On April 13, 2020, the New York State attorney general’s Charities Bureau issued guidance for charitable not-for-profit organizations as they navigate challenges arising from the COVID-19 pandemic.
As part of the guidance, the Charities Bureau announced a six-month filing extension for the CHAR500 financial report, which is in addition to the automatic six-month extension currently granted by the Charities Bureau. Each registered charity is required to file an annual financial report within four and a half months after the end of its accounting period, but is automatically given a six-month extension. Under the new announcement, a registered charity whose original filing deadline falls after February 15, 2020 (including the automatic six-month extension) is given an additional six months to file. For example, a registered charity whose year-end was June 30, 2019, is typically required to file by May 15, 2020, but the new filing deadline is November 15, 2020.
The Charities Bureau also highlighted four key issues for charitable not-for-profit organizations to keep in mind as they evaluate their financial health amid COVID-19-related challenges.
Registration. Charitable organizations seeking to begin soliciting donations in New York as a way to offset decreased cash flow as a result of COVID-19 are reminded that registration with the Charities Bureau is required prior to soliciting donations. Registration can be completed online only at www.charitiesnys.com. Among other items, an organization will need an employer identification number (EIN), a certificate of incorporation and bylaws (or other similar organizational documents).
Restricted Assets. In evaluating available assets, not-for-profit organizations must continue to uphold the intended purpose of restricted assets, or assets donated for a specific purpose, whether as part of an estate plan or in response to a fundraising campaign. If an organization desires to use restricted gifts for purposes other than the originally designated purpose, the organization must obtain the consent of the donor. If consent is unable to be obtained, for example if the donor is deceased, the organization may pursue release by the New York Supreme Court under the doctrine of cy pres, which requires demonstration that the original purpose is impossible or impracticable to uphold.
Endowment Funds. Organizations holding endowment funds (funds with donor-imposed restrictions on expenditure) must continue to comply with the New York Prudent Management of Institutional Funds Act (NYPMIFA) (Article 5-A of the Not-for-Profit Corporation Law). The NYPMIFA allows for appropriations from an endowment under certain circumstances and provided that certain procedures (including analysis by the board and counsel) are followed.
Strategic Transactions. If a not-for-profit organization desires to enter into a strategic transaction, e.g., a sale of assets, merger or consolidation, approval of the attorney general or the New York Supreme Court is required. Specifically in the context of an asset sale, an organization must demonstrate that the purchase price is fair and reasonable through an independent appraisal.
Although there are mechanisms available to allow charitable organizations to access and monetize charitable assets that are subject to legal restrictions, the Charities Bureau and the New York State Supreme Court are protective of charitable assets, their use and their disposition. In evaluating strategic options, not-for-profit organizations must keep in mind the complexity and length of time required to implement these mechanisms.