The Nonprofit Revitalization Act of 2013 (“Act”), many parts of which are effective July 1, will affect New York nonprofit corporations and wholly-charitable trusts as well nonprofit corporations formed in other jurisdictions that are required to register
with the state to solicit charitable contributions in New York. The Act represents the first overhaul of New York’s not-for-profit
corporation law in over 40 years and is intended to reduce unnecessary and outdated burdens on nonprofits while enhancing
nonprofit governance and oversight to prevent fraud and improve public trust.
Unless otherwise indicated, the effective date of the provisions of the Act is July 1, 2014. The governing boards and officers
of New York charitable corporations may want to review the governance and operating procedures of the organization with
counsel to ensure compliance with the new requirements.
The following provisions of the Act apply to New York charitable corporations. Additional information for underlined terms
can be found on page 4 of this alert.
Governance, policies, and procedures — Provisions of the Act that affect governance, policies, and procedures
are as follows:
•• Policies — Nonproft corporations must now ensure that their policies are up-to-date.
–– Conflict of Interest Policy — The Act requires that every nonprofit corporation and wholly-charitable trust
adopt a conflict of interest policy and annual disclosure statement to ensure that an organization’s officers,
directors, and key employees act in the organization’s best interest. The Policy must: (i) define circumstances that
constitute a conflict of interest; (ii) provide a procedure for disclosure of a conflict to the audit committee or the
board, if there is no audit committee; (iii) prohibit the person with a conflict from being present or participating
in the deliberation of the conflict and/or otherwise attempting to influence a vote with respect to the conflict;
(iv) require documentation of the existence and resolution of the conflict; and (v) provide procedures for
disclosing, addressing, and documenting related party transactions. Organizations that have adopted a Conflict
of Interest Policy within the last ten years, based on the IRS model, should be compliant with the law but may
want to review the current policy.
Tax June 2014
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abridged from legislation, court decisions
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Tax New York Charitable Corporations
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–– Whistleblower Policy — Every nonprofit corporation and wholly-charitable trust with 20 or more employees
and annual revenue over $1 million is required, under the Act, to adopt a whistleblower policy to protect those
who report suspected misconduct from retaliation.
•• Electronic communication (members, governing board, and committees) — The Act allows increased use of
technology in governance and communication. Email, electronic signatures, and video conferencing supplant
references to telegrams and augment existing rules about the appropriate means of communication for members
of the corporation and directors. For example, in lieu of a meeting of members, directors, and committees, a
unanimous written consent may be obtained using electronic signatures.
•• The Act defines the term “entire board” as the total number of directors entitled to vote which the corporation would
have if there were no vacancies. If the bylaws provide that the board shall consist of a fixed number of directors, then
the entire board shall consist of that number of directors. Where the bylaws provide for a range between a minimum
and maximum number of directors, then the entire board shall consist of the number of directors within the range that
were elected as of the most recently held election of directors.
•• Chair of the Board — An employee of the organization may not serve as chair of the governing board or hold
other title with similar responsibilities. (Applicable beginning January 1, 2015)
•• R esidential address of directors — Nonprofit corporations are no longer required to provide the residential
addresses of directors.
Operations — Certain provisions of the Act affect the operation and categorization of the organization.
•• Types of nonprofit corporations — The Act replaces the current system of four types of nonprofit corporations with
a simplified two-type system. The two types of nonprofit corporations under the Act are charitable and non-charitable
corporations. Existing nonprofit corporations are not required to file revised organizational documents. Organizations
formerly categorized as Type B and C corporations, as well as Type D with a charitable purpose, will be deemed
charitable corporations for all purposes. Type A corporations and Type D with a non-charitable purpose will be
deemed non-charitable corporations.
•• Change of a purpose or power of a corporation — The New York Attorney General, rather than a court, may
now approve the change of purpose or power of a nonprofit corporation.
•• If registered with the New York Charities Bureau to solicit charitable funds:
–– Audit procedures: (Applicable beginning July 1, 2014 for organizations that had annual gross revenue of
more than $10 million for its last fiscal year that ended before January 1, 2014; if gross revenue is less than
$10 million for the same period, applicable beginning January 1, 2015.)
Charities required to register to solicit charitable funds in New York, with annual gross revenue in excess
Must appoint an audit committee (composed of at least 3 independent directors) or have all of the
independent directors on the board perform the duties.
Audit committee must:
–– oversee the accounting and financial reporting functions;
–– annually retain or renew an independent auditor; and
–– review the results of the audit, including the management letter, with the independent auditor.
Additional requirements for charities required to register to solicit charitable funds in New York, with
annual gross revenue in excess of $1,000,000:
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In addition to the duties listed above, the audit committee must:
–– Review with the independent auditor the scope and planning of the audit prior to the audit’s
–– Upon completion of the audit, review and discuss with the independent auditor:
•• any material risks and weaknesses in internal controls identified by the auditor;
•• any restrictions on the scope of the auditor’s activities or access to requested information;
•• any significant disagreements between the auditor and management; and
•• the adequacy of the corporation’s accounting and financial reporting processes.
–– Annually consider the performance and independence of the independent auditor.
–– I f the duties required by this section are performed by an audit committee, report on the
committee’s activities to the board.
–– Financial reporting with New York Charities Bureau, based on gross revenues:
Effective Date Form CHAR 500
Independent CPA ’s
Financial Report on
Forms Prescribed by
the Charities Bureau
July 1, 2014 –
June 30, 2017
<$250,000 >$250,000 –
July 1, 2017 –
June 30, 2021
<$250,000 >$250,000 –
July 1, 2021 <$250,000 >$250,000 –
•• Compensation — No person may be present or otherwise participate at a meeting of the governing board or
committee deliberating that individual’s compensation but the person may present information to the board or
committee, as necessary.
•• R elated party transaction procedures — A director, officer, or key employee must disclose, in good faith, material
facts regarding any interest in a related party transaction to the governing board or authorized committee addressing
such transactions. Prior to entering into a related party transaction, the governing board or authorized committee
of a nonprofit corporation or wholly-charitable trust must ensure that the transaction is fair, reasonable, and in the
best interest of the organization. No related party may participate in the deliberations or voting on the matter, but
may present information to the governing board or authorized committee considering the transaction. The New York
Attorney General has authority to bring an action to enjoin, void, or rescind any related party transaction or proposed
related party transaction that violates applicable New York law or was otherwise not reasonable or in the best interests
of the organization at the time the transaction was approved, or to seek restitution, and the removal of directors or
officers. If a related party transaction involves a charitable corporation or trust, in addition to the procedures discussed
above, the governing board or authorized committee must (i) consider alternatives to the transaction, if available;
(ii) approve the transaction by at least a majority of those present at the board or committee meeting; and (iii)
contemporaneously document the basis for approval and alternatives considered.
•• R eal estate transactions — The Act permits nonprofits to conduct routine real estate transactions by a simple
majority of the governing board, replacing the two-thirds majority requirement currently in place. Board approval
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of third-party leases is no longer required. The Act retains the requirement that two-thirds of the board approve
transactions involving all or substantially all of a corporation’s assets if the nonprofit has 20 or fewer directors.
•• S ale or disposition of substantially all of the organization’s assets — Two-thirds of the governing board must
approve a transaction involving all or substantially all of a corporation’s assets if the nonprofit has 20 or fewer
directors. In lieu of receiving court approval to sell all or substantially all of a nonprofit’s assets, to merge, or to
consolidate, the corporation may petition the New York Attorney General for review.
•• Mergers — Mergers may now be approved by the New York Attorney General, rather than a court.
An affiliate of a corporation means any entity controlled by, in control of, or under common control with the
Independent auditor means any certified public accountant performing the audit of the financial statements of a
corporation required by Executive Law section 172-b(1).
Independent director means a director who:
}} i s not, and has not been within the last 3 years, an employee of the corporation or an affiliate of the
corporation, and does not have a relative who is, or has been within the last 3 years, a key employee of the
corporation or an affiliate of the corporation;
}} has not received, and does not have a relative who has received, in any of the last 3 fiscal years, more
than $10,000 in direct compensation from the corporation or an affiliate of the corporation (other than
reimbursement for expenses reasonably incurred as a director or reasonable compensation for service as a
}} i s not a current employee of or does not have a substantial financial interest in, and does not have a relative
who is a current officer of or has a substantial financial interest in, any entity that has made payments to, or
received payments from, the corporation or an affiliate of the corporation for property or services in an amount
which, in any of the last 3 fiscal years, exceeds the lesser of $25,000 or 2% of the entity’s consolidated gross
revenues. “Payment” does not include charitable contributions.
Key employee means any person who is in a position to exercise substantial influence over the affairs of the
corporation, as referenced in the Interna Revenue Code and Treasury Regulations. Factors that tend to demonstrate
that a person has substantial influence include: the person’s compensation is primarily based on revenues derived
from a particular department or function of the corporation and the person manages a discrete segment or activity that
represents a substantial portion of the activities, assets, income, or expenses of the corporation, as compared to the
corporation as a whole.
Related party means:
}} any director, officer, or key employee of the organization or any affiliate of the corporation;
}} any relative of any director, officer, or key employee of the organization or any affiliate of the corporation; or
}} any entity in which any individual described above has a 35% or greater ownership or beneficial interest or, in
the case of a partnership or professional corporation, a direct or indirect ownership interest in excess of 5%.
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Tax New York Charitable Corporations
Related party transaction means any transaction, agreement, or any other arrangement in which a related party has a
financial interest and in which the corporation or any affiliate of the organization is a participant.
Relative of an individual means his or her spouse, domestic partner, ancestors, siblings, children, grandchildren, greatgrandchildren,
and spouses of siblings, children, grandchildren, and great-grandchildren.