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Question
I am a member of a church with a 501c3 status in which the Pastor and the financial Secretary and the trustee are all relatives. Pastor, daughter-financial sec. and the daughters husband is the trustee (of which he is the only trustee). it seems as though this family has taken ownership of the church and there is no accountability. Who holds the financial secretary accountable for undocumented information? Is this a conflict of interest? Where can i go to research this information?

This church recently file a DBA for another business under its 501c3. How should that organization be structured?

I am in need of  a non profit pro bono attorney to speak with in the Monterey, CA area

Thank You for your time,

Veronica Golden

Answer
The IRS wants at least 3 unrelated directors for public charities
and, in any case, the board should not be controlled by related
persons.
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."

Complaints to the IRS regarding Exempt Organizations are discussed
at
http://www.irs.gov/irs/article/0,,id=178241,00.html
A referral of an exempt organization may be made by submitting Form
13909, Tax-Exempt Organization Complaint
http://www.irs.gov/pub/irs-pdf/f13909.pdf

They may then audit the church and obtain, thereby, the financial records of the church.

  A conflict of interest is present whenever a director, or a close relative of that person has a material personal interest in a proposed contract or transaction to which the 501(c)(3) organization may be a party. Some conflicts do not result in any illegality. We would need to look at the decisions of the organization or the Trustees to decide if their actions are illegal, but, just because they are related to each other does not mean that anyone has a conflict, as I wrote earlier in this paragraph.

A business may be set up separately or may be run under the church's entity, but if the business is unrelated business, there are distinct rules. I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations and not for their unrelated businesses. But I will direct you to IRS Publication 598 "Tax on Unrelated Business Income of Exempt Organizations" at
http://www.irs.gov/pub/irs-pdf/p598.pdf which explains that,  if products or services are not directly related to the charitable, educational, religious or other purpose or function
constituting the basis for its exemption (other than for production of income), then the activities are generally taxable and, if they are more than insubstantial, they may jeopardize the church's exemption if the business is not spun off.

I am sorry, but I do not have any referral for you in response to your statement that you would like pro bono attorney to speak with in the Monterey, CA area.

You are welcome.

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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