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Nonprofit Law/Dissolution Issue?

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Question
Hi, I'm the founder of a non-profit school. A historical school building recently came up for sale in my area and I want to be able to obtain the old school building in order to refurbish it and use it as a school.

Under the IRS law and South Carolina state law a 501(c)(3) has to either donate the assets (building and land) to another 501(c)(3) -of similar category, i.e. another school if I am not mistaken- or it is given to the state to distribute as needed if it can't find another 501(c)(3) interested.....As I was looking into the records of the old school building I discovered the county school board (directors)sold it for profits to an actual individual in 1994.

Now,considering it was sold instead of donated or given to the state, what is the legal punishment for that?

Also, considering it is a historical building, and was originally a public school (technically classified as a 501c3 by federal law) and it was illegally sold...does the person who is trying to sell it now have to gift it to an interested nonprofit as was supposed to have happened if law was followed in 1994? or do I still have to purchase it for our nonprofit because it is an individual who owns it -however illegally?

Thank you so much for your time. I'm trying to find out what I need to do and what route to take and be in legal guidelines for it. I don't want to purchase a building that legally wasn't supposed to be sold for profit. I don't want to get in trouble, but if I can legally have the seller donate it to me as is supposed to have been adhered to by law, then I need to inform him and the real estate agent so they don't get into trouble as well.

Answer
There are many regulations that relate to 501(c)(3) organizations, but Section 501 does not apply to state, county or municipal governmental unit except in certain circumstances. See IRS Publication 557 "Tax Exempt Status for Your Organization" www.irs.gov/pub/irs-pdf/p557.pdf on page 22, in the first column under the heading "Instrumentalities" where we see, "A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Examples of a qualifying instrumentality might include state schools, universities, or hospitals. However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. A state or municipality itself does not qualify for exemption."

The preliminary question, then, is what type of set-up was the country school board. Most public schools are not set up as separate entities from the county and, even when they are, their articles of incorporation may not specify that they are to act as a 501(c)(3) organization.

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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