AboutHarvey Mechanic Expertise Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer question about Nonprofit's Unrelated Business or how to fill out forms. This forum is only for legal questions about a specific nonprofit asked by members or those otherwise directly effected by the specific nonprofit organization.
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Expert: Harvey Mechanic Date: 7/20/2008 Subject: Tax Exempt Status Lost Pending Appeal
Question I am a member of a local Board of REALTORS which had unto recently a 501(c)tax exempt status with the IRS. The Board of Directors, under the guidance of the Executive Director, began amassing a large amount of funds turning the services it provides (MLS system, lock box rental and administration, and membership dues) into profit centers. These funds were raised without a formal mandate or disclosure to the General Membership for the purpose of the BOD and ED's off the record agenda and undisclosed intention to acquire land and construct a new building.
After a 5 year coordinated effort, the organization had amassed funds in excess of $900,000. At this time they approached the Membership with the idea of the new building, but the proposal was rejected by a large margin.
Upon the BOD's disclosure to the Membership of it's "nest egg" other issues have come to light after review of financial statements, to wit; The Executive Director salary and compensation package exceeds $150,000 per year, 90% more than any of ED's in similar positions in Florida. The BOD Members took numerous and lavish trips to Conventions, Trade shows, and to State and US Government Offices to Lobby for legislation. Said trips routinely involved stays in 5 star hotels, first class airfares, rental cars, and per diem funds plus extravagent dining and drinking.
Having accumulated such a large amount of cash, an IRS field Audit was conducted followed by a full investigation. The 501(c) status was revoked (an appeal is pending), however the BOD has decided to pursue the matter on a Pro Se basis.
What can the membership expect (in broad terms obviously) from what is most certainly a loss of the appeal and the subsequent sanctions that will be imposed. Also, any suggestion that you may for the Membership relative to its rights and course of action should the IRS levy any or all of these funds for interest, penalties, et al..Thank you in advance for your assitance.
Answer The membership certainly can sue the individuals involved, but that is a state court matter. This forum is only for federal tax questions regarding 501(c)(3) public charities as I have explained in my profile.
The director may come to be subject to excise taxes.
An IRS article about such intermediate sanctions and excise taxes
is at:
www.irs.gov/pub/irs-tege/eotopice04.pdf
Section 4958 of the Internal Revenue Code imposes an excise tax on
excess benefit transactions between a disqualified person and an
applicable tax-exempt organization. The disqualified person who
benefits from an excess benefit transaction is liable for the
excise tax. An organization manager may also be liable for an
excise tax on the excess benefit transaction.
