Nonprofit Law/Staying legal

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Question
I have several:
Our non-profit was started by a for-profit corporation to help children that they do business with.  
Can non-profit sponsorship/fundraising materials have the for-profit name/logo on it?
Can a NP board member who owns the for -profit company overpower the NP board of directors with his ideas as he pays their salary?
Can a for-profit company pay the salary of a NP employee and not claim it on the 990?
Can fundraising for the NP pay scholarships for children to attend the for-profit company?

Thanks!

Answer
I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations. Therefore, I am assuming that you are referring to a 501(c)(3) organization.

1.  The logo of a for-profit may only be as an acknowledgment. See the 1994 IRS internal memorandum "Corporate Sponsorship Income"
www.irs.gov/pub/irs-tege/eotopico94.pdf
especially page 10 "Advertising v. Acknowledgment"

You will not have any issues as long as it is an acknowledgment and
not what the IRS refers to as "advertising".

2.  That would be an issue with the IRS. The IRS does not want one person controlling a public charity.

See:
www.irs.gov/pub/irs-wd/1002041.pdf
which is denial of exemption based, in large part, upon the fact
that there was only one effective leader of the organization. At
the bottom of pdf page 4, the IRS indicates what I have found in
the past, i.e. that, when a organization files for public charity
status has only one director, the IRS sends out a notice
recommending that, to increase the possibility to gain exemption
determination, the organization add at least 2 other, unrelated
directors. That 2009 denial on the bottom of pdf page 5 cites to
Revenue Ruling 55-656, 1955-1 C.B. 262,"the control of one
person or a small, related group suggests that an organization
operates primarily for non-exempt private purposes, rather than
exclusively for public purposes."  The organization would then
have a burden to show that it is not operating for the benefit of
the sole director.

"Although control by ... a small group may not necessarily
disqualify [an organization] for exemption, it provides an
obvious opportunity for abuse of the claimed tax-exempt status."
Church of Ethereal Joy, 83 T.C. 20 at 23 (1984). That case is
cited in the United States Fifth Circuit Court of Appeals case
St. David's Health Care System v. U.S., 349 F.3d 232 (2003)
http://pages.citebite.com/o1n5g1q6c0htj

The U.S. Tax Court, in a 1984 decision, "New Concordia Bible Church
v. Commissioner", 49 TCM (CCH) 176 explained that "
"An organization will not be denied tax exempt status merely
because the creator is the sole or controlling officer. Such a
situation, however, presents an obvious opportunity for abuse and
calls for open and candid disclosure of all facts bearing upon
organization, operations, and finances so that the Court can be
assured that by granting the claimed exemption it is not
sanctioning abuse of the revenue laws."

3. You would need to look at the Form 990 and point out where you think that the item would be indicated, but generally such a payment is a contribution and would need to be reported on the 990 along with other contributions.

4. Generally not, but it depends upon the size of the for-profit company and its size in relation to the community.

I don't know if it has received a determination letter from the IRS that the organization is exempt under section 501(c)(3), but if it did not yet, you may want to have me consult on this as there are real issues when a 501(c)(3) organization has, as its beneficiaries, customers of a related for-profit business. I would be willing to work on your matter, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

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

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about 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 possible 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. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

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


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