QUESTION: What are the legal standards for operation of nonprofit organizations?

ANSWER:  The legal standard by which all aspects of operations of the organization should be tested is that of reasonableness and prudence. Everything the organization does should be undertaken in a reasonable manner and to a reasonable end. Also, those working for or otherwise serving the charitable organization should act in a way that is prudent.

The federal tax exemption granted to charitable and other forms of tax- exempt organizations can be revoked if the organization makes expenditures or engages in some other activity that is deemed to be not responsible. The same is likely true at the state level: Alleged or actual unreasonable behavior may cause an attorney general to investigate the organization.

Tags: legal standards, nonprofit organizations, tax exemption