You are here:

Nonprofit Law/Non profit board of directors


We have formed a non profit corporation in the State of Minnesota. It is a thrift store.  It is run entirely by volunteers and we receive donations of clothing and household items and sell these items to be able to give back all funds to our community.  We are applying for our 501c3.  We did an amendment to our incorporation papers to cover the IRS requirements.  Under our Article VI - Members/Officers/Board of Directors, we stated "The number of directors constituting the initial board of directors is five(5)".  We meant to say "at least" five.  We actually have 4 officers, 1 manager, and 2 other people on the board.  Is there a way we can comply and still keep the 2 extra people?  Can we state it correctly in our by-laws or do we need to do another amendment with the State?  We need to send copies of all our papers with the 501c3 application and we don't want to raise any flags.

One other question,  I spoke to the IRS and they said we should do an estimate of the next three years.  The first line of income is our donations which we receive free.  They want us to put a value on them.  And then on another line add an estimated income received from their sale. This seems like double income.  It is an estimate - can I just round off the numbers according to our last 6 months?  We started the store under the umbrella of our church and incorporated and opened independently 4/1/14.  We have no history as the corporation.  Should I send a letter and financials while operating under the church?   Thank you so much for the great service you perform.  We are so pleased to be able to give all of our profits back to our community.  

Sharon P

ANSWER: In every state, the Articles of Incorporation will take precedence
over the bylaws.

For example a California  appellate court stated " as it generally
is, that the Articles of Incorporation will control the bylaws" and
"as a general matter, articles take precedence over bylaws."
That is from "Classis Of Central California v. Miraloma Community
Church, 177 Cal. App. 4th 750-(Cal Appellate Division, First
District, 2009)

Cited the lower court, "In other words, even if it's the case, as
it generally is, that the Articles of Incorporation will control
the bylaws, that doesn't mean that the bylaws aren't relevant in
when and how and whether the articles can be amended."

Therefore, you would need to amend your articles of incorporation (by filing with the State and having them approve them.

As to your other question. You have two income items, which you would put into the Form 1023 Application for Exemption.  One is the value of donated items in each of the first 3 years and the other is the surplus received from the sale of those items and other items donated in earlier years. There would not be any penalties as long as the estimates
are sincere now. See the  instructions to the Application
for Exemption which is available at and on page 12 column
1 they state that you need to put in "reasonable and good
faith estimate of your future finances for your current
year and each year you have not existed for a
total of 3 years of financial information."

You would not be sending with your Form 1023 Application for Exemption a report of your activities as part of the church, but you would need to answer the questions in "Schedule G. Successors to Other Organizations" on that Form 1023 Application for Exemption.

You did not ask, but I was concerned by your statement that you "give back all funds to our community".  You would need to specify the charitable class, within the community that you are giving funds to.

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.

---------- FOLLOW-UP ----------

QUESTION: Thanks for your quick response.  I'm doing this as a volunteer and am in over my head and really appreciate your input.

Can we keep the Board to 5 members but designate 2 other volunteers as a committee to designate where funds go with board approval?  I really don't want to change the amendment if possible.  

Our bookkeeping under the church was kept as a separate company in the QuickBooks.  We opened with a donation of $2,784 from another organization that closed.  We operated this way from 10/8/13 until 3/31/14.  The church did not share in any income or expenses.  Although we did give a donation of $300 for a youth van and reimbursed the church for any expenses incurred by the store.  Also our gifts or donations given have all been to other non profits in the community like Boy Scouts, homeless shelter, food shelf, etc. except for a gas card of $100 purchased for an individual with cancer treatment and a gift of $100 cash for a family whose house burned down.  Since October, we have give over $4,000 back.

Are we really a successor and I should complete Schedule G.  I need to have this completed by Saturday.  

Thanks again.

Your board of directors can correct their earlier election of 7 members and lower it back to the allowed 5 members, by a resolution, and name the 5 members.   Minnesota Chapter 317A - Nonprofit corporations is found at
and specifically note  317A.241 Committees "A resolution approved by the affirmative vote of a majority of the board may establish committees having the authority of the board in the management of the business of the corporation to the extent provided in the resolution. Committees are subject at all times to the direction and control of the board."

Evidently your funds, when you were operating as what is called by the IRS a "division" or "department" of the church, went into the accounts of the church with the church's EIN.  Now that you will be operating the same business as a newly incorporated corporation, you will be a different entity and, would need to complete Schedule G if "you have taken or will take over the activities of another organization" (question 2a on that Schedule G).  Neither that form nor the IRS instructions for the schedule, which is available on page 22 of explain whether by "the" the IRS means all of the activities or only some.

--- start of excerpt ---
You should complete this schedule as a successor organization if any of the following situations pertain to you.
You have taken or will take over the activities that were previously conducted by another.
You have taken or will take over 25 percent or more of the fair market value of the net assets of another organization.
You were established upon the conversion of an organization from for-profit to non-profit status.
--- end of excerpt ---

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.

Nonprofit Law

All Answers

Answers by Expert:

Ask Experts


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.

©2016 All rights reserved.