Adding a Non-profit to the Family — Thinking Through For-Profit and Non-Profit Affiliates
Continuing our blog’s series walking through how to launch a non-profit, we have already talked about what activated us to want to start a nonprofit and whether it actually makes sense to start one – now, we’re going to start… with a detour (yes, this series is going to take a long time).
Like many people that come to us to form a nonprofit, we are not starting our plan from a blank canvas. We have a for-profit law firm whose work could potentially overlap in personnel and subject matter with the 501(c)(3) nonprofit’s plan to provide legal and educational support to progressive charities targeted for their DEI efforts and social justice work. We have a 501(c)(4) nonprofit that we use to carry out the charitable and advocacy missions of our employees – and the 501(c)(4) is allowed to do things that a 501(c)(3) is not.
How do we make sure the 501(c)(3) nonprofit remains compliant and operates without integrity, while still leveraging support from our existing structure?
If you have or have considered a for-profit/non-profit affiliate relationship, this post is intended to illustrate how we work that question with clients (and ourselves).
Should I Start a Nonprofit? Trying (and Failing) to Take Our Own Advice
Following up on our last post, and with our firm continuing to feel frustrated about how we’re supposed to help, we started kicking around an idea. If we think nonprofits should be open and defiant about their support of diversity, equity, and inclusion and if we think philanthropy should be putting up their resources to defend those that do, why not set up a nonprofit to gather and provide that support? Provide our own expertise in terms of defending the exempt status of progressive organizations that are targeted, gather volunteers or use donations to hire experts to help with the things we have no business doing ourselves (immigration, civil rights litigation, criminal defense), and educate organizations in a way that pushes back on the fear campaign.
As transactional attorneys, we are not as useful as we’d sometimes like to be when it comes to times like these. No one makes movies about tax lawyers, and they really shouldn’t. The lawyers doing the most important work right now, and always, are the ones trying to keep people safe and out of cages.
So, we’ll just have to settle for one of the handful of things we know how to do, which is set up a nonprofit. And maybe we can help make it a little more meaningful by making it an educational exercise – using this blog to discuss and share documents for each step in the process in case people want to try it themselves.
Before committing to actually setting it up though, let’s ask the question that we try to get all of our prospective-charity-founder clients to ask: is a new charity actually necessary?
The Wrong Way to Manage Risk Under the New Administration
I will spare our readers a detailed recap of what is going on at this particular moment in history, and what it means for nonprofits. If you’re reading a nonprofit law blog, you probably know that the administration has threatened, directly or indirectly, foundations and charities that care about diversity, equity, and inclusion and progressive principles with loss of federal funding, enhanced enforcement, or revocation of exempt status.
The legal foundations of these threats do not warrant serious consideration. They misstate the law by conflating interest in diversity or combatting racial injustice with unlawful discrimination, criticism of Israel with antisemitism, and concern for immigrants with treason. They are brazenly unfounded arguments advanced by a hateful administration dedicated to oligarchy, resegregation, and hostility to anything other than self-interest, and should be treated as such. If their arguments prevail, it’s only because they’ve broken the system that will consider them.
From that context emerges a pernicious version of “risk management” – namely, asking nonprofits to dance around their mission. Whether that’s private foundations being “silently defiant” (an oxymoron, I’d argue) with respect to DEI or public charities being told by funders or their own Boards to Ctrl-F their way to safety by deleting the words the fascists don’t like (this NYT article has been cited to me a number of times), the premise is consistently that the threats need to be dodged rather than answered.
Why are so many nonprofits and their advisors acting like we are the ones that need to change?
Consdering Employment Cost Reduction Strategies Before Layoffs
In light of the uncertainty with respect to recent changes to federal funding initiatives and their potential impact, nonprofit organizations are facing difficult questions regarding the continued viability of their operations in this current climate due to budgeting and/or funding considerations.
While layoffs are a common and sometimes inevitable approach taken to realize cost savings, organizations should be mindful of other viable options to achieve this goal while minimizing the impact on its employees and the attendant legal exposure of employment terminations.
Below are options that employers may wish to consider to reduce personnel expenses, from least to most drastic. Each option has its own advantages and disadvantages. Some options can be employed concurrently or in succession, depending on the actual or expected effectiveness.
To Live and Dissolve In California: Nonprofit Dissolution and the California Attorney General
Being a nonprofit corporation is always harder than being a for-profit: you have to follow additional rules, you can’t just do anything you want, you have to limit your benefits to insiders, and you have additional regulators looking over your shoulder.
And it’s not just more difficult during life – in California, your nonprofit corporation can’t even die in peace. You have to ask the Attorney General’s office for permission.
After years of maintaining a very helpful Guide to nonprofit dissolution, California’s Attorney General’s Charities Bureau (the “AG”) has issued some proposed regulations to formalize these requirements. With a couple of minor exceptions (most of which will be addressed in a Part II to this post), there is not a lot of new there. Still, it provides a useful opportunity for us to summarize a common project of ours and dilemma of our clients: wrapping up your California nonprofit in a compliant manner.
Introducing MLC Compliance: Simplifying Charitable Registration
Mill Law Center (MLC) is excited to unveil MLC Compliance, a specialized division of MLC, dedicated to easing the burden of charitable registration for nonprofit organizations. MLC Compliance is committed to providing streamlined solutions tailored to meet the compliance needs of nonprofits nationwide.
MLC is launching this service to expand our support beyond traditional legal and corporate services for nonprofits. Our goal is to provide specialized compliance solutions tailored specifically for nonprofit organizations. Just as MLC Employment broadens our firm's scope to offer dedicated labor, employment, and HR legal advice, MLC Compliance aims to simplify charitable registration and other compliance obligations for nonprofits, social enterprises, and cooperatives. Led by experts in nonprofit law and compliance, our team leverages extensive experience to ensure nonprofits can navigate regulatory challenges effectively, fostering positive relationships and compliance with all relevant laws and regulations.
California Employer Alert - New California Laws Impacting the Workforce in 2025
If you're an employer in California, it's time to start paying attention to some important new employment and labor laws that will come into play in 2025. The Golden State is known for its progressive approach to worker protections, and the latest round of laws promises to reshape how businesses manage employees, from anti-discrimination measures to workplace safety. Staying up to date will not only help you avoid penalties but also create a fairer, more inclusive workplace for all your employees. Here’s a quick summary of the key changes that could impact your business in 2025.
Stay Out Of The Kitchen: IRS Denies Pickleball Club Tax Exemption
When a nonprofit organization seeks tax-exempt status, understanding the differences between various IRS classifications is essential. This is especially true for clubs and associations focused on recreational or social activities. Take, for example, a pickleball club that recently stepped into the kitchen and was served a denial when it applied for 501(c)(3) status. While the club's mission to provide recreational and social spaces for pickleball enthusiasts might sound ace, it didn’t meet the criteria for 501(c)(3). Instead, it seems more appropriately classified as a 501(c)(7) social club. Let’s rally around the reasons why that is, and what it means for organizations in a similar position.
Reflections on HR 9495 and Risk
Some thoughts:
1. HR 9495 is a terrible bill, on its face and in its intent.
2. It affirms the authoritarian intentions of the incoming administration.
3. It confirms that the Democratic party (15 of whom voted for the bill this week, and 52 of whom voted for it the prior week) has many members who will support those authoritarian intentions if it gives them a chance to intimidate supporters of the Palestinian people and silence critics of Israel’s atrocities in Gaza.
4. If you have doubts about #3, note that the provisions in this bill are identical to HR 6408, which passed the House in April by a vote of 382 to 11. If your response to that is “it wasn’t Trump at the time,” then I’d say: (1) granting authoritarian powers to the favored party’s administration is still authoritarianism, and (2) please consult April Trump vs. Biden polls and consider whether this was a foreseeable outcome.
5. Whether or not nonprofits and other defenders of common sense are successful in mobilizing to defeat the bill in the Senate, our advice to nonprofits will remain the same as it was before this bill was introduced.
Poltical Activity in the Workplace
Although often cited as a source of free speech rights, the First Amendment does not actually provide employees with a constitutional right to express political thoughts or opinions in a private workplace (as it only controls government action). As a general matter, employers can regulate what employees say and do in the workplace during working hours. However, federal and state laws exist that complicate an employer’s efforts to control the political speech, activities, affiliation of their employees.
Navigating Fiscal Sponsorship: Addressing Compliance and Legal Considerations
In the evolving landscape of social innovation and community empowerment, fiscal sponsorship emerges as an important tool for driving change. It's a vehicle that accelerates the launch of new initiatives, fuels grassroots movements, and amplifies the impact of visionary leaders. However, within the realm of fiscal sponsorship, there lies a maze of legal and administrative complexities that can pose significant challenges to both sponsors and their projects.
The Launch of MLC Employment: Helping Nonprofits and Social Enterprises be Better Employers
Today, I not only get to announce the arrival of another great attorney to join our growing team in Daniel Lac, I also get to announce the arrival of a whole new line of service for the firm: MLC Employment.
MLC Employment will be the vehicle through which our firm goes beyond just the specialized tax, corporate, and outside general counsel services we provide to nonprofits, and provides specialized labor, employment, and human resources legal advice to nonprofits, social enterprises, cooperatives, and any other organization committed to maintaining positive and compliance relations with their employees. Daniel Lac will be the leader of this effort, applying his 10+ years of employment law experience at major firms for a wide variety of complex organizations to create an employment law practice that caters primarily to the needs of nonprofit organizations.
Fiscal Sponsorship and the Proposed DAF Regulations: How Big a Problem Do We Have?
Another really enjoyable time a couple of days ago with Fiscal Sponsor Conversations, this time talking about how fiscal sponsorship could be impacted by the Proposed DAF Regulations (which we wrote about earlier as it relates to other issues). I am sharing the slides here. Probably impossible to explain DAFs, what the proposed regulations are and mean, and what that has to do with fiscal sponsorship in a single presentation or blog post. But the exercise helped me boil down what my recommendations are for fiscal sponsors to manage this risk.
If you want a deep dive into the regulations, check out our earlier post or slides. If you want to skip to the back of the book, let’s go through what my current takeaways are (none of the below is legal advice, of course, just the rambling of someone who spent too much time putting together slides)…
May Day Post: What If 501(c)(3) Asked for More?
On a day that happens to also be May Day a/k/a International Workers’ Day, I am left reflecting on how little we, from a legal perspective at least, ask of some of our nonprofit organizations. Yes, this blog has many posts about different rules they need to follow to different types of activities and limits on private benefit. But what do we really ask in terms of commitment to a particular set of values? I think the answer is “next to nothing”.
Model C Fiscal Sponsorship and Filmmaking
I was fortunate to present at Fiscal Sponsor Conversations this past week on Model C fiscal sponsorship as applied to filmmaking (and to present there this coming week on how the proposed DAF regulations affect fiscal sponsors). If you’re not familiar with this group and are engaged or interested in fiscal sponsorship, I can give it my strongest recommendation. Fun group, interesting speakers, and, at least when I’m not there, a great rotating cast of presenters. Andrew Schulman of Schulman Consulting and Oliver Hack of Social Good Fund do a great job creating an engaging atmosphere.
Because the topic is something I find interesting and think about often, I thought I’d share my (a bit rudimentary) slides from this presentation and a few random thoughts on filmmaking as a charitable activity, when it feels safe, and when it is pushing the boundaries of how the charitable sector is supposed to operate.
Webinar on Nonprofit Advocacy to Defend Reproductive Rights
In addition to our own presentations (more to come soon), we want to make sure to call out some of the great work being done by others in the sector.
As a great first example, the exceptional team at the Forefront Project will be conducting a webinar on federal tax law and state law rules regulating ballot measure advocacy by nonprofits and how they might be able to help your organization navigate them.
The Forefront Project does fantastic work providing pro bono legal services to organizations that fight to defend reproductive rights. Given the ruthlessness of the right-wing and the degradation of human rights in this country by the current Supreme Court, organizations devoted to protecting the right to abortion need every tool they can get. And it is no time to shy away from political advocacy and the many ways you can do it without violating any rules.
Please check out the webinar and support organizations like Forefront doing what they can on this issue.
Upcoming Presentation: Impact of Proposed DAF Regulations
Most of the time, we forget to promote the various presentations we do here at MLC because we are too busy scrambling to get the materials together between calls and client projects. But, I feel particularly fortunate to be presenting with Gene Takagi of Neo Law Group, whose firm and exceptional blog are a big inspiration for us.
And we are speaking about a topic we covered not too long ago on this blog: the proposed DAF regulations and how they might impact sponsors, donors, and grantees.
The presentation is on February 6 at 12pm through Stafford Webinars — check it out here if you are interested (and we have a few complimentary registrations left over, so don’t hesitate to reach out if you’re curious).
Thoughts from the National Network of Fiscal Sponsors Annual Conference
Having just returned from the National Network of Fiscal Sponsors (NNFS) Annual Conference, it was heartening to be reminded that so many organizations are doing good work in so many different arenas.
The mood at the conference was broadly hopeful, though several sponsors and speakers flagged that they – like everyone else – are dealing with global uncertainty. From the impact of Supreme Court decisions to changes in Fiscal Sponsors relationships to their Sponsored Organizations – change was very much in the air.
Hot Off the Presses: A First Take on the Proposed DAF Regulations
We now have DAF (proposed) regulations! If that seems like a strange thing for a human being to apply an exclamation point to (it is), consider that there are hundreds of billions of dollars in donor-advised funds (DAFs), with complex rules and prohibitions but barely any real guidance. The DAF rules were created by the Pension Protection Act on August 17, 2006. There are human beings driving cars and getting ready to vote in the next Presidential election who have never known a world without the DAF rules. And today marks the first proposed regulations.
And after today… well… we still have some questions. But it’s something!
Considering that these regulations have been nearly twenty years in the making, it would be prudent to do a slow and careful review of the regulations and advise on what they portend for the donor-advised fund (DAF) world and the nonprofit sector. But I find hasty overreactions more fun to write, so here are some key takeaways from these proposed regulations, released today.
