouri, and Kansas bars.

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• Book Citations xixPreface xxiChapter One: Federal and State Law Fundamentals 11.1 State Law Overview 11.2 Formation of Organization 51.3 Board of Directors Basics 91.4 Principles of Fiduciary Responsibility 131.5 Duties of Directors 151.6 Board Composition and Federal Tax Law 16Chapter Two: Board Members: Responsibilities and Liability 212.1 Board of Directors Governance Principles 212.2 Role of Officers 332.3 Key Employees 352.4 Management Companies 352.5 Board Member Responsibilities 362.6 Protections against Personal Liability 392.7 Minimizing Board Member Liability 41Chapter Three: Nonprofit Organizations' Governance Principles 453.1 Governance Philosophy in General 453.2 Sarbanes-Oxley Act 463.3 Watchdog Agencies' Standards 513.4 California's Nonprofit Integrity Act 663.5 Senate Finance Committee Staff Paper 673.6 U.S. Treasury Department's Voluntary Best Practices 703.7 Committee for Purchase Proposed Best Practices 723.8 Panel on Nonprofit Sector Recommendations 733.9 Boards of Exempt Credit Counseling Organizations 743.10 Draft of IRS Good Governance Principles 743.11 American National Red Cross Governance Modernization3.12 Panel on Nonprofit Sector Good Governance Principles 793.13 Redesigned IRS Annual Information Return (Form 990) 863.14 IRS LifeCycle Educational Tool Principles 863.15 Commentary 91Chapter Four: Governance and the Redesigned Form 990 934.1 Governing Body and Management 944.2 Policies 1044.3 Disclosure 108Chapter Five: Nonprofit Governance Issues 1115.1 Perspectives on Nonprofit Governance 1115.2 Governing Board Size 1135.3 Governing Board Composition 1165.4 Role of Governing Board 1215.5 Organization Effectiveness and Evaluation 1245.6 Board Effectiveness and Evaluation 1255.7 Frequency of Board Meetings 1265.8 Term Limits 1275.9 Board Member Compensation 1295.10 Audit Committees 1305.11 Other Committees 1325.12 Compliance with Law 1325.13 Categories of Expenditures 1345.14 Disclosures to Public 1365.15 Mission Statements 1395.16 Codes of Ethics 1405.17 Conflict-of-Interest Policies 1415.18 Whistleblower Policies 1445.19 Document Retention and Destruction Policies 1455.20 Fundraising Practices 1465.21 Role of IRS in Governance 148Chapter Six: Policies and Procedures for Good Governance 1576.1 Sources of Policies and Procedures 1576.2 IRS Focus on Policies and Procedures 1596.3 Discussion of Specific Policies and Procedures 1606.4 Colleges and Universities 1786.5 Other Policies 179Chapter Seven: Nonprofits in the Spotlight: Governance Case Studies 1817.1 The American National Red Cross 1817.2 The Smithsonian Institution 1837.3 American University 1877.4 J. Paul Getty Trust 1887.5 University-Affiliated Medical Centers 1897.6 Lessons Learned 191Chapter Eight: Law for Nonprofit Board Members: A Primer 1958.1 Nonprofit Organizations 1958.2 Tax-Exempt Organizations 1968.3 Categories of Tax-Exempt Organizations 1968.4 Tax-Exempt Organizations Law Basics 1998.5 Legislative Activities Law 2028.6 Political Activities Law 2038.7 Public Charities and Private Foundations 2048.8 Reporting Rules 2068.9 Disclosure Rules 2078.10 Unrelated Business Rules 2078.11 Subsidiaries 2098.12 Joint Ventures 2108.13 Other Aspects of Law of Exempt Organizations 2128.14 Charitable Giving Rules 2138.15 Federal Law as to Fundraising 2148.16 State Law as to Fundraising 2158.17 IRS Audits 2158.18 Bankruptcy 222Chapter Nine: Governance Legal Audit 2239.1 Inventory of Basics 2239.2 Governance 2259.3 Policies and Procedures 2269.4 External Relationships 2289.5 Tax-Exempt Status 2299.6 Private Inurement Doctrine 2309.7 Private Benefit Doctrine 2319.8 Excess Benefit Transactions 2329.9 Self-Dealing Rules 2359.10 Actions by Organization 2359.11 Public Charity Classification 2369.12 Private Foundation Rules 2399.13 Donor-Advised Funds 2409.14 Endowment and Other Funds 2409.15 Legislative Activities 2419.16 Political Campaign Activities 2439.17 Other Forms of Advocacy 2459.18 Subsidiaries 2459.19 Bifurcation Basics 2459.20 Tax-Exempt Subsidiaries 2469.21 Taxable Subsidiaries 2469.22 Revenue from Subsidiary 2479.23 Joint Venture Basics 2479.24 Joint Ventures—Other Elements 2489.25 Unrelated Business Analysis 2499.26 Commerciality Doctrine 2509.27 Annual Information Returns 2509.28 Disclosure Requirements 2529.29 Considerations for Lawyer Conducting Legal Audit 253Index 255