• Ending a nonprofit program should be based on clear financial and impact analysis, ensuring resources are directed where they create the most value.
• Boards must follow proper governance procedures, including formal approval and thorough documentation, before making program closure decisions.
• Organizations need to review donor restrictions, grant terms, and contracts to avoid legal or financial issues when sunsetting a program.
• Transparent, consistent communication with staff, funders, and stakeholders is critical to maintaining trust and minimizing disruption.

Some programs start strong. The funding is there, and the community response is real. Then something shifts. A grant doesn’t renew. Donations slow. A nonprofit funding freeze hits, and a program that once felt secure starts eating into your savings.

Not every funding challenge means you need to overhaul the organization. Sometimes, the right call is narrower: pausing or ending one specific program. That’s not an easy conversation to have, especially if staff built the program from scratch. But when handled thoughtfully, it can protect the programs that are still working. When handled hastily, it can lead to questions from funders, contract disputes, or having to return money you already spent.

Here are the key steps nonprofit leaders and boards should follow before sunsetting a program:

Step 1: Confirm the Financial and Programmatic Rationale

Before anything is voted on, take a step back and document why the program can’t continue.

Start with a simple review of the program’s funding, costs, and staffing:

• How much funding is tied specifically to this program?
• Where is that funding coming from (grants, individual donors, earned revenue)?
• Is that funding ongoing or temporary?
• What does the program actually cost, including staff time, supplies, space, and admin support?
• Is the program run by volunteers or paid staff?
• Would ending the program result in layoffs or reassignment of staff?
• Are you pulling money from other programs just to keep this one going?
• Does the program pay for itself, or is there a gap between funding and actual costs?

This is where program evaluation for nonprofits becomes practical, not theoretical. If the program serves 25 people a year but requires pulling $75,000 from general operating funds to stay afloat, that matters.

If participation has dropped and the need has shifted, that matters, too. Community priorities can change over time, and a program that once met an urgent need may no longer serve the same number of people or have the same impact. In those cases, shifting resources to programs that better reflect current needs can be the more responsible choice.

Write it down, evaluate the numbers, and outline what options were considered, such as reducing hours, partnering with another group, or fundraising specifically for the program. In some cases, this isn’t just about cutting a program, but about redirecting resources to areas where they can have a greater impact.

When the reasoning is clear, the board can stand behind the decision. And if a donor asks, “Why did you end this?”, then you won’t be scrambling for an answer.

Step 2: Review Governance and Approval Requirements

Ending a program isn’t something staff can decide on their own. The board often needs to weigh in.

Pull out your bylaws and check:

• Do major program changes require full board approval?
• Can a committee recommend the change, or does the board have to vote directly?
• Is a formal resolution required?
• Does the board need advance notice before voting? (Even if it’s not required, the board should be informed of program challenges well before a vote so the decision isn’t a surprise.)

Then document the discussion and the vote in your meeting minutes. Include:

• The financial rationale
• The options considered
• The implications of closing the program (e.g., staffing changes or impacts on those being served)
• The final vote and date

If this step is skipped, problems can surface later: A former board member might say they never approved it, or a funder may ask who authorized the closure. Clear minutes avoid confusion.

Think of this as a scaled-down version of a closing a nonprofit checklist. You’re not dissolving the organization, but you are making a decision that changes how it operates. It deserves the same level of care and documentation.

Step 3: Assess Donor Restrictions and Funding Obligations

This is where many organizations run into trouble during nonprofit funding problems. If money was given specifically for this program, review every grant and restricted donation tied to it. Ask:

• Is there a written grant agreement?
• Does it require notice before changing or ending the program?
• Does it require returning unused funds?
• Are there reporting deadlines still pending?

For large grants with formal agreements, you may need to talk with the funder before making changes. Some agreements require you to return remaining funds if the program ends early. In other cases, funders may be open to modifying the restriction and allowing the funds to be used for a different program that aligns with your mission. Having that conversation early can create more flexibility than you might expect.

For smaller restricted donations, the situation is often simpler. If the specific program is no longer running, the restriction tied to that activity could lift. In many cases, that money can be used for other charitable programs within your organization. Still, letting donors know is a smart move. A short, honest message preserves trust.

What you want to avoid is quietly shifting restricted funds to an unrelated expense. That’s when questions may arise in your Form 990, or when a funder may ask for money back or take legal action if their restrictions were not followed. Even when it doesn’t escalate that far, it can damage trust and make future funding less likely.

Step 4: Identify Contractual and Legal Obligations

Most programs come with commitments attached. Before announcing a closure, review:

• Vendor contracts (technology platforms, service providers, leases)
• Grant agreements
• MOUs with community partners
• Employment agreements
• Independent contractor arrangements

Look for termination clauses and notice requirements. Some contracts require 30 or 60 days’ notice or include early termination fees.

For example, if you hired a part-time coordinator funded by a grant, ending the program may trigger final pay requirements under state law. If you signed a one-year lease for program space, ending the program doesn’t automatically end the lease.

A careful contract review now can prevent unexpected bills later. If financial strain is more serious, a lawyer can also help you negotiate with creditors and navigate options, including bankruptcy if necessary.

Step 5: Plan Communications Carefully and Transparently

How you communicate the change matters just as much as the decision itself. Start internally. Staff and volunteers should hear the news from leadership, not from a partner or social media. Then consider:

• Funders and grantmakers
• Community partners
• Participants or beneficiaries
• The broader community, if the program was highly visible

Be direct. Avoid vague phrases like “strategic shift.” Instead, say what happened: “Due to changes in nonprofit program funding and the loss of our primary grant, we are pausing this program effective June 30.”

Consistency is key. If staff are told one thing and donors hear another, trust erodes quickly. Clear, steady communication reduces confusion and protects relationships you may need again in the future.

Step 6: Document the Decision and Update Records

The board should formally vote to pause or end the program before the decision is communicated to staff, partners, or the public. Once the decision is final, close the loop:

• Finalize and approve the board minutes.
• Update your budget.
• Revise program descriptions on your website.
• Adjust fundraising materials so you’re not promoting a program that no longer exists.
• Complete any final grant reports.

Good documentation protects the organization and the people who made the decision. If questions come up next year, you’ll have a clear record showing that the board acted thoughtfully and followed the law.

How Legal Guidance Helps You End a Program Responsibly

When funding shifts suddenly, there’s pressure to move fast. That’s understandable. But moving quickly without reviewing agreements or governance steps can create setbacks.

A nonprofit attorney like Charitable Allies helps by:

• Reviewing grant terms and donor restrictions.
• Confirming the board follows proper approval steps.
• Flagging contract notice requirements.
• Helping draft clear board resolutions.
• Advising on how to communicate changes without creating new problems.
• Assisting with more complex situations like closure or bankruptcy, including negotiating with creditors, closing the organization legally, and ensuring any remaining assets or funds are handled in compliantly.

The goal isn’t to slow you down. It’s to help you avoid having to call a funder back or reopen a board vote later.

Making a Hard Decision for the Right Reasons

Ending a program can feel heavy. Staff may be disappointed. Community members may have questions. But keeping it alive without sustainable nonprofit program funding can drain resources from services that are working well.

Sometimes, the most responsible choice is to pause, regroup, and protect the core of what your organization does best. Before acting under pressure, walk through this checklist, double-check your agreements, and write down why you’re making the change.

When done carefully, ending a program isn’t a failure. It’s a sign that your board is paying attention, facing hard numbers honestly, and making decisions that keep the organization stable for the long run.

If your organization is considering pausing or ending a program and wants a steady legal review before moving forward, Charitable Allies is here to help. Let’s talk.

The post A Legal Checklist for Pausing or Ending a Nonprofit Program appeared first on Charitable Allies.

• Restricted funds must be used for their intended purpose, and using them for general expenses — even temporarily — can violate legal and donor requirements.
• Not all reserved funds are equal: Donor-restricted funds and endowments are typically inflexible, while board-designated funds offer more financial flexibility.
• Misusing restricted funds can lead to serious consequences, including donor demands for repayment, legal scrutiny, and damage to organizational credibility.
• When facing budget shortfalls, nonprofits should prioritize compliant alternatives like using unrestricted funds, adjusting expenses, seeking donor permission, or getting legal advice.

A few numbers on a spreadsheet can change the mood of an entire leadership meeting. When revenue dips and expenses don’t, the pressure gets real fast. Payroll is coming up, vendors are waiting, programs still need to run — and somewhere in the balance sheet sits a line item that looks promising: restricted funds.

It’s a common question in hard seasons: Can we use restricted funds to cover a budget shortfall? The short answer is usually no, but it depends on the restriction, the law, and how you handle it.

Below is an overview of what’s allowed, what’s risky, and what responsible alternatives look like when cash flow tightens.

Because the rules around restricted funds can vary based on specific facts and state law, it’s important to seek legal guidance before taking action. Charitable Allies can help you evaluate your options.

What Are Restricted Funds?

Restricted funds are donations given for a specific purpose. That could mean:

• A gift restricted to a scholarship program.
• A grant restricted to building repairs.
• A donation restricted to a new outreach initiative.
• A fund restricted to youth services in a specific county.
• A gift that comes with limits on how it can be used — for example, not for overhead or not for a specific program.

The restriction can come from an individual donor, a foundation, or a grantmaker, and it doesn’t have to be formal to count. A restriction might appear in a grant agreement, an email, or even a text message from a major donor. If the donor clearly communicates how the funds should be used, that direction can be binding.

Nonprofits can also unintentionally create restrictions themselves through how they describe a campaign. For example, saying “100% of your donation will go toward our new building” can create a restriction, even if that wasn’t the intent. Using more flexible language, like saying a donation “can” or “could” support a project, helps preserve discretion.

That’s why compliance matters when you’re handling restricted donations. When a nonprofit agrees to accept a restricted gift, it agrees to use the funds as directed.

What’s the Difference Between Donor-Restricted Funds, Board-Designated Funds, and Endowments?

Not all funds that look “set aside” on your balance sheet are the same. Board-designated funds may offer flexibility. Donor-restricted funds and endowments usually do not.

Here’s a breakdown:

Donor-restricted funds: These are legally restricted. The donor decides the purpose, and the board can’t override it. If a gift is restricted to a literacy program, for example, you can’t use it for general operating expenses without proper modification.

Board-designated funds: These are unrestricted donations that the board chooses to set aside for a specific use, like an emergency cushion or a future project. Because the restriction is internal, the board can usually redesignate the funds later. If cash is tight, these are often the first places to look.

Endowments: Endowments are typically donor-restricted funds meant to be invested long term. In many cases, only the investment earnings can be spent (and even then, only for the stated purpose), while the principal must remain intact. State law, including UPMIFA in most states, governs how these funds are managed and spent. Because of those structural limits, endowments usually can’t be tapped freely when cash is tight.

Can a Nonprofit Borrow From Restricted Funds?

Now to the core issue: nonprofit borrowing from restricted funds. Leaders sometimes say, “What if we just move the money temporarily and pay it back in a few months?”

Intent to replace the funds doesn’t make it OK. If the donor restricted the gift to a specific purpose, using it for something else, even temporarily, can qualify as nonprofit misuse of restricted funds. The fact that you plan to restore it later doesn’t undo the violation.

This is especially true with endowments. Borrowing against an endowment, even with every intention of repayment, is usually not allowed unless the gift document and state law clearly permit it. Many do not. Using those funds anyway can create compliance issues, require repayment, and raise concerns with donors or auditors.

Sometimes, a restriction naturally becomes unworkable. For example, if a gift was restricted to “Program B,” and Program B has permanently closed, the restriction may no longer make sense. But that doesn’t mean you can simply reallocate the funds internally. There are limited paths to modify restrictions, including:

• Donor consent: The most practical option is to speak directly with the donor. If circumstances have changed, many donors are open to adjusting the purpose of a gift, especially if the new use still supports the mission. The key is written consent. A hallway conversation isn’t enough.
• Court or attorney general approval: If a donor is deceased or unreachable, state law might allow modification through a formal legal process. This is not something the board can do on its own.

Even when the intent is survival, using restricted funds outside their stated use carries real consequences. A donor may ask for the money back. A grantmaker reviewing your next application may question how you handle restricted gifts. What felt like a temporary solution can turn into months of follow-up conversations and damage control.

What Are the Legal and Governance Risks?

When leaders ask what happens if a nonprofit uses restricted funds for something else, they’re usually focused on getting through an immediate crunch. The risk can feel theoretical compared to the need to make payroll on Friday. But the consequences are not abstract:

• A donor can demand the return of the funds.
• The state attorney general can investigate misuse of charitable assets, which can lead to them closing the organization permanently.
• Your Form 990 may show that restricted funds were spent outside their purpose, which can prompt follow-up questions from grantmakers reviewing your filings.
• A future grant application can stall if funders see governance concerns in past disclosures.
• Because board members have fiduciary duties, approving a use of funds that violates donor restrictions can leave the board answering hard questions from donors, regulators, or auditors later.

Protecting donors’ wishes today can prevent long-term complications that are far harder to address later.

What Mistakes Do Nonprofits Commonly Make During Budget Shortfalls?

Most issues don’t start with bad intent. They start with urgency. Here are situations where nonprofits get into trouble:

• Covering payroll with a restricted grant: A foundation grant is restricted to a new program launching in six months. Revenue drops. The organization uses part of that grant to cover current staff salaries, planning to replace the funds later.
• Paying vendors with capital campaign funds: Building project donations are sitting in the bank, and operating revenue is tight. The organization uses a portion of the capital funds to pay general operating expenses.
• Invading endowment principal: Investment income is lower than expected. Leadership dips into principal to close a gap, assuming they’ll rebuild it next year. While UPMIFA may allow spending from principal in some cases, using it to cover general shortfalls — rather than the fund’s intended purpose — can still raise compliance and governance concerns.

In each case, the logic is understandable. The mission still needs to move forward. But good intentions do not override donor restrictions or the law.

What Can a Nonprofit Do Legally to Cover a Budget Shortfall?

Financial strain calls for creativity, but it also calls for discipline. Here are safer paths to consider:

• Reviewing unrestricted reserves or board-designated funds.
• Adjusting program timelines to delay or spread out costs until funding is available.
• Renegotiating vendor contracts or payment schedules.
• Launching a targeted emergency fundraising campaign for general operating support.
• Communicating with donors about flexibility. If needs have shifted, ask whether they would consider lifting or modifying restrictions.
• Avoiding unnecessary self-imposed restrictions. Some nonprofits label gifts for specific uses even when donors haven’t asked them to, which can limit flexibility later.
• Seeking legal guidance before reallocating any restricted funds.

A clear nonprofit restricted funds policy should outline these practices, as well as how restrictions are tracked, reviewed, and, when necessary, legally modified. Strong systems for restricted donations legal compliance help prevent confusion when financial pressure hits.

How Can Legal Guidance Help?

Questions about restricted funds usually surface at the worst possible time — when the board is already under pressure and the numbers aren’t lining up. A nonprofit attorney can help you:

• Interpret the specific language in a gift agreement.
• Determine whether a restriction is binding or advisory.
• Communicate properly with donors about adjustments.
• Evaluate legal options before any funds are moved.

At Charitable Allies, we work with nonprofit leaders who are trying to make careful decisions in difficult moments. Our goal is to help you find a path that keeps you compliant and protects donor trust at the same time.

If you’re facing a shortfall and unsure about your options, pause before moving money between accounts. A proactive conversation can protect your relationships, your standing under the law, and the work you’re trying so hard to sustain. If you need help, we’re here for you.

The post Is Nonprofit Borrowing From Restricted Funds Ever Allowed? appeared first on Charitable Allies.

• Keeping your 501(c)(3) status active requires annual compliance, especially filing the correct IRS Form 990 on time. Repeated late filing can still lead to revocation.
• Federal tax-exempt status does not automatically apply at the state level. States may require annual reports, separate tax exemption steps, and additional filings.
• Charitable Solicitation Registration (CSR) is often required to legally fundraise, and fundraising includes online asks, social posts, emails, texts, and donation campaigns.
• If your status is revoked, reinstatement is common and fixable. Most cases are caused by leadership turnover or real-life disruptions, not bad intent.
• Reinstatement typically falls into two paths: retroactive reinstatement (no gap but requires back-filing missing 990s) or postmark reinstatement (simpler, but shows a gap in exempt status).

Many nonprofit leaders assume that once the IRS approves 501(c)(3) status, the legal part is basically done. It isn’t.

One of the most common and costly misunderstandings is thinking that federal tax-exempt status means you’re exempt from everything, everywhere. In reality, IRS recognition is only one layer of compliance. States have their own rules, reporting systems, and fundraising registration requirements. And if annual filings are missed or consistently late, the IRS can revoke your status automatically.

In this episode of 501c Suite, Olivia Cloer of Charitable Allies is joined by Grace Gerding from the compliance team to break down what nonprofit leaders need to do to stay in good standing, and what options exist if the IRS has already revoked your tax-exempt status.

The Misconception That Gets Nonprofits in Trouble

Misconception: “If we filed with the IRS, we don’t have to pay taxes of any kind.”

Grace explains that IRS recognition only applies at the federal level. States are independent, and many require separate applications to receive state tax exemptions, plus additional annual filings to remain active.

It’s also important to understand that a 501(c)(3) determination letter does not make a nonprofit exempt from all taxes. For example, if your organization has employees, you are still responsible for employer-side payroll taxes, including Social Security and Medicare. Federal tax-exempt status does not eliminate those obligations.

The state layer can include:

• State tax exemption processes (sales tax, property tax, or other state-specific exemptions)
• Annual reports to keep the nonprofit in good standing
• Charitable solicitation registration (CSR) to legally fundraise

In other words: federal approval is not the finish line. It’s the starting structure.

The IRS Requirement That Protects Your Status

To keep 501(c)(3) status active federally, the core requirement is simple:

File your Form 990 every year, on time, and in the correct version.

Grace breaks down the main Form 990 types nonprofit leaders should know:

Form 990-N (e-Postcard)

Typically, for organizations with $50,000 or less in annual revenue. It’s very short, more like a basic statement of continued operation.

Form 990-EZ

Often used when annual revenue is over $50,000 but under $200,000, and total assets are under $500,000. This starts to include more financial detail, which is why many leaders bring in accounting support.

Form 990 (Full)

Generally required if annual revenue is $200,000 or more, or total assets are $500,000 or more.

Form 990-PF

Required for private foundations, regardless of size.

Form 990-T

Required if the nonprofit has more than $1,000 in unrelated business income (UBIT). It’s less common, but important to know it exists.

Your deadline matters more than many leaders realize

For many nonprofits operating on a calendar fiscal year, the most common deadline is May 15 (five months and fifteen days after the fiscal year ends). If your fiscal year is different, your due date shifts accordingly.

Grace also shares a practical tip nonprofit leaders often overlook: your fiscal year end should be stated in your bylaws, and it should align with how your organization keeps its books.

The Big Three of Nonprofit Compliance

• File your federal 990 correctly and on time

Repeated late filings can eventually lead to revocation.

• File your state annual report

Most states require a simple annual report confirming that your organization is still active. Requirements vary widely.

• Register before fundraising (CSR)

Charitable Solicitation Registration (CSR) is often separate from incorporation and IRS approval. It is the legal authorization to solicit donations in many states.

And fundraising is broader than many leaders realize. If you are:

• Posting donation links on social media
• Emailing or texting supporters for gifts
• Running online campaigns
• Asking individuals for contributions

You are fundraising.

Online fundraising introduces complexity because donors can give from anywhere. A reasonable starting point for newer organizations is to register in your home state and expand registration as fundraising activity grows.

Can You Be Revoked for Filing One Day Late?

Yes.

Olivia asks whether filing a 990 one day late, three years in a row, could still result in revocation.

Grace confirms: true.

Consistently late filing can trigger automatic revocation, even if you technically filed every year.

The lesson? Know your fiscal year. Know your deadline. Build reminders and processes so compliance doesn’t rely on memory.

If You’ve Been Revoked

Revocation happens more often than most leaders realize. It affects tens of thousands of organizations each year.

Grace identifies two common patterns:

Leadership turnover

Board transitions and role changes can cause required filings to fall through the cracks.

Personal circumstances

Illness, caregiving, or major life disruptions can pause operations and shift priorities away from paperwork.

The important takeaway: revocation is common, and there is a path back to good standing.

Two Paths to Reinstatement

If your status has been revoked, you typically have two reinstatement options.

Postmark Reinstatement

Often used when:

• The organization has been dormant for years
• Financial records are incomplete
• Back-filing missing 990s is not realistic

With postmark reinstatement, there will be a visible gap in exempt status between the revocation date and the reinstatement filing.

That gap may matter if:

• You received significant donations during that period
• Grantmakers require continuous compliance

For organizations that were largely inactive during the revoked period, this option can be practical and efficient.

Retroactive Reinstatement

Retroactive reinstatement restores exempt status back to the original date, eliminating any gap.

However, it typically requires:

• Filing all missing 990s
• Producing historical financial information

This option is often preferred when the organization remains active, receives donations, or needs continuous status for grant eligibility.

Many organizations attempt retroactive reinstatement first and shift to postmark only if documentation makes retroactive reinstatement impossible.

Which IRS Form Is Used for Reinstatement?

To reinstate, you generally file the same application used for initial recognition:

Form 1023-EZ

Available if you qualify: under $50,000 in revenue and under $250,000 in assets, and not in certain excluded categories like schools, hospitals, churches, or political organizations.

Full Form 1023

Required if you do not qualify for the EZ or fall into an excluded category.

The filing fees are:

• 1023-EZ: $275
• Full 1023: $600

No one loves paying the IRS hundreds of dollars just to file a form, which is one reason understanding your eligibility and timelines matters.

The 15-Month Rule

If you are pursuing retroactive reinstatement and would otherwise qualify for the 1023-EZ, you generally must file within 15 months of the IRS revocation date.

If you miss that window, you may be required to submit the full 1023 for retroactive reinstatement, even if your organization is small.

Postmark reinstatement does not have the same 15-month limitation for EZ eligibility, provided you otherwise qualify.

This is one reason timely action matters once revocation occurs.

Final Encouragement

Compliance is not glamorous. It is also not optional.

Filing your 990 correctly, maintaining state good standing, and registering properly for fundraising protects your ability to accept donations, pursue grants, and operate with credibility.

And if your status has already been revoked, you are not out of options.

Reinstatement is common. The IRS has a process because it happens frequently. With the right approach, most organizations can regain good standing and continue their work.

Learn More and Stay Connected

If you’re looking for reliable answers to your nonprofit’s most important legal questions, visit charitableallies.org for free resources, guides, and case studies designed to support nonprofit sustainability.

Subscribe to 501c Suite so you never miss an episode, and share it with a fellow nonprofit leader or board member who could use a trusted legal ally.

The post How to Keep Your 501(c)(3) Status Active and What to Do If You’ve Been Revoked appeared first on Charitable Allies.

• Nonprofit board members have three core legal duties: duty of care, loyalty, and obedience. They apply regardless of whether they’re written into internal policies.
• Duty of care requires more than attendance: board members must be engaged, informed, and willing to review key materials, especially financial information and major decisions.
• Duty of loyalty means putting the nonprofit first and managing conflicts of interest through recusal, fair market value, and clear documentation in meeting minutes.
• Duty of obedience requires following the law and governing documents, including bylaws, articles, voting procedures, and filing/reporting requirements like the IRS Form 990.
• Most nonprofit governance problems are preventable when boards prioritize clarity before crisis and bring in legal or accounting support for high-stakes decisions or compliance gaps.

Nonprofit boards aren’t just symbolic. When someone agrees to serve, they take on real legal duties, and those duties affect everything from governance and compliance to financial oversight and conflict-of-interest decisions.

In this episode of 501c Suite, Olivia Cloer sits down with attorney Spencer Rehn to answer a question nonprofit leaders hear all the time (and sometimes avoid asking): What is my board legally required to do today?

The 3 Core Legal Duties of Nonprofit Board Members

Spencer explains board responsibilities through three universal duties that apply to board members, whether or not they’re written into your internal documents: duty of care, duty of loyalty, and duty of obedience. These duties generally come from state law and form the baseline expectations for board service.

Duty of Care: Be Engaged and Make Informed Decisions

Duty of care is about showing up, but also participating thoughtfully.

In practice, this means:

• Attending meetings consistently
• Reviewing materials ahead of time (minutes, proposals, policies, etc.)
• Asking questions when something isn’t clear
• Understanding enough of the organization’s financial picture to spot concerns

Spencer emphasizes that board members shouldn’t show up blind. Being present isn’t the same as being informed. And while not everyone will be the treasurer, every board member has a responsibility to understand key decisions.

What happens if a board member isn’t paying attention?

If something goes wrong, one question tends to matter: Should you reasonably have known? If a board member ignored warning signs or didn’t engage at all, it can make a difficult situation worse for the organization they’re trying to serve.

Spencer also clarifies liability in a grounded way: most issues are tied to organizational governance and decision-making, not personal liability, unless someone knowingly harmed the organization or acted illegally.

Duty of Loyalty: Put the Nonprofit’s Interests First

Duty of loyalty is about decision-making in the best interest of the organization and avoiding conflicts of interest.

Spencer’s simple test is helpful: When you’re wearing the nonprofit hat, your decisions should benefit the nonprofit, not you, your family, or another business.

A common scenario: “Can my company bid on work for the nonprofit?”

Olivia offers a clear example: a board member owns a web design company, and the nonprofit needs a new website. Can the board member’s company submit a bid?

Spencer explains that it can be possible, but it needs careful handling:

• The board member who owns the web design company should recuse themself from the discussion and voting.
• The nonprofit should evaluate options (like multiple bids) and document the decision.
• The transaction should reflect fair market value.
• Minutes should clearly reflect the conflict and the process used to manage it.

The point isn’t to treat every potential conflict like a scandal. It’s to handle conflicts transparently, document the process, and make decisions that stand up to scrutiny later, because governance is part of mission protection.

Duty of Obedience: Follow the Law and Your Governing Documents

Duty of obedience is the most straightforward: follow the law and follow your rules.

That includes:

• Federal and state legal requirements
• Your articles of incorporation
• Your bylaws
• Any adopted board policies and procedures (if applicable)

Olivia highlights a frequent issue: many board members have never actually read the bylaws. Or the bylaws are so specific that they become hard to follow in real life. Either way, not knowing your governing documents can create avoidable governance problems.

Obedience also includes reporting and filings

Spencer points to the IRS Form 990 as the most common federal requirement, and notes that state filing requirements vary widely. Some states require annual filings, some biannual, and some involve multiple agencies (like the Secretary of State, Attorney General, or Department of Revenue). The message is simple: staying compliant is a board responsibility, and it’s easier to maintain compliance than to recover it after things slip.

What Board Duties Look Like Day to Day

Nonprofit boards don’t all look the same. A working board for a $20,000/year nonprofit will operate differently from a board for a $20 million/year organization. That’s normal.

But across sizes, Spencer points to a few consistent themes:

Financial oversight matters, even if you’re not the treasurer.

There’s no universal rule for how often every board member must review financials, but Spencer offers a practical guideline: Quarterly can be a reasonable cadence for many organizations, adjusted based on size, risk, and complexity.

What matters most is that board members can engage with basic questions like:

• Is this transaction permissible?
• Is it consistent with our charitable purpose?
• Is it legal and properly documented?

When decisions aren’t obvious, that’s a signal to slow down and get support.

When to Bring in Outside Help

A major theme of this episode is clarity before crisis.

Spencer suggests that outside help (legal or accounting) often makes sense when:

• Something feels strange or unclear.
• The board hasn’t met regularly and is trying to shore things up.
• The nonprofit is considering a major transaction or partnership.
• A conflict-of-interest situation needs proper handling.
• The organization is preparing filings (like the 990) and wants a second set of eyes.
• The nonprofit has slipped out of compliance and needs a path back.

Olivia adds an important leadership point: it’s empowering to say, ‘I don’t know this yet, but I know how to get the answer.’

Board Best Practices That Prevent Problems

Spencer closes with best practices that strengthen governance and reduce preventable risk:

1. Know and follow your bylaws

When someone joins a board, they should ask for:

• Bylaws
• Articles of incorporation

Board policies (if any)

2. Be an active participant

This means preparation, informed voting, and understanding how decisions affect the organization’s charitable purpose.

3. Keep the mission central

Strong governance helps prevent mission creep, where well-intended expansions slowly pull the organization away from its original purpose. Adapting a mission can be legitimate, but drifting without intention can weaken impact and complicate compliance.

Learn More and Stay Connected

If you’re looking for reliable answers to your nonprofit’s most important legal questions, visit charitableallies.org for free resources, guides, and case studies designed to support nonprofit sustainability.

Subscribe to 501c Suite so you never miss an episode, and share it with a fellow nonprofit leader or board member who could use a trusted legal ally.

The post What Your Nonprofit Board Is Legally Required to Do: Duty of Care, Loyalty, and Obedience appeared first on Charitable Allies.

• Strong nonprofit bylaws function as governance infrastructure, protecting your mission by clarifying how your board meets, votes, and makes decisions.
• Overly complicated or overly specific bylaws can backfire by creating rules that nonprofits struggle to follow, which can fuel conflict and even trigger complaints or public disputes.
• Best-practice bylaws focus on board governance (terms, meetings, voting, quorum, removal, fiscal year) rather than day-to-day programming or detailed operational plans.
• Term limits help prevent stagnation and concentrated power; emeritus or honorary roles can preserve institutional knowledge without retaining voting authority.
• Fiscal year details directly affect Form 990 deadlines, and repeated late filing can lead to automatic IRS revocation, making clarity and consistency essential.

Nonprofit bylaws are meant to create clarity. They define how a board meets, votes, and makes decisions, and they provide a legal framework that helps an organization operate smoothly over time.

But when bylaws are overly complicated, overly specific, or simply ignored, they can become a source of risk instead of protection.

In this episode of 501c Suite, Olivia Cloer of Charitable Allies sits down with Robert Miller, Managing Attorney at Charitable Allies, to break down what nonprofit bylaws are actually supposed to do, where organizations commonly go wrong, and how to structure bylaws so they support healthy governance and long-term sustainability.

At its core, the conversation reinforces a central idea behind 501c Suite: nonprofit law is infrastructure, not red tape. When it’s built well, it protects your mission, your leaders, and your ability to grow.

When Bylaws Stop Helping and Start Hurting

Robert explains that many nonprofits struggle not because they lack bylaws, but because their bylaws are more complicated than necessary or do not accurately reflect how the organization actually operates.

Common problems include:

• Failing to hold meetings required by the bylaws
• Having the wrong people present at meetings
• Taking board action without proper notice
• Voting in ways that don’t match what the bylaws require

These issues often don’t arise in isolation. They tend to surface when there is already tension inside or outside the organization. A disgruntled former director, a stakeholder unhappy with leadership decisions, or someone opposed to the organization’s direction may use bylaw violations as leverage.

Even if the underlying disagreement is personal or political, bylaw missteps give critics something tangible to point to. In some cases, that can escalate into complaints to the state Attorney General or public-facing disputes that distract leadership and damage trust.

Bylaws aren’t just formalities. They are a tool for mission protection, and when they don’t work in practice, they can expose nonprofits to unnecessary risk.

What Bylaws Should Cover

A helpful way to think about bylaws is this: they are not a description of your nonprofit’s work. They are the operating rules for your board.

Robert emphasizes that strong bylaws focus on governance:

• How the board is structured
• How meetings are called and noticed
• What constitutes a quorum
• How voting works
• How directors are elected, replaced, or removed
• How bylaws can be amended

What bylaws should generally avoid is detailed information about day-to-day programming or charitable activities. When operational detail ends up in the bylaws, it often creates problems. Programs evolve, strategies change, and suddenly the bylaws are outdated or inconsistent with how the organization actually functions.

Keeping bylaws focused on board administration helps them remain useful, flexible, and durable over time.

Legal Minimums vs. Best Practice

Legally, many states require boards to meet at least once per year for an annual meeting. However, Robert explains that from a governance standpoint, this is often not enough.

Charitable Allies generally recommends that boards meet at least quarterly so directors can fulfill their duties of care and oversight. How often a board should meet depends on its role and the organization’s stage of development.

• Working boards, common in early-stage or small nonprofits, often meet more frequently because directors are also involved in day-to-day operations.
• Strategic boards, more typical in larger or later-stage organizations, focus on long-term planning, budgeting, and oversight rather than daily management.

The key is aligning meeting frequency with the board’s responsibilities while staying consistent with what the bylaws require.

Why Flexible Bylaws Matter

A recurring theme in the episode is that bylaws are legally binding. Robert explains this plainly: bylaws are the rules your organization writes for itself. If they say you must do something a certain way, you have obligated yourself to do exactly that.

This is why overly specific bylaws can create problems.

For example, if bylaws require meetings on a specific day each month and directors can’t meet that requirement, the organization may technically be out of compliance with its own rules—even if it is otherwise functioning well.

Robert’s guidance is to draft bylaws that are clear but flexible:

• Set minimum meeting requirements without locking into exact dates.
• Allow for additional meetings when needed.
• Avoid rigid rules that are easy to miss and hard to follow.

You can always do things that your bylaws are silent on. But if the bylaws require something, you must follow it.

Board Terms and Term Limits: Preventing Stagnation and Power Imbalances

While many states default to one-year terms for directors, Charitable Allies often recommends three-year terms, sometimes longer for very early-stage organizations. Longer terms can provide continuity and institutional knowledge while an organization is finding its footing.

At the same time, term limits matter.

Without them, boards can stagnate. New ideas stop coming in. In extreme cases, long-serving directors may begin to feel a sense of ownership or control that isn’t legally accurate or appropriate.

Charitable Allies commonly recommends two to three consecutive terms, meaning a director might serve six to nine years before stepping away for a period of time. As organizations grow and professionalize, term limits become increasingly important for healthy governance.

Olivia notes the human side of this issue: dedication is a gift. But over time, “we’ve always done it this way” can become a liability.

One solution Robert suggests is creating emeritus or honorary roles. These allow longtime leaders to remain involved as advisors without retaining voting authority, preserving institutional memory while making room for new leadership.

Voting, Quorum, and Avoiding Decision Paralysis

Bylaws should also clearly define how decisions are made.

Robert explains that best practice typically includes:

• Quorum is defined as a majority of directors.
• Most decisions are approved by a majority of those present.
• Higher thresholds, such as two-thirds, are reserved for major actions like amending bylaws or removing directors.

Unanimous voting requirements may sound appealing, but they can easily paralyze a board. One unhappy director can block decisions entirely, preventing the organization from moving forward.

Good bylaws support decision-making rather than creating unnecessary roadblocks.

Removal, Resignation, and Managing Conflict Before It Escalates

How should directors leave a board?

Sometimes it’s straightforward: a term ends, or a director resigns due to life changes. Other times, removal becomes necessary.

Robert explains that state laws often provide default rules for removing directors, but bylaws can define their own procedures as long as they remain reasonable. Charitable Allies typically recommend longer notice periods and giving the director an opportunity to respond.

Olivia emphasizes an important leadership principle: removal should not be the first response to disagreement. Healthy boards benefit from discussion, compromise, and dissent.

Robert suggests addressing conflict early through:

• sharing information before meetings
• having private conversations about sensitive issues
• creating processes for resolving disagreements

This approach reflects a broader philosophy of clarity before crisis, handling governance challenges early, respectfully, and with structure.

Fiscal Year: A Small Detail With Big Consequences

One of the most consequential topics in the episode is fiscal year selection.

Robert explains that your fiscal year determines when your IRS Form 990 is due. The form must be filed by the 15th day of the fifth month after the fiscal year ends. If a nonprofit fails to file for three consecutive years, its tax-exempt status is automatically revoked.

Many problems arise when organizations choose an unusual fiscal year and don’t fully understand the resulting filing deadlines. Because fiscal year information often lives in the bylaws, clarity here is critical.

This is a reminder that bylaws aren’t abstract documents. They directly affect compliance obligations with serious consequences.

If there’s one principle to take from this episode, it’s this: bylaws should help your board operate effectively for years, not create rigid rules that are easy to violate. Simple, flexible, governance-focused bylaws support healthy leadership, reduce legal risk, and allow nonprofits to grow with confidence.

Learn More and Stay Connected

If you’re looking for reliable answers to your nonprofit’s most important legal questions, visit charitableallies.org for free resources, guides, and case studies designed to support nonprofit sustainability.

Subscribe to 501c Suite so you never miss an episode, and share it with a fellow nonprofit leader or board member who could use a trusted legal ally.

The post How Strong Nonprofit Bylaws Protect Your Board and Your Mission appeared first on Charitable Allies.

Key Takeaways:

• 501c Suite was created to offer nonprofit leaders clear, practical legal guidance for governance, compliance, and risk management, without legal jargon or fear-based framing.
• Produced by Charitable Allies, the podcast positions nonprofit law as mission protection, helping leaders safeguard their organizations while growing sustainably.
• Episodes focus on prevention and clarity, addressing the legal responsibilities nonprofit founders, executive directors, and board members are expected to understand but rarely trained on.
• Real-world nonprofit stories complement legal explainers, allowing leaders to learn from both successes and mistakes across the sector.
• By prioritizing clarity before crisis, 501c Suite helps nonprofit leaders reduce legal risk, strengthen governance, and lead with confidence.

Running a nonprofit often means learning on the job: balancing mission, fundraising, governance, and compliance without formal legal training. Many nonprofit leaders know they’re responsible for understanding nonprofit law, but few are ever taught how it actually works in practice.

What You’ll Learn on 501c Suite

Episode Formats Built for Real-World Leadership

A Legal Ally for Nonprofits

Learn More and Stay Connected

The post 501c Suite: Straightforward Legal Guidance for Nonprofit Leaders Who Want to Lead With Confidence appeared first on Charitable Allies.

• Nonprofit inurement and private benefit are serious IRS concerns that arise when a nonprofit’s resources serve personal or private interests instead of the public good.
• Private inurement involves insiders receiving excessive or improper benefits, while private benefit can involve anyone and is only allowed if truly incidental to the mission.
• Many issues stem from unmanaged conflicts of interest, which is why clear disclosure, recusal, documentation, and reasonableness reviews are essential governance practices.
• Proactive policies, regular training, and strong documentation help nonprofits protect their credibility, maintain compliance, and keep their focus on advancing their mission.

Nonprofit leaders juggle a ton: running programs, raising funds, supporting staff, keeping the board informed, and still trying to get a full night’s sleep. With everything on your plate, terms like “conflict of interest,” “inurement,” and “private benefit” can sound like paperwork problems or legal jargon that doesn’t really apply to your work. 

But these aren’t just buzzwords. They’re red flags the IRS watches closely because they speak to something foundational: whether a nonprofit is truly operating for the public good, or whether someone’s personal interest is taking priority. And when lines get crossed, even unintentionally, your tax-exempt status can be at risk.

The good news? The rules are more practical than they sound. And when your board understands how these issues connect and how to spot them early, it’s easier to protect both your mission and your peace of mind.

What Is Nonprofit Inurement?

Nonprofit inurement (also called private inurement) happens when someone inside the organization — a board member, executive, founder, or key staff member — uses the nonprofit’s money or resources for their own gain. That could mean being paid far more than what’s reasonable for their role, getting personal perks the board never approved, or using the nonprofit’s assets for something unrelated to its mission.

This doesn’t mean insiders can’t be paid or receive benefits. Nonprofits can and should compensate employees and executives for their work, as long as the compensation is reasonable, properly documented, and approved through an appropriate process. The issue arises when a financial benefit is excessive, unapproved, or not tied to legitimate services provided to the organization. Even a small, one-time improper benefit can put your 501(c)(3) standing under a microscope, regardless of how effective or charitable your programs are.

This could look like:

• Paying an executive director way above market rate without proper documentation or board approval.
• Giving an officer an interest-free loan using nonprofit funds.
• Letting a founder use the organization’s space, staff, or equipment for unrelated personal projects.

This isn’t just about following IRS rules. When inurement shows up, it can erode trust with donors, unsettle funders, and create tension inside the organization. It can shift attention away from the work and toward explanations no nonprofit wants to have to give. Clear boundaries help keep the focus where it belongs: serving the community, not defending decisions after the fact.

What Is Private Benefit?

Private benefit is a bit broader. It refers to situations where a nonprofit’s resources or activities end up helping a specific person or business in a meaningful way (not just as a small or unavoidable side effect), even if that person isn’t connected to the organization.

The IRS applies this standard under what’s called the operational test: To keep your exemption, your nonprofit must primarily serve a public interest, not a private one. A little incidental private benefit might be allowed — for example, when a nonprofit provides food, water, and shelter to individuals experiencing homelessness. But if the private benefit becomes substantial, or looks like favoritism, that’s a problem.

Examples include:

• Structuring a scholarship program so narrowly that only one specific family is eligible.
• Starting a nonprofit solely to raise money for a single person’s medical needs, without building a structure to help a broader charitable class.
• Operating a community program that primarily promotes or advances one specific for-profit business.

When 501(c)(3) private benefit shows up, even unintentionally, it can raise questions about whether your nonprofit is truly serving the public or advancing private interests instead. That can affect donor confidence, community perception, and ultimately your tax-exempt status. Being clear about who your programs serve (and why) helps protect your mission and your credibility.

Private Benefit vs. Private Inurement: A Quick Breakdown

Here’s a simple way to think about 501(c)(3) inurement vs. private benefit:

Inurement is always a form of private benefit, but not all private benefit is inurement. The distinction matters, especially when structuring programs, approving contracts, or reviewing compensation.

How Conflicts of Interest Can Lead to Inurement or Private Benefit

Most inurement and private benefit problems don’t start with bad intent. They start with a conflict of interest — a board member wearing two hats, a leader trying to help someone they care about, or a decision made without enough distance or documentation.

That’s why a thoughtfully structured and consistently enforced nonprofit conflict of interest policy matters. As part of a broader nonprofit ethics policy, it creates a shared understanding of what to do when uncertainties come up. At a minimum, it should cover:

• Disclosure: Anyone with a potential conflict must share it openly.
• Recusal: They step away from discussions and decisions on that topic.
• Documentation: The board notes the conflict and how it was handled.
• Reasonableness Review: When compensation or financial benefits are involved, the board confirms the arrangement is reasonable by reviewing reliable market data or similar organizations’ benchmarks.

Clear guidelines give your board a shared playbook, so no one is left guessing. It helps prevent misunderstandings before they start, keeps trust strong within the team, and shows your community that your decisions put the mission first.

Real-World Inurement, Private Benefit, and Nonprofit Conflict of Interest Examples

Let’s take this out of theory and into everyday boardroom decisions. These are the kinds of situations where inurement, private benefit, and conflicts of interest often overlap, and where nonprofits might unintentionally cross the line:

• Compensation decisions without safeguards: Paying your executive director a salary that’s way above market — or allowing related board members to participate in setting or approving that compensation — can set off IRS alarms under nonprofit self-dealing rules and 501(c)(3) inurement principles.
• Board approving contracts with insiders: If the board signs a contract with a company owned by one of its directors without disclosure or competitive bidding, that’s a classic conflict that can lead to problematic private benefit.
• Misusing nonprofit resources: Say a board member borrows the nonprofit’s van to attend a conference for their personal business. That’s not just a casual favor (even if it’s “only for the weekend” and they fill up the gas tank). It diverts charitable assets for private use, which the IRS sees as private benefit.

The bottom line? If a decision benefits (or even has the potential to benefit) a person or business more than it advances your mission, it needs to be carefully vetted and documented. Otherwise, it could raise questions from the IRS about whether your nonprofit is still operating the way it should.

Strengthening Ethical Governance

Good intentions alone won’t protect you. But clear, proactive governance can. Here’s what that looks like in practice:

• Adopting and enforcing written policies, with annual board acknowledgment to keep responsibilities top of mind.
• Conducting regular reviews and trainings, so your board and staff understand how the rules work in real scenarios.
• Reviewing compensation data from comparable organizations and obtaining multiple bids for major vendor contracts to support fair, defensible decisions.

If you’re ever asked, “How was that compensation set?” or “Why did you choose that vendor?”, these are the systems that help you answer confidently. Clear documentation, consistent policies, and strong nonprofit governance best practices give your team the structure to act with integrity and show your work when it counts, so you can avoid common ethical issues in nonprofit organizations.

How Charitable Allies Helps Safeguard Ethical Leadership

You don’t need to navigate ethical issues and compliance questions alone. Charitable Allies works with nonprofits like yours to build clarity and peace of mind. We can help with:

• Drafting and updating governance practices and policies.
• Reviewing and refining your conflict of interest guidelines to meet IRS conflict of interest policy requirements.
• Conducting audits that uncover risks before they become problems.

Whether you’re reviewing a contract, approving compensation, or navigating a tricky decision, having the right guidance and documentation helps your board lead with confidence, make sound decisions, and stay focused on the mission.

If any part of this feels familiar, or if your board has questions about how these issues apply to your organization, we’d be glad to talk through it with you. 

The post Nonprofit Inurement, Private Benefit, and Conflict of Interest: What Boards Need to Know appeared first on Charitable Allies.

• Nonprofits must stay on top of core compliance requirements — including IRS Form 990 filings, state annual reports, and charitable registrations — to protect their tax-exempt status and credibility.
• Missed filings or outdated internal documents can lead to penalties, loss of good standing, revoked tax-exempt status, and damage to donor trust.
• Compliance for nonprofit organizations becomes manageable with simple, shared systems like calendars, checklists, and clear ownership (instead of relying on one person’s memory).
• Automating, delegating, or outsourcing complex tasks allows nonprofit leaders to reduce risk, avoid burnout, and stay focused on advancing their mission.

No one starts a nonprofit because they love compliance. But missed filings and overlooked nonprofit compliance requirements can quickly create real risk, from financial penalties to losing your tax-exempt status or donor trust.

The good news? Compliance doesn’t have to feel chaotic. Here’s what you really need to know, how to make it manageable, and when it makes sense to ask for help.

The Core IRS and State Requirements You Can’t Ignore 

Whether you’re a scrappy all-volunteer group or a growing organization with full-time staff, the list of annual compliance tasks doesn’t change. Every nonprofit has to keep up with the basics: 

IRS Form 990 filing requirements

Your Form 990 (or 990-EZ or 990-N) is your annual financial disclosure, and one of the most important nonprofit IRS filing requirements. It’s how you show the IRS — and the public — that your work supports a charitable purpose. The version you file depends on your organization’s size:

• Form 990-N (e-Postcard): For very small nonprofits with normally $50,000 or less in annual gross receipts. This is a simple online filing confirming basic organizational information.
• Form 990-EZ: For organizations with gross receipts under $200,000 and total assets under $500,000. This requires summary financial data, program descriptions, and basic governance information.
• Form 990 (long form): Required if gross receipts are $200,000 or more, or total assets are $500,000 or more. This version includes detailed financial reporting, compensation disclosures, and governance questions.

Skipping your filing has serious consequences. If you fail to file for three consecutive years, the IRS will automatically revoke your tax-exempt status. Filing the correct version each year protects your 501(c)(3) status and reinforces your credibility with funders.

State annual reports

Most states require nonprofits incorporated in that state to file an annual report to remain in good standing. This filing typically goes to your state’s Secretary of State (or similar agency). It’s usually a straightforward form confirming that your organization is still active. You may need to:

• Update your mailing address.
• Confirm or update officers and directors.
• Verify your registered agent (a physical in-state contact for legal notices).
• Pay a filing fee.

It’s not a financial disclosure like Form 990. Think of it as the state’s way of asking, “Are you still operating, and are your records up to date?” If you don’t file, your nonprofit can lose its good standing with the state, making it harder to update records, change leadership, or conduct official business.

Charitable registration

If you want to solicit donations in a state, you may need to register as a charitable organization there. The key word is soliciting. It’s not about where your organization is headquartered, or even where you’re sending the request from. It’s about where the donor is located when you ask for the contribution. For example, if you send email appeals from California to supporters who live in Nevada, you need to register in both California and Nevada.

Solicitation can include:

• Online donation pages.
• Email campaigns.
• Social media fundraising.
• Direct mail.
• Grant applications.
• Event registration fees.

Raising a small amount in a state doesn’t automatically trigger penalties, but assuming you’re exempt can create compliance gaps. Late filings may result in fines, and failure to register can damage credibility with donors and the public.

Internal policy updates and board governance 

Then, there are bylaws, conflict-of-interest policies, and whistleblower policies. These aren’t “set it and forget it” documents. Over time, organizations evolve, and outdated policies might not reflect how decisions actually get made. You may need to review and update your governance documents if:

• You’ve gone through a merger, fiscal sponsorship change, or major restructuring.
• Your board roles or leadership structure have shifted.
• You’ve added new programs or revenue streams.
• You find yourselves regularly bending or missing parts of your bylaws.
• New board members seem confused about authority or decision-making processes.

Regular board reviews help prevent misunderstandings, confusion around authority, and awkward moments when a crisis exposes gaps no one realized were there.

Building Systems That Make Compliance Sustainable 

If your current system is “We try to remember,” you’re not alone. Many organizations rely on institutional memory — until someone leaves, roles shift, or life gets busy. Compliance becomes far more manageable when it lives outside any one person’s head and inside simple, shared systems. 

Start with a compliance calendar, where you can set deadline reminders and assign clear ownership. Pair that with a shared folder that holds past filings, templates, and policies, so no one is digging through old inboxes when a question comes up. 

A practical way to organize that system is through a clear, recurring checklist.

Nonprofit Compliance Checklist

Annual tasks:

• Complete Form 990. 

• Submit state corporate filings.
• Renew charitable registration.

Quarterly or periodic tasks:

• Review financial reports. 
• Revisit and document any program changes that affect your filings. 

Ongoing tasks:

• Keep board minutes organized and accessible. 
• Confirm donor acknowledgment letters were sent.

• Track donations and grants with required documentation. 
• Log in-kind gifts, volunteer hours (if applicable), and restricted funds accurately. 

Every few years (or after major organizational changes):

• Review board policies.
• Conduct a comprehensive bylaws review.
• Update governance documents to reflect current board structure or leadership changes.
• Add or revise safety, risk management, or operational policies as needed.

What You Can Automate, Delegate, or Outsource 

You don’t need to be a compliance superhero. In fact, trying to do it all yourself is a fast track to burnout and missing important tasks. Here’s a better way to think about it: 

Automate: 

• Use calendar tools or software to send filing reminders. 

• Set up acknowledgment letters or donation receipts to go out automatically. 
• Use cloud storage to keep policies, minutes, and reports organized. 

Delegate:

• Assign a board member to review governance documents.

• Divide up registration renewals if you fundraise in multiple states. 
• Have one staff member own the compliance calendar and update it quarterly. 

Outsource:

Some parts of compliance for nonprofit organizations really do benefit from legal support, especially if you’re expanding, restructuring, or unsure how to document a particular activity.  Tasks like drafting bylaws, reviewing policies, or handling multistate registrations can be handled by nonprofit compliance services like Charitable Allies, so your staff can focus on the mission. 

Outsourcing doesn’t mean you’re not capable. It means you’re being smart with your time and energy. 

Avoiding the Bottlenecks That Slow Everything Down 

Compliance issues rarely come from one big mistake. More often, they build quietly through small, very human breakdowns:

The “one-person system” 

If just one person holds all the compliance knowledge (and they leave, get sick, or go on vacation), everything stalls. Create shared systems and document key responsibilities to keep momentum going. 

The “I’ll get to it later” spiral 

It’s easy to let nonurgent filings slide until they pile up and feel overwhelming. Setting earlier internal deadlines can help take the pressure off. 

The “handoff hiccup” 

When new board members or staff step in, they may not know what’s due or when. Baking compliance into onboarding prevents dropped balls and awkward surprises.

How Smart Compliance Supports Your Mission 

Compliance isn’t just paperwork. When done well, it’s part of your organization’s stability. It helps your team: 

• Stay eligible for grants and donations. 

• Avoid surprise penalties or rushed catch-up filings. 

• Show funders and donors that your organization is trustworthy and well-run. 
• Transition leadership smoothly. 

A strong nonprofit compliance checklist helps protect your status and gives your people the confidence to focus on the work (instead of worrying about what might go wrong behind the scenes).

Where Charitable Allies Fits In 

Charitable Allies works with nonprofits of all sizes to make compliance less overwhelming and more manageable. Whether you need help with nonprofit annual filings or internal policy updates, our team can step in with the kind of support that fits unique needs. 

Our nonprofit compliance services include: 

• Filing assistance for IRS and state forms.

• Board training on governance roles and responsibilities. 

• Policy reviews to keep your internal docs up to date. 
• Ongoing legal advisory, so you have a steady guide when questions pop up. 

You don’t have to figure this out on your own. Let us help you create a compliance system that keeps you focused on what matters: your mission, your people, and your impact. 

The post What’s on Your Nonprofit Compliance Checklist? Here’s How to Keep It Manageable for IRS and State Requirements. appeared first on Charitable Allies.

• Nonprofit board members carry serious legal and ethical responsibilities, guided by three core fiduciary duties: care, loyalty, and obedience.
• The duty of care requires board members to stay informed, engaged, and thoughtful in decision-making to prevent avoidable financial or operational harm.
• The duty of loyalty ensures directors put the nonprofit’s interests first by managing conflicts transparently and protecting donor and public trust.
• The fiduciary duty of obedience keeps the organization aligned with its mission, governing documents, and legal obligations.
• Strong governance practices that align with these duties protect both the nonprofit and its board members.

Saying yes to a nonprofit board role comes from a good place: You care about the mission, want to give back, and believe in the work. But what many board members don’t realize at first is just how much responsibility comes with that yes. Board members are entrusted with an organization’s mission, its resources, and the people or communities it exists to serve.

Think of fiduciary duties of board members as steady guideposts. They support sound board governance for nonprofits, helping members make thoughtful decisions when things feel uncertain, spot potential issues before they turn into crises, and stay focused on purpose. When these duties are misunderstood or overlooked, the impact can ripple outward, affecting staff, donors, and the community relying on the work. 

Here are the three main nonprofit fiduciary duties every board member should know:

1. Duty of Care

What it means: 

At its heart, the duty of care nonprofit leaders owe is being present, informed, and ready to make sound decisions. Board members are expected to stay engaged and thoughtful, especially when decisions feel complex or high stakes. It’s less about having all the answers and more about showing up prepared and curious. That might look like reading materials ahead of meetings, asking clarifying questions, or slowing a decision down when something doesn’t quite add up.

What it can look like in practice:

• A board reviews financial reports before approving a new program instead of simply moving things along.
• A director asks why expenses have increased rather than assuming it’s already been discussed.
• The board pauses a major decision because the information on the table isn’t clear yet. 

What can happen when it’s missed:

• A nonprofit launches a program it can’t afford and has to shut it down mid-year.
• Early financial warning signs go unnoticed, leading to layoffs or emergency fundraising.
• Board members may be questioned for decisions made without reasonable oversight.

The duty of care isn’t about perfection. It’s about staying engaged and making wise decisions with the available information. Boards that practice care consistently are far less likely to be caught off guard by problems that could have been prevented. 

2. Duty of Loyalty

What it means: 

The duty of loyalty asks board members to put the nonprofit first, even when personal, professional, or financial interests are involved. Healthy disagreement is part of good governance. Conflicts of interest, however, need to be handled with transparency and care. This duty reflects broader nonprofit fiduciary responsibilities and helps ensure decisions are made in service of the organization, not individual gain.

What it can look like in practice:

If a board member owns a marketing firm and that firm is being considered as a potential vendor, the duty of loyalty means the board member should:

• Disclose the conflict.
• Step out of discussions and votes related to the decision.
• Avoid influencing the outcome behind the scenes.
• Make sure pricing and terms are fair and truly serve the nonprofit’s best interests.

What can happen when it’s missed:

• Donors lose trust if board decisions appear self‑serving.
• Grants can be revoked due to governance failures.
• The nonprofit may face audits, penalties, or reputational damage that can take years to repair.

Clear conflict-of-interest policies and consistent recusal practices protect the nonprofit and the people serving on its board.

3. Duty of Obedience

What it means: 

The fiduciary duty of obedience helps keep the organization grounded in its purpose. It requires the board to ensure the nonprofit operates in alignment with its mission, follows its governing documents, and complies with the law — even as the organization grows or explores new opportunities. This duty is a core part of the legal responsibilities of nonprofit board members, helping boards approach expansion with clarity, alignment, and careful judgment.

What it can look like in practice:

• Turning down funding that would push the nonprofit outside its stated mission.
• Following bylaw requirements for board votes, even when timelines feel tight.
• Staying compliant with fundraising, reporting, and tax obligations, such as maintaining active charitable solicitation registrations in every state where the organization raises funds.

What can happen when it’s missed:

• A nonprofit risks losing its tax-exempt status.
• Programs slowly expand without thoughtful planning or alignment, creating strain on resources and pulling focus from the core mission.
• Leadership faces legal or regulatory consequences.

As nonprofits grow or evolve, the duty of obedience is what helps safeguard the mission.

How Fiduciary Duties Protect Directors 

Strong nonprofit board fiduciary duties not only protect the organization, but also the people who serve on the board.

When directors act in good faith, ask thoughtful questions, document decisions, and follow established policies, they significantly reduce their personal risk. This is a core part of effective board member fiduciary responsibilities.

In practice, that protection often looks like:

• Board minutes that capture not just what was decided, but why.
• Policies that offer guidance when situations feel unclear.
• Directors being able to demonstrate responsible decision-making if questions come up.

When fiduciary duties are ignored, that protection weakens, leaving board members more exposed — legally, financially, and reputationally.

Nonprofit Governance Best Practices for Boards

Good governance doesn’t happen by accident. It’s something boards build over time. And you don’t need to reinvent the wheel. Strong boards tend to focus on a few key practices, including:

• Orientation and training so members understand their roles from the start.
• Regular policy reviews (every 2–4 years) to ensure governance documents reflect how the organization actually operates.
• Clear accountability systems, so responsibilities don’t fall through the cracks.
• Periodic legal check‑ins to address issues before they become urgent.
• Robust discussion, including respectful disagreement, so ideas are fully vetted, risks are surfaced, and the board avoids groupthink.

These approaches form the foundation of reliable nonprofit board best practices.

Why Fiduciary Duties Matter

This isn’t about checking boxes or avoiding paperwork. Governance decisions directly shape outcomes. When boards fulfill their nonprofit board responsibilities:

• More services reach the people who rely on them.
• Donor dollars go further.
• Staff can spend more time doing the work they’re there to do, not putting out fires.

When boards don’t, the cost shows up quickly: fewer people served, programs cut, animals not rescued, communities left without support. Clear fiduciary expectations help ensure decisions move the mission forward.

How Charitable Allies Helps Nonprofit Boards

Serving on a nonprofit board can feel heavy at times, especially when the stakes are high and the path forward isn’t always clear.

At Charitable Allies, we help boards navigate those challenges with clarity and confidence. Our work supports nonprofit board members’ duties, combining legal advice with a deep understanding of how nonprofits operate day to day. We support organizations through:

• Board training and fiduciary duty refreshers.
• Governance audits that surface real-world risks and opportunities.
• Policy drafting aligned with your mission and the law.
• Practical legal guidance tailored to your organization.

When boards feel supported, they’re better equipped to lead with intention and focus on what matters most: the mission.

If your board needs clarity, structure, or a legal gut check, Charitable Allies is here to help. Let’s talk.

The post Nonprofit Board Fiduciary Duties: What Every Director Should Know appeared first on Charitable Allies.

• Many common nonprofit revenue activities can unintentionally trigger unrelated business income tax (UBIT), especially as organizations diversify funding sources. 

• UBIT applies when income comes from activities that are regularly carried on and not substantially related to a nonprofit’s mission. 

• Understanding common UBIT triggers, tax rates, deductions, and filing requirements can help nonprofits avoid surprises during the 2026 filing season. 

• With early review and clear documentation, nonprofits can pursue new revenue ideas while staying compliant and protecting their mission. 

Funding gaps, staffing churn, program demand, board expectations — nonprofits live with enough curveballs already. Taxes shouldn’t be another one. But as funding gets more complex and unpredictable, many organizations are bringing in money in new ways to stay steady and keep programs running, whether that’s by renting space, selling merch, running a fee-based program, or taking ads. That’s smart, but it can also mean bumping into unrelated business income tax (known as UBIT) without realizing it. 

And with the 2026 filing season coming up, this is one of those areas that’s worth a clear look now, so you don’t have to scramble later. Let’s walk through what UBIT is, what usually triggers it, and how to stay on solid ground without shutting down good revenue ideas. 

Why Does UBIT Matter for Nonprofits? 

So, what is unrelated business income tax? It’s the tax nonprofits pay on income that comes from activities outside their charitable purpose. 

A helpful way to think about this is the difference between mission income and extra income. Program service revenue comes from the work you exist to do, the services, programs, or activities that directly carry out your purpose. Unrelated business income comes from a money-making activity that supports the mission, but isn’t actually part of delivering it. 

Both can be good and necessary. The difference is tax treatment: Mission-tied revenue is generally treated as part of your charitable work, while revenue from a side activity that doesn’t advance your purpose may be taxable. 

If you’re feeling uneasy reading that, you’re not alone. Most nonprofit leaders were never trained to spot tax issues while also running programs, leading staff, and serving the community. This is one of those “we didn’t know what we didn’t know” areas — and that’s exactly why it’s worth a quick check before 2026 filings are due. 

What Counts as Unrelated Business Income?

The IRS uses a three-part definition to determine UBIT for nonprofits. An activity usually creates unrelated business income for nonprofits when it is: 

1. A trade or business. Something you do to make money, like selling goods or services. 
2. Regularly carried on. It happens with some frequency, not just once in a while. Specifically, it happens with the frequency with which an organization designed to do that activity carries on the program. 
3. Not substantially related to your exempt purpose. The activity doesn’t directly advance why you’re tax exempt in the first place.  

That third one is where a lot of people get stuck, so here’s a simple way to think about it: If the activity exists mainly to generate money, even if you use the money for good things later, it may be unrelated. If the activity is part of how you carry out your mission, it’s usually related (even if it brings in revenue). 

A few everyday examples of unrelated business income include: 

• Selling ads in your newsletter or on your website. 

• Renting out your building for weddings or corporate events that aren’t tied to your programs. 

• Running a gift shop or online store that sells items unrelated to your services. 

• Offering paid webinars to the general public that don’t connect to your mission. 

• Operating a café or parking lot mainly for non-program visitors. 

None of those are inherently bad. They’re just the kind of things that can create unrelated business taxable income if they meet the IRS test to be unrelated business income. 

What Are the UBIT Triggers Nonprofits
Miss Most Often? 

Here’s where we see leaders stumble, not because they’re careless, but because the rules are unintuitive: 

1. Sponsorship vs. advertising

A sponsor giving you money in exchange for a logo placement or a “thanks to our supporters” mention is usually fine. But if you’re promoting their product, listing prices, or pushing people to buy, that looks like advertising, and advertising revenue is usually taxable. 

2. Selling to the general public 

If you’re selling something mainly to support your programs, great. If you’re selling it like a business would — widely, repeatedly, and not tied to mission delivery — that’s where UBIT can show up. 

3. Pass-through income

If your nonprofit owns part of a partnership or LLC that runs a business, that income can flow through to you and be treated as unrelated, especially if the business is not taxed as a C Corp. 

4. Debt-financed property

Buying a building with a loan and then renting it out can trigger special UBIT rules. The IRS may treat some of that rental income as taxable because of the debt involved. 

These are some of the most common UBIT triggers nonprofits run into, but they aren’t the only ones. UBIT can get nuanced quickly based on how an activity is structured and documented, so if questions come up, reaching out to Charitable Allies for clarity can help avoid surprises later.

How Does the UBIT Tax Rate Work, and What Can You Deduct? 

Let’s talk about the part everyone wants clarity on: What do you owe if this income is taxable? Under current law, the UBIT tax rate is a flat 21%. 

The good news? The IRS taxes net income, not gross. That means you can deduct expenses that are ordinary, necessary, and directly connected to the unrelated activity, like: 

• Staff time spent running the activity. 

• Supplies and materials. 

• A fair share of rent, utilities, and other overhead. 

• Depreciation on equipment used in the activity. 

The key is accuracy. If you’re using your building for both mission programs and rentals, you need a reasonable way to allocate costs between them. Messy allocation can make your tax bill higher than it should be or raise questions you don’t want. 

When Do You Have to File Form 990-T? 

Form 990-T is how you report any UBIT tax nonprofit income you earned during the year. According to the IRS Form 990-T instructions, you need to file if your nonprofit has $1,000 or more of gross unrelated income in the year.  

Timing wise, the 990-T Form is due on the 15th day of the 5th month after your tax year ends. So, for most calendar-year organizations, your 2025 unrelated income return will be due May 15, 2026. If you expect to owe $500 or more in tax, you may need to pay estimated taxes quarterly. 

How Can You Reduce UBIT Risk Without Losing
Good Revenue Ideas?

You don’t have to stop trying new revenue ideas. You just want to make sure they’re set up safely. Here are a few practical ways to lower your risk: 

• Label activities clearly in your records. If something is mission-related, document why. Write it down in a way a stranger could understand later. 

• Check how often you’re doing it. A once-a-year fundraiser with a small sales component is different from a year-round retail operation. 

• Review new revenue ideas early. It’s much easier to adjust early than to unwind something after it’s been running for two years. 

• Consider isolating a business activity. Some nonprofits set up a taxable subsidiary for larger unrelated ventures. That doesn’t eliminate tax, but it can protect the nonprofit’s core operations and keep reporting clear. 

None of this is meant to scare you. It’s meant to keep you in control.  

How Can Charitable Allies Help? 

UBIT questions usually don’t show up as neat little tax puzzles. They show up as real-life moments: 

• “We started doing this to help cover costs — does it count as unrelated?” 

• “A partner offered us this opportunity. What’s the right way to structure it?” 

• “We don’t want to mess up our filing or put the mission at risk. What do we do next?” 

If that’s where you are, you don’t have to guess your way through nonprofit tax compliance. 

Charitable Allies helps nonprofits sort through UBIT in a way that feels clear and manageable, looking at your revenue streams, figuring out what’s mission-related versus taxable, and helping you document and report things correctly. Our nonprofit lawyers can also help you think through smart options if an activity is growing and needs a cleaner structure. 

The goal isn’t to make you a tax pro. The goal is peace of mind — knowing your nonprofit can keep funding the work you care about and stay compliant, without that nagging “what if we’re getting this wrong?” feeling hanging over your team. 

If you want a second set of eyes on a revenue stream before you file for 2026, reach out. We’ll help you find the right path forward so you can keep serving your community with confidence. 

The post Unrelated Business Taxable Income: What Nonprofits Need to Know for 2026 Filing appeared first on Charitable Allies.