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About Harvey Mechanic
Expertise
US 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 questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. To search my previous answers you can do a Google search:
site:allexperts.com/q/nonprofit
[with your other search terms appended].

Experience
I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.

Education/Credentials
B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude

You are here: Experts > Real Estate > Tax Planning: U.S. > Nonprofit Law > Is this legal?

Nonprofit Law - Is this legal?

Expert: Harvey Mechanic - 11/5/2009

Question
I live in Iowa,and we have a lady in the area that in living on mental disability, yet she has a 501(c)(3) for a cat rescue she has. Several people in the area know she lives off of donations to her "cat rescue" and we are trying to get this stopped.   It is a story so long it would take forever to tell you everything she has done. We are not going after her to be vicious at all. She truly needs mental help and has illusions of grandeur, yet she has no family except a 17 year old daughter and the county doesn't know what to do with her. She got the 501c3 by using a "friends" name, but somehow now got it switched to her name. We think there would be no way she would've gotten the status if it was in her name originally, and don't know how she got it changed. Our question is; Is it legal for someone living on mental disability as her only means of support, to have a 501(c)(3)? If not, how do we go about getting it investigated.
Thank you in advance.

Answer
I have in my profile that this free forum is only for relevant IRS federal exemption issues of 501(c)(3) organizations. There is no IRS limitation as to people on disability being associated or employed by a 501(c)(3) organization. States also would not have any such regulation, but, if you wish, you can check the Iowa code. http://bit.ly/rAnjH is the Iowa code

and hit "Control F" to search the page and search
"Chapter 504" without the quotes.

That will take you about 65% of the way down that page to
CHAPTER 504 REVISED IOWA NONPROFIT CORPORATION ACT

If a nonprofit has received IRS exemption determination or files
annual returns (Form 990) with the IRS it has an obligation to
provide anyone with certain copies. See FAQs About the Exempt
Organization Public Disclosure Requirements
www.irs.gov/charities/article/0,,id=96430,00.html

Specifically for 1023 or 1024 exemption application and
supporting documents required with those applications like
articles of incorporation and bylaws as they existed at the time
they submitted them with the 1023 application.
www.irs.gov/charities/article/0,,id=135008,00.html

Note that the IRS does not allow 501(c)(3) organizations to give someone
more compensation than is reasonable.

The IRS looks at many factors if it wants to allege that someone
is getting excess benefits. The first factor is how many hours
weekly the person is working for the 501(c)(3) organization and
then what the normal salary would be for someone who is qualified
for such a job in that area of the country.

At
http://www.irs.gov/irm/part4/ch52s04.html#d0e660170
The IRS has:
---Start of Excerpt--
To determine if they are reasonable consider factors such as:
     Duties performed
     Amount and type of responsibility
     Time devoted to duties
     Special knowledge and experience
     Individual ability
     Previous training
     Compensation paid in prior years
     Prevailing economic conditions
     Living conditions of the particular locality
     The type of activities carried out by the organization and
its size.
---End of Excerpt--

Form 990 asks whether the organization followed an IRS-sanctioned
process for establishing a rebuttable presumption of reasonable
compensation of top management officers, officers and key
employees. The process includes a review and approval by
independent person, comparability date, and contemporaneous
substantiation of the deliberation and decision.

Also you may be interested to know that the IRS generally requires that the Board of a public charity have at least 3 unrelated persons.

Complaints to the IRS regarding Exempt Organizations are discussed at
www.irs.gov/charities/article/0,,id=131651,00.html which has
mailing address and then the details are in a pdf that is linked
on that page as "Fact sheet 2002-10 and is:
www.irs.gov/pub/irs-news/fs-02-10.pdf

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

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