AboutHarvey 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
Question Dear Mr. Mechanic, 6/29/09
Over the past few years one board member of our non-profit group has been soliciting the donation (to our non-profit group) of specific items of used equipment from businesses and private parties. He then "buys" the items back from our non-profit and sells them for his personal gain/profit. In doing so he retains upwards of 75% of the items value with the non-profit retaining the 25% (or less) of the items real value. The donors think they are giving 100% to our organization.
This can't be legal??? As a 30 year member of this non-profit group what can I do?
THANK YOU in advance for your help!
Anton Remenih
Answer First, for such a scheme, the Board of Directors, without him voting, would need to approve the scheme. The Board may not want to approve the transactions because it may jeopardize their exempt status. Inurement (benefits to insiders) is discussed by the IRS at
www.irs.gov/pub/irs-tege/eotopicc90.pdf
specifically on the bottom of page 10
"even a minimal amount of inurement can result in
disqualification for exempt status, whereas private benefit must
be substantial in order to jeopardize exempt status."
An extensive discussion of by the IRS of the private benefit
issue relating to 501(c)(3) organizations is found at:
www.irs.gov/pub/irs-tege/eotopich01.pdf
(it takes a while to load the 19 page pdf file).
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
