Recruiting the Right Attorney and Accountant for Your Board

November 30, 2017 | Article

It’s fairly common, and generally a good practice, for nonprofits to recruit attorneys and accountants to participate on their boards. The financial and legal backgrounds and discipline can be of great value as boards address a range of issues from the day-to-day business of providing oversight of the financial management of the organization to the once-in-a-lifetime challenges of going through a merger. These professionals bring invaluable skills to the table that can help an organization identify and plan for pitfalls and their associated opportunities.

It’s important to remember, however, that there are limitations to the magic. We all understand that medical doctors can be expected to have a general understanding of human biology, but they have their specialties. You wouldn’t ask your pediatrician to do a heart bypass just because she lived in your neighborhood or would do the work pro bono. Likewise, it’s important to understand that accountants and attorneys have specialties of their own. Too many times, however, I have offered to provide a recommendation for a nonprofit attorney to an organization only to be told “no thank you, we have an attorney on our board”. As an accountant, I have obtained a number of clients over the years because the “free” accountant the organization relied on did far more damage than good. Sometimes, you get lucky and the pro bono advice works … sometimes not.

This topic came to mind recently at a tax exempt/governmental entities conference when the topic turned to reasonable cause. In many (not all!) instances, organizations can avoid penalties for mistakes if they can show reasonable cause for their action or inaction even if it is ultimately determined they did not comply with the applicable law. It seems reasonable to assume that an organization would have reasonable cause if it relies on the advice of an attorney or an accountant. The IRS has provided a list of Indicators of reasonable cause in an Issue SnapShot that discusses what actually constitutes reasonable cause. As it turns out, reasonable cause can be established when an organization reasonably relies on the advice of an attorney or accountant, but only if:

  1. The organization, in good faith, relies on the written advice of an attorney or accountant.
  2. The organization provides documentation that the reliance was reasonable.
  3. The organization provides documentation showing they had information about the expertise of the accountant or attorney and that the expertise was appropriate in relation to the issue.
  4. The organization provides evidence showing they provided necessary and accurate information to the accountant or attorney upon whose advice they relied.

I hope that simply avoiding penalties on errors is not enough for our readers. Instead, I hope the goal is to do the right thing up front rather than ask for penalties to be abated. Having an attorney or CPA advise the board of directors is not enough. In order to rely on that advice, it only makes sense that you seek the counsel of professionals with the expertise necessary to be qualified in the area of law at issue. Your Eide Bailly professional will be able to find the appropriate accountant for your issue and may even be able to provide a referral to a qualified attorney. If you do not have a contact at Eide Bailly, our website can help you find the right person.

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