Indeed, Venable partner Jeffrey Tenenbaum deems governance structure and money matters the two most "sensitive areas" for separate but related nonprofits. For instance, how much overlap on the board can you have? Can the key officers be the same? "The reality is, there are no bright-line rules," says Tenenbaum, who chairs the firm's nonprofit organizations practice group. His firm recommends having at least some separate board members and some separate key officers, as well as holding separate board meetings and keeping separate board minutes.
The in-house attorneys at the American Cancer Society Inc. think of compliance this way: "You need to look separate, you need to act separate," says general counsel Timothy Phillips, who tracks any hours he spends on matters for ACS's affiliated 501(c)(4), the American Cancer Society Cancer Action Network. While creating an affiliated organization can be an advantageous business decision, the GC has to "advocate for strong and substantial control mechanisms," he says.
Implementing those mechanisms can be a day-to-day challenge, particularly when you're talking tax code. So ongoing staff education is crucial, says ACS deputy general counsel Katherine Karl, Phillips's in-house advocacy expert and a former tax attorney with Caplin & Drysdale. "This is all tax law, and that's not something that your average grassroots volunteer coordinator knows about," she says. "Translating and explaining the tax law in English in a way that makes sense is a training issue, and something we work on a lot."
Nonprofits should also be paying attention to their Web presence. In a 2009 IRS memorandum, the agency took issue with a 501(c)(3) organization's website that housed the website of its affiliated 501(c)(4). Venable partner George Constantine III analyzed the memorandum in the February 2011 issue of Association Law and Policy . "Given the fact that the 501(c)(4) pages looked 'virtually indistinguishable' from the 501(c)(3) pages," he wrote, "the IRS concluded that it would treat the statements and communications on those pages as the communications and statements of the 501(c)(3) organization, with potentially significant adverse tax consequences."
Social media presents another emerging issue for affiliated organizations, according to Levine. "Is it the Twitter account of the (c)(3), or is it the Twitter account of the (c)(4)?" she asks. Use separate Twitter handles and Facebook accounts for each entity, Levine recommends, and if the 501(c)(3) wouldn't put a statement on a letterhead or in a speech, don't put it on social media.
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