Nonprofit Law/church and nonprofit structure
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,
The IRS wants at least 3 unrelated directors for public charities
and, in any case, the board should not be controlled by related
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)
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
A referral of an exempt organization may be made by submitting Form
13909, Tax-Exempt Organization Complaint
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
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 -
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.