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Nonprofit Law/what if you go broke starting a non-profit?

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QUESTION: Dear Sir.
I have spent over $100,000 over a year and half period in an effort to assist my fiancÚ in starting a non-profit organization.  We traveled from coast to cpast in order to meet the most respected and successful leaders in the country oin our specific space. They all were very impressed and supporTivge of our efforts and still are.  Some even joined us as members of our advisory board.  Through our efforts ,money and time my Fiance has now become a peer to them and deservedly so. We have assisted dozens if not a hundred people in need along the way.  It is a relevant and viable topic and there are thousands in need of our assistance based on our target market.
Everything looked fantastice and was on schedule for a grand opening fundraisor in California back in Novenber last year.  It failed miserably and we lost another 30,ooo dollars just to have the event. It turns out we had no clue how to start or run a non-profit but we hired the best people we thought to handle those details leaving the job of helping others in our own hands.  We were ripped off right and left from everybody we hired.  From website designers to branding pros to the cook the cleaner the toaster fixer ..you name it.  So many people were so interested in being a part of the cause we were excited and on top of the world.  She even was interviewed by the LA Times. The story never ran.  Everybody it turns out either overcharged or over promised there abilities and/or willingness to volunteer.
We wer e devasted that Novemnber night as we spen our LAT penny on what was sure to be a huge success and fill the coffers with operateing capitol and pay back some of our initial investkent.  We are now completely broke.  We don't even have the 400 dollars to pay the final money needed to gain our 503c designation.  It sits in limbo.  My fiancÚ continued her work as do I helping women in need but we don't even have a place to live.  How can we get some of that money back we spent to start the organization that is now back to a group of two.  She has a huge following on Facebook for only starting it 1 month ago but were not sure how to ask for donations on social media .  We don't have the funds to advertise and our website is now on a free hosting and design site.
I wont menti0on the name as that's not my questi0on but the way in which we get reimbursed is a huge concern with no money at all coming in and penny less.  Is there a tax refund or some type of grant that is available that will put us back on our feet and thus the organization as well?  Any guidance wood be much appreciated.
Thank you.
J and L

ANSWER: You wrote, " We don't even have the 400 dollars to pay the final money needed to gain our 503c designation."  It is "501(c)(3)".  In any case, there are two choices for you to receive reimbursements.

1.  The IRS grants retroactive determination as to the organization's 501(c)(3) status, and the organization's board authorizes reimbursement of the money that was spent on behalf of the organization, and then the organization obtains such funds to reimburse you.

2.  Your organization, operating as a non-exempt entity, obtains funds, for example by online donations, and then reimburses you for the funds advanced.

In either case, you should now document that the advancement of funds was a loan or reimburseable.

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. For me to consider your individual situation and how the law applies, I would need to gather more information.


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

QUESTION: Thank you for the prompt response!  So when you say get donations online as a non-tax exempt organization does that mean we give up on the 501c3 altogether?  we just become an advocacy group or a Foundation?  What are we classified as?  A corporation selling a service asking for donations?
Thanks again sir and if I had the money I would certainly be hiring you!
J and L

Answer
You are welcome.

As I wrote, you have two choices.

1. File for a determination by the IRS that you organization is exempt as a 501(c)(3) organization, or
2. Operate as a non-exempt organization.  I am assuming that your organization has been incorporated as a nonprofit corporation and you could still, therefore, use that designation "nonprofit corporation".  There is no particular IRS designation for such organizations other than "non-exempt nonprofit". See, for example, from the IRS site - http://goo.gl/gLq43V

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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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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