It is vitally important for leaders managing nonprofit organizations to understand who may be a “disqualified person” within the nonprofit organization to avoid engaging in transactions that may jeopardize the organization’s tax-exempt status. A disqualified person generally is a person who has a close relationship to the nonprofit organization such that they perceivably can exert substantial influence over the affairs of the organization. When identifying persons who may substantially influence the operations of the nonprofit, titles are not as important as actual responsibility. For instance, if an influential volunteer is given wide discretion, control and responsibility over a defined segment of the organization, he or she may be deemed to be a “disqualified person” despite the fact that he or she is a volunteer with segmental responsibility. Substantial contributors may also be classified as “disqualified persons” depending on the amount of influence the contributor holds over the organization. Determining who is a “disqualified person” is vital if the organization engages in any transaction involving persons involved with the organization. This is because there are certain IRS rules that penalize transactions with disqualified persons, especially if such transaction confers an excess benefit on the disqualified person. If the organization anticipates entering into a major financial transaction such as a loan with a potential disqualified person, the organization should seek the guidance of a lawyer or nonprofit tax advisor.
There is a rising effort to protect personally identifiable information (PII). For instance, the OMB provided new guidance under 2 CFR Chapter Part 200 which requires entities receiving federal grant funds to take reasonable measures to safeguard such information. The new reforms define PII as information that can be used to distinguish or trace an individual’s identity, either alone or when combined with other personal or identifying information that can be linked to a specific individual. However, there is no silver bullet with respect to whether any given information is in fact PII. Certain instances will require a case-by-case analysis based on the facts and circumstance of the situation. All in all, these newer requirements on grantees may require grantees to implement tighter controls.