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Nonprofit Law/Buying an existing for profit company?


Hi Harvey,
I am very thankful for your many useful answers. I have been reading through and learning a great deal.

I am considering a 501(c)(3) in thhe form of a business where the income would go to serve several needs in our town, as well as offer job training. I am aware of a business that may be looking to sell soon, and think it a good fit for this idea. Would you suggest creating the 501(c)(3) and waiting until it, or another business, Is on the market? Is that even do-able, Can I buy an existing company and its assets and turn it into a non profit? And how long can I "hold onto" a non profit without actually doing anything other than paperwork as I try to get all of the pieces in place?


You can take control of a 501(c)(3) organization and hold onto it for a while. Where an organization recognized as exempt becomes temporarily
inactive but retains its identity as a corporation or association,
the exempt status need not be terminated. However, if the evidence
clearly indicates that the organization will not resume operating
for an exempt purpose, as required by Treas. Regs. Section
1.501(c)(3)-1(c)(1), the examiner should terminate the exempt
status. Rev. Proc. 90-27, 1990-1 C.B. 514.

However, note  Section 502 of the Internal Revenue Code reads, in relevant part,
"An organization operated for the primary purpose of carrying on a
trade or business for profit shall not be exempt from taxation
under section 501 on the ground that all of its profits are payable
to one or more organizations exempt from taxation under section

Internal Revenue Code section 501(c)(3) which is available at:
has, in part, that the 501(c)(3) organization must be "operated
exclusively for religious, charitable ...or educational purposes
... no part of the net earnings of which  inures to the benefit of
any private shareholder or individual".
Therefore, the activities of the organization are to be charitable, educational or religious.

Harvey Mechanic, Attorney at Law -

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


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 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 "" without the quotes and then add your search terms before hitting enter.


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.


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

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

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