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Marty Mac Ver 2.0
08-16-2012, 11:15 PM
General situation:

an entity set themselves up for a 501C-3 status during Hurricane Katrina. Their NTEE status is " M20 - Disaster Preparedness & Relief Services "

Over the years they showed gross receipts ranging from $25,000 to $50,000

With Katrina subsiding, this group has shifted focus to running community events for profit, with large subsides from a governmental entity.

My general question is this; (1) how is this legal (2) if you set up a 501C3 under one set of circumstances and then use that number for gain under a different set of circumstances, how is that legal?

If its OK, then no harm no foul. If not, then what kind of trouble are they putting themselves in as well as people who give them money under the premise of a 501C-3 who's sole purpose has no relevancy to the foundation of the gift/award/donation?

AustinChief
08-16-2012, 11:59 PM
General situation:

an entity set themselves up for a 501C-3 status during Hurricane Katrina. Their NTEE status is " M20 - Disaster Preparedness & Relief Services "

Over the years they showed gross receipts ranging from $25,000 to $50,000

With Katrina subsiding, this group has shifted focus to running community events for profit, with large subsides from a governmental entity.

My general question is this; (1) how is this legal (2) if you set up a 501C3 under one set of circumstances and then use that number for gain under a different set of circumstances, how is that legal?

If its OK, then no harm no foul. If not, then what kind of trouble are they putting themselves in as well as people who give them money under the premise of a 501C-3 who's sole purpose has no relevancy to the foundation of the gift/award/donation?

What do you mean by "community events" and "for profit"?

In reference to their shift in focus.. it depends on their Articles of Organization. If their current activities are NOT covered under the Articles of Organization that were in effect when they were granted 501(c)(3) status.. then those activities are NOT tax exempt. If their AofO are no longer applicable, they need to amend them and do all the necessary refiling.

Obviously, I am not a lawyer, so take this with a grain of salt.. but I'm pretty sure.

Rain Man
08-17-2012, 12:06 AM
I don't know much about the topic and think it's an interesting question.

One thing I do know is that nonprofit status is rampantly abused. I compete with consulting firms that are set up as nonprofits, when there's no way in the world they're a legitimate nonprofit.

AustinChief
08-17-2012, 12:14 AM
I don't know much about the topic and think it's an interesting question.

One thing I do know is that nonprofit status is rampantly abused. I compete with consulting firms that are set up as nonprofits, when there's no way in the world they're a legitimate nonprofit.

Turn those bitches in!

from the IRS...
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

Rain Man
08-17-2012, 12:17 AM
Turn those bitches in!

from the IRS...

I'd like to, but I'm fighting other battles right now and don't want to dilute myself.

One of these companies was a private, for-profit company until they discovered the nonprofit angle. They then converted to a nonprofit status and their "board of directors" is a bunch of their employees, who report to the owner of the company that made it a nonprofit in the first place. And they do exactly the same thing that they did when they were a for-profit company. It's a complete ripoff.

AustinChief
08-17-2012, 12:19 AM
Some more info for both of you...

A charity's organizing document must limit the organization's purposes to exempt purposes set forth in section 501(c)(3) and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further those purposes. This requirement may be met if the purposes stated in the organizing document are limited by reference to section 501(c)(3). In addition, an organization's assets must be permanently dedicated to an exempt purpose. This means that if an organization dissolves, its assets must be distributed for an exempt purpose described in section 501(c)(3), or to the federal government or to a state or local government for a public purpose. To establish that an organization's assets will be permanently dedicated to an exempt purpose, the organizing document should contain a provision insuring their distribution for an exempt purpose if the organization dissolves. Although reliance may be placed upon state law to establish permanent dedication of assets for exempt purposes, an organization's application can be processed by the IRS more rapidly if its organizing document includes a provision ensuring permanent dedication of assets for exempt purposes. For examples of provisions that meet these requirements, see Sample Articles.

If the organizing document does not contain these provisions, an organization should amend it before submitting its exemption application. State officials can provide more information about how to amend organizing documents.

AustinChief
08-17-2012, 12:24 AM
I'd like to, but I'm fighting other battles right now and don't want to dilute myself.

One of these companies was a private, for-profit company until they discovered the nonprofit angle. They then converted to a nonprofit status and their "board of directors" is a bunch of their employees, who report to the owner of the company that made it a nonprofit in the first place. And they do exactly the same thing that they did when they were a for-profit company. It's a complete ripoff.

Wow, yeah that's a VERY obvious no no. All sorts of crazy trouble they could get in. Just fill out Form 3949A and see what happens! :D

(check the boxes for FALSE EXEMPTION and OTHER)

http://www.irs.gov/pub/irs-pdf/f3949a.pdf

AustinChief
08-17-2012, 12:24 AM
Marty, here is some more exact info directly from the IRS

An exempt organization must report name, address and structural and operational changes to the IRS. If an organization files an annual return, it must report the changes on its return. If it is not required to file annually, it reports the changes to the EO Determinations Office. The EO Determinations Office can issue an updated determination letter showing an organization's new name and address and affirming that it is still exempt.

An organization may request a determination letter regarding the effect of certain changes on its tax exempt status or public charity status. For example, a determination letter will be issued to classify or reclassify an organization as a public charity or a private foundation. An organization may also request a determination letter to determine whether an organization is exempt from filing annual information returns in certain situations. However, the IRS will not make any determination regarding any completed transaction.

If an organization is unsure about whether a proposed change in its purposes or activities is consistent with its status as an exempt organization or as a public charity, it may want to request a private letter ruling . An organization may also request a determination letter to reclassify the organization as a public charity or a private foundation.

Rain Man
08-17-2012, 12:46 AM
Wow, yeah that's a VERY obvious no no. All sorts of crazy trouble they could get in. Just fill out Form 3949A and see what happens! :D

(check the boxes for FALSE EXEMPTION and OTHER)

http://www.irs.gov/pub/irs-pdf/f3949a.pdf

:hmmm:

Marty Mac Ver 2.0
08-17-2012, 08:34 AM
Thanks!

Dartgod
08-17-2012, 08:58 AM
:hmmm:

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