Washington Nonprofit Handbook 2018 Edition

1 Washington Nonprofit Handbook : How to Form and Maintain a Nonprofit Corporation in Washington State July 2018 Edition Published by Wayfind In Partnership with Washington Nonprofits and Washington State Office of the Secretary of State Acknowledgements We wish to express our gratitude to the Advisory Committee, authors and editors of the July 2018 Edition of the Washington Nonprofit Handbook . This book was a collaborative project that could not have been accomplished without the good work of all its contributors. Advisory Committee Judith Andrews Willa Osborn Nancy Bacon Laura Pierce Putnam Barber Tony Ramsey Joanna Plichta Boisen Cory Sbarbaro Lorri Dunsmore Brenda Tausch Lapora Jodi Nishioka Authors Judith Andrews Jaimie Lanier Nancy Bacon David Lawson Putnam Barber Danny Lisa Joanna Plichta Boisen Lindsay McAleer Jeff Brennan Anthony (Tony) McCormick Howard Donkin Jodi Nishioka Lorri Dunsmore Willa Osborn Scott Galloway Cory Sbarbaro Bruce Goto Lisa Schaures Mark Hugh Nancy Williams Sarah Kuipers LaVerne Woods Author and editor biographies can be found in Appendix A.

2 We would like to thank Document Processing at Foster Pepper PLLC for their extensive editorial and word processing support. We would also like to thank Lisa Durant for her graphic design skills in designing the Washington Nonprofit Handbook cover and Lane Powell PC for donating Lisa s time. Finally, thank you to Washington Nonprofits and the Washington Office of the Secretary of State for their editorial and financial support. Judith Andrews Joanna Plichta Boisen Jodi Nishioka Lead Editors Washington Nonprofit Handbook , July 2018 Edition Publisher s Note Wayfind would like to give special thanks to lead editors, Judy Andrews and Joanna Plichta Boisen, for partnering with Wayfind on the revision of the Washington Nonprofit Handbook (July 2018 Edition ). Content, integrity and writing quality were ensured because of Judy and Joanna s knowledge and dedication to this project.

3 We would also like to thank Willa Osborn, Pro Bono Fellow at Foster Pepper for her time and editing skills to make sure that all of the chapter references and links were accurate. Wayfind would also like to acknowledge Washington Nonprofits for their on-going partnership with Wayfind to develop high quality learning tools, including the Washington Nonprofit Handbook . The Introduction to the Handbook , was based on the Starting a Nonprofit toolkit, authored by Nancy Bacon, Director of Learning and Engagement at Washington Nonprofits. Along with Nancy, Laura Pierce, Executive Director, provided critical input to the Washington Nonprofit Handbook . We are grateful for their ongoing support and commitment to the Nonprofit sector. Finally, Wayfind would like to thank the Washington Office of the Secretary of State, Corporations and Charities Division, for its support in developing educational tools like the Handbook and for its commitment to creating a thriving environment for Nonprofit organizations in our state.

4 Resources like this one make a meaningful difference in the Nonprofit sector and beyond. Jodi Nishioka Executive Director Wayfind Cautionary Note This Handbook contains information about the laws impacting Nonprofit organizations in Washington . Legal information is not the same as legal advice (which involves applying laws to particular individuals and organizations and their unique circumstances). It is always a good idea to consult with an attorney to obtain advice as to how the law should be interpreted in light of the particularities of you, your organization and your situation. You should be aware that the laws impacting Nonprofit organizations change over time. The information contained in this Handbook may become out of date. This Handbook is only partially revised. All chapters involving the Washington Nonprofit Corporation Act (RCW ) have not been materially revised because the statute has not changed since the 2009 Edition .

5 We do expect the Washington Nonprofit Corporation Act to be revised by the Washington State Legislature in the near future and we will revise those chapters at that time. All other chapters have been revised. Copyright 2018 Wayfind. All rights reserved. This Handbook is available for personal use by downloading and printing from the websites of Wayfind ( ), Washington Nonprofits ( ) and Washington State Office of the Secretary of State ( Washington Nonprofit Handbook -i- 2018 TABLE OF CONTENTS Page PART 1. THERE ARE MANY WAYS TO DO GOOD IN THE WORLD .. 2 chapter 1. What is a Nonprofit ? .. 2 chapter 2. Are You Sure You Want to Do This?.. 3 chapter 3. Alternatives to Incorporating .. 4 chapter 4. Importance of Formality .. 5 chapter 5. Early Decisions .. 6 PART 2. HOW TO FORM A Nonprofit .. 9 chapter 6.)

6 Common Nonprofit Organizational Structures .. 9 chapter 7. The Washington Nonprofit Corporation Act (RCW ) .. 11 chapter 8. Pre-Incorporation Issues .. 12 chapter 9. Nuts and Bolts of Incorporating .. 14 chapter 10. The Organizational Meeting and Post-Incorporation Tasks .. 27 PART 3. GOVERNANCE AND OPERATIONS .. 32 chapter 11. Importance of Acting Like a Corporation .. 32 chapter 12. Function and Authority of the Board of Directors .. 34 chapter 13. Duties and Obligations of Board Members to the Corporation .. 40 chapter 14. The Role of the Executive Director .. 45 chapter 15. Board Development .. 48 chapter 16. Annual Reporting Requirements .. 50 chapter 17. Entities to Report as Charitable Trusts .. 51 chapter 18. Amending Governing Documents .. 52 chapter 19. Sarbanes-Oxley Document Retention and Protections for Whistleblowers.

7 54 chapter 20. Exposure and Risks of Directors and Officers .. 56 chapter 21. Directors and Officers Insurance .. 59 TABLE OF CONTENTS (continued) Page Washington Nonprofit Handbook -ii- 2018 PART 4. OBTAINING RECOGNITION AS A CODE SECTION 501(C)(3) ORGANIZATION .. 62 chapter 22. Considerations in Determining Whether (and When) to Seek Code Section 501(c)(3) Status .. 62 chapter 23. Applying with the Form 1023EZ .. 70 chapter 24. Assembling Your Form 1023 Application .. 72 chapter 25. Obtaining Recognition for a Publicly Supported Charity .. 89 chapter 26. IRS Processing of Exemption Applications .. 89 PART 5. MAINTAINING FEDERAL TAX-EXEMPT STATUS FOR YOUR 501(C)(3) ORGANIZATION .. 93 chapter 27. Continuing Obligations Under Federal Tax 93 chapter 28. Charitable Purposes .. 94 chapter 29. Private Inurement .. 95 chapter 30.

8 Intermediate Sanctions .. 97 chapter 31. Political Activity .. 100 chapter 32. Legislative Activity ( Lobbying ) .. 101 chapter 33. Unrelated Business Income ( UBI ) .. 105 chapter 34. Federal Filing Requirements .. 108 chapter 35. Public Disclosure of Exemption Application and Form 990 Returns .. 111 chapter 36. Documentation of Contributions .. 112 PART 6. INTERNATIONAL ACTIVITIES AND GRANTMAKING .. 116 chapter 37. Ability Of 501(C)(3) Organizations To Carry On Foreign Activities Charitable Activities Qualify As 501(C)(3) Activities .. 116 chapter 38. Indirect Contributions Of Gifts To Be Used Outside The United States Earmarking .. 116 chapter 39. Grants By Public Charities To Organizations .. 120 TABLE OF CONTENTS (continued) Page Washington Nonprofit Handbook -iii- 2018 chapter 40. Grants By Private Foundations To Organizations.

9 121 chapter 41. Special Treatment Accorded Canadian And Mexican Organizations .. 125 chapter 42. Consequences To Foreign Recipients Of Grants (Withholding Issues For Grantor) .. 127 chapter 43. Compliance With Antiterrorist Provisions .. 128 chapter 44. Best Practices .. 132 PART 7. FUNDRAISING: KEY COMPLIANCE CONSIDERATIONS .. 134 chapter 45. Charitable Solicitation in Washington .. 134 chapter 46. Charitable Solicitation Outside of Washington and Internet Solicitations .. 145 chapter 47. Nonprofit Mailings .. 148 chapter 48. Requirements for Deducting Contributions .. 152 chapter 49. Fundraising Involving Gambling .. 166 chapter 50. Liquor and Cannabis at Nonprofit Events .. 168 PART 8. Washington STATE TAXES AND Nonprofit CORPORATIONS .. 172 chapter 51. Nonprofit Organizations Are Subject to State Taxes .. 172 chapter 52.

10 The State Business and Occupation Tax .. 172 chapter 53. Local Licensing and Local B&O Taxes .. 186 chapter 54. Retail Sales Tax Issues for Nonprofit Organizations .. 187 chapter 55. Use Tax Issues for Nonprofit Organizations .. 189 chapter 56. Property Tax Issues .. 191 chapter 57. Further Information .. 194 PART 9. FISCAL SPONSORSHIPS, JOINT VENTURES AND OTHER 197 chapter 58. Working With Others .. 197 chapter 59. Fiscal Sponsorships .. 197 TABLE OF CONTENTS (continued) Page Washington Nonprofit Handbook -iv- 2018 chapter 60. Joint Ventures And Other Contractual Collaborations .. 200 PART 10. EMPLOYMENT ISSUES .. 207 chapter 61. Application of Employment Law to Nonprofits .. 207 chapter 62. Classification of Workers .. 207 chapter 63. Antidiscrimination Laws .. 214 chapter 64. Overtime Compensation .. 223 chapter 65.