5/7/2015 FREE Nonprofit Legal Assessment, Leasing Tax Exempt Property, and CA Minimum Wage Increases

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FREE Nonprofit Legal Assessment,Leasing Tax Exempt Property, andCA Minimum Wage IncreasesPLUS: Upcoming Seminars on Privacy LawCompliance for Permanent SupportiveHousing Providers and Nonprofit Formation

Community Development ProjectMay 2015 eNewsletter

Take Your Nonprofit'sComplianceTemperature with aFREE Legal Check­Up

Public Counsel is again offering toqualifying nonprofits one of itsmost popular services ­ a FREElegal check­up. A legal check­upcan help your organization confirmit is in compliance with applicablelaws and identify areas wheredocuments may need updating to

reflect changes in the law or the organization's practices.

The check­up program will give your organization theopportunity to:

obtain a free legal assessment from volunteerattorneys on issues related to corporate and taxexemption compliance, employment law andintellectual property;identify the issues that may affect the legal health ofyour organization; andhave your questions answered related to yourorganization's major contracts and leases.

If legal issues are identified during the assessment, PublicCounsel will attempt to find free legal assistance to help youresolve those matters. (While we cannot provide free legalassistance to litigate a dispute, we may be able to help youunderstand your legal rights and options.)

Participating organizations will be requested to (i) providePublic Counsel with a short list of documents such as articlesof incorporation, bylaws, and contracts to be reviewed; and

In This Issue...

FREE Nonprofit Legal Assessment

Looking for 501(c)(3) ComplianceGuidance?

Leasing Tax Exempt Property

CA Minimum Wage Increases WillImpact Pay of Exempt Employees

Privacy Law Compliance for PermanentSupportive Housing Providers

Too Good to be True?

Client Spotlight

Seminar: Launching and Sustaining aNew Nonprofit (5/20)

eNewsletter Archive

Legal Services for Nonprofits

Client Spotlight:MaintainingCompliance withEmployment Laws fora Nonprofit ServingOur Military Heroes

5/7/2015 FREE Nonprofit Legal Assessment, Leasing Tax Exempt Property, and CA Minimum Wage Increases

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(ii) make the executive director and/or other key managementemployee available to be interviewed at a mutually agreeabletime in the future, and to answer any follow­up questions. Thenext cohort of nonprofit organizations to receive thisassistance is forming now. To be eligible to participate in thecheck­up program, your agency must be a 501(c)(3)organization whose mission and work benefits low incomeindividuals or communities in Los Angeles County.

Questions? Interested in scheduling an assessment? Feelfree to call our intake line at (213) 385­2977 ext. 200, oremail cdp@publiccounsel.org.

Looking for 501(c)(3)Compliance Guidance?

The IRS has just released a newonline publication that addressesgovernance, record­keeping,disclosure and reportingrequirements, notification

responsibilities, and activities that could jeopardize a publiccharity's tax­exempt status. Please click here to check outthis valuable resource.

Nonprofit Issue of theMonth: Leasing TaxExempt Real Estate

Our California­based nonprofitorganization has some extra officespace in its corporateheadquarters. We're thinking ofleasing the space either to anothernonprofit or a local small business.How will leasing some of ourbuilding to another entity affect theleased space's state property taxexemption?

Nonprofit organizations exempt from taxation under section23701(d) of California's Revenue and Taxation Code orsection 501(c)(3) of the Internal Revenue Code may qualifyfor an exemption from state property taxes under California's"welfare exemption," as codified in California's Revenue andTaxation Code section 214. To qualify for this exemption, theproperty in question must be used primarily for "religious,hospital, scientific, or charitable purposes" ­­ all terms definedby the courts and further interpreted by the Board ofEqualization ­­ and be both owned and operated by a taxexempt nonprofit organization that meets the othertechnical requirements of section 214.

Did you know that PublicCounsel's CommunityDevelopment Project(CDP)can help yourorganization access freelegal services for manytypes of legal matters? Forexample, we can help yourorganization choose anappropriate corporatestructure, developoperational policies, protecta trademark, acquireproperty, negotiate a leaseor other contract, andcomply with the tax lawsapplicable to nonprofitorganizations. In each newsletter, weshare a Client Spotlighthighlighting how pro bonolegal services can helpnonprofits. This month'sClient Spotlight ison LightHouse SocialService Centers anonprofit serving homelessveterans and their families.To read about how probono attorneys helpedLightHouse SocialServices maintaincompliance withemployment laws,please click here.

"Launching andSustaining a NewNonprofit" ­ May20, 2015 Join us on Wednesday,May 20, 2015 from 5:30PM to 8:00 PM for anaffordable seminar for newnonprofits, co­sponsoredby Public Counsel and the

5/7/2015 FREE Nonprofit Legal Assessment, Leasing Tax Exempt Property, and CA Minimum Wage Increases

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The owner and operator of the property need not be thesame legal entity, which means that a qualifying nonprofitproperty owner can lease a portion of its property to anotherqualifying nonprofit organization while maintaining itsproperty tax exemption for that property. Both entities mustfile a claim for exemption with the county assessor. However,the purpose for which the property is used by the lessee iscritical to maintaining the exemption; there cannot be anyprofit­making or commercial motive behind the arrangement.For example, leasing a parking lot used for charitablepurposes by one qualifying nonprofit to another qualifyingnonprofit that uses it for a regularly scheduled swap meetmay disqualify the lot for the exemption. Whether a profitmotive exists depends on the facts and circumstances ofeach case, but some of the factors considered include theextent of the profits and frequency of the profit­makingactivity, as well as the extent to which the activity takingplace on the subject property competes with for­profit entities.

Leasing its property to a for­profit small business for morethan an occasional or incidental use will cause the qualifyingnonprofit to lose its property tax exemption for the propertyleased, but this arrangement may still be economicallybeneficial. Rental income received by tax exempt charities isoften exempted from federal income taxes under the "passiveincome" exception. Internal Revenue Code ("IRC") §512(b)(3). If the rental income exception to federal income taxesapplies, and the tax­free rental income exceeds the propertytax liability, then it may make sense to lease property to a for­profit organization.

Unfortunately, there are "exceptions" to the passive incomeexception. It does not apply to rental income derived fromleasing a debt­financed property. IRC §512(b)(4). A "debt­financed" property is any property for which there isacquisition indebtedness (i.e. a mortgage) still owed duringthe subject tax year. IRC 514(b)(1). Also, rental income paidby a for­profit subsidiary corporation to its tax­exempt,controlling organization is still subject to federal incometaxes. IRC§512(b)(13). A "controlling organization" forpurposes of this rule means an organization that owns (byeither vote or value) more than 50% of the stock in acorporation. IRC §512(b)(13)(D)(i)(I). Taxes will also be owedwhere the amount of rent charged depends on a percentage ofthe lessee's sales or profits (IRC Reg. §1.512(b)­1(c)(2)(iii)) orwhere the lease involves performances of services beyondthose normally provided by a landlord. IRC Reg. §1.512(b)­1(c)(5).

These state and federal tax rules are very complex, and acomplete analysis of the tax exemption impact of rentingproperty to another party would require a nonprofit to considerissues beyond property tax, such as whether the activity ispermitted under its organizing documents, is inconsistent withits charitable purpose, or is of a scope that eclipses thecharitable activities of the agency. Before entering into alease agreement involving property tax exempt property, weadvise you to seek legal counsel to determine the potentialtax consequences of the proposed arrangement, and thelease structure that best suits your organization's specificcircumstances. Public Counsel may be able to assist. Feel

Center for NonprofitManagement. Startups and newnonprofits face a number ofplanning, financial, andlegal challenges from theoutset. This introductorycourse will cover both legaland programmaticfundamentals, includingbest practices fordesigning successfulprograms, recruiting aneffective board, developinga sustainable fundraisingplan, forming a Californianonprofit corporation andapplying for tax exemption,and complying withongoing tax and legalrequirements. Seminar attendees areeligible to participate in aFREE "Ask A Lawyer"Nonprofit FormationClinic (date TBA at theseminar), where they willbe able to meet one­on­onewith an attorney to discussspecific questions relatingto forming a nonprofit andobtaining tax exemption. Advance registration isrequired. For moreinformation and to registerfor the seminar, pleasevisit our website.

CDP eNewsletter Archive Have you recently joined ourmailing list and feel like you'vebeen missing out on greatinformation? If so, we havegood news! Previous issues ofthe CDP eNewsletter areavailable on our website.

Legal Services forNonprofits The Community DevelopmentProject builds strongfoundations for healthy, vibrant

5/7/2015 FREE Nonprofit Legal Assessment, Leasing Tax Exempt Property, and CA Minimum Wage Increases

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free to call our intake line at (213) 385­2977 ext. 200, oremail cdp@publiccounsel.org.

California's MinimumWage Increases WillImpact Pay of ExemptEmployees

Almost all nonprofit employersin California are subject to thestate's minimum wage order,MW­2014. Under that order, the

minimum wage for non­exempt employees will increase from$9 per hour to $10 per hour on January 1, 2016. While theimpact of this increase is obvious when applied to anonprofit's hourly workers, it is also significant because of itseffect on the minimum salary for exempt status employees.

To be classified as "exempt," an employee in California mustsatisfy an applicable "duties" test (executive, administrative,or professional), and also meet a minimum salary test. Statelaw requires that exempt employees must earn a monthlysalary which is twice the state minimum wage for a full­ timeemployee (40 hours per week). Currently, the minimum salaryfor a full­time, exempt employee is $37,440 per year. By2016, full­time, exempt employees must make at least$41,600 per year to meet this minimum salary test.

Nonprofit employers should review the pay of all of theirexempt status employees in order to ensure compliance withminimum wage increases going into effect on January 1,2016. Planning for possible adjustments in pay for full­time,exempt employees will help employers avoid the cost ofpenalties and interest on back pay and potential litigationcosts.

SafeguardingResident MedicalInformation: PrivacyLaw Compliance forPermanentSupportive HousingProviders

As supportive housing providers, you may have access tomedical, mental health, and substance abuse informationabout your residents. What are your obligations to protect theprivacy of this information? Who does my PSH program owe duty of privacy orconfidentiality to?What kinds of information can we share with serviceproviders and what kinds of information can they share with

and economically stablecommunities by providingcomprehensive legal andcapacity building services toorganizations serving peoplewith lower­incomes in the LosAngeles area. CDP providesassistance on a wide range ofmatters to communityorganizations, including: Contract & Lease Negotiation Does your nonprofit need toterminate or renegotiatecontractual or leaseobligations? Do you knowwhether your nonprofit is legallypermitted to sublet unusedspace?

Employment Advice Is your nonprofit exploringreduction of employee benefits,salaries or hours? Do you knowthe criteria to use whendownsizing staff? Are youattempting to reclassifyemployees as independentcontractors? Are you aware ofthe legal implications of ;all ofthese actions? Corporate Governance Is your board aware of itsduties during a period offinancial difficulty? Do yourboard members know how toconduct financial andprogrammatic oversight? Hasyour organization adopted aconflict of interest policy? Areyour directors aware of thesituations where they couldincur personal liability for theacts of the corporation, and doyou have appropriate controlsand procedures in place toprotect them? Debt Reorganization & CashFlow Does your nonprofit need torenegotiate debt repaymentterms? Do you know whatagreement terms you shouldpay special attention to ifapplying for or increasing a line

5/7/2015 FREE Nonprofit Legal Assessment, Leasing Tax Exempt Property, and CA Minimum Wage Increases

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our housing program?When is it OK to disclose private or confidential medicalinformation?Why should we review privacy and confidentiality with allPSH staff?How can we ensure, where necessary, that informationremains private and confidential? We will also cover business associate agreements (requiredagreements for entities covered by Health InsurancePortability and Accountability Act [HIPAA] and their businessassociates to appropriately safeguard protected healthinformation) and provide a template for your use! This training is perfect for case managers, residentmanagers, and anyone who comes in contact withresidents or medical information about residents.

Note space is limited so advanced registration isrequired. Please contact Nisha Vyas to RSVP: (213) 385­2977 ext. 178 or nvyas@publiccounsel.org. Looking forward to seeing you and your colleagues at thisimportant training!

Too Good to be True?

The South Bay Workforce Investment Board would like to match your nonprofit organization's workforce need with one of its candidates for employment. It has funding to underwrite the cost of up to 8 months of full time, 40 hour per week salary and workers compensation per

candidate placed. Candidates range from persons seekingentry level positions with very little experience to individualswith Bachelors and Masters Degrees and abundant workexperience. A few examples of the types of positions recentlyfilled include:

ClericalOffice AssistantData EntryCourt ClerkRetailCashierMaintenance AideLandscapeCustomer ServiceFood PrepGraphic ArtsHuman ResourcesTelemarketingFood Bank AssistantsHomeless Shelter Assistants

To learn more, contact Mario Rodriguez, South Bay

of credit? Have any of your keyvendors filed for bankruptcy? Fundraising & SocialEnterprise Is your nonprofit consideringalternative fundraising methods(e.g., loans from directors,starting a for­profit business,joint­ventures, etc.)? Do youknow how to structure theseactivities to protect your tax­exempt status? Are you awareof the legal ramifications ofusing restricted or endowmentfunds to pay ongoingexpenses? Mergers & Strategic Alliances Is your nonprofit considering amerger or consolidation to saveor expand programs? Do youknow the difference between aformal merger and other typesof strategic alliances? Organizational Documents Did you know that the Articlesof Incorporation and Bylawsdetermine the legal scope ofyour organization's activities?Has the economy forced yournonprofit to consider changingits activities or operations? Doyou know the procedure foramending your nonprofit'sorganizational documents andnotifying the proper governmentagencies? Lobbying & Advocacy Is your nonprofit advocating forcertain government budgetallocations or ballot measureson behalf of its constituents orkey programs? If so, do youknow how much lobbying yournonprofit can engage in andwhat registration and reportingrules apply? If your organization needs legalassistance, please call (213)385­2977, ext. 200 or emailcdp@publiccounsel.org.

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Workforce Investment Board One­Stop Business & CareerCenter, at 323­836­9061 or email: mrodriguez@sbwib.org.

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