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Category: Business Law
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I found out a few weeks ago that the then-Treasurer of a non-profit,

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I found out a few weeks ago that the then-Treasurer of a non-profit, NP, who has 50% if the voting shares of an LLC, has been paying invoices made out to the LLC with NP funds. I have seen the bank statements showing the payments over the years but I have not seen the invoices made out to the LLC until the last few weeks. The one invoice that I did see was labeled, by the then-Treasurer, as a NP receipt in the copy that he sent to me. What do you think about this from a tax position? The LLC has, as far as I know, paid nothing for anything – everything the LLC claims to own has been paid by the NP. The then-Treasurer now wants ownership of the LLC but refuses to give me complete access to the LLC records so that I can understand what the LLC owns. I have 50% voting shares in the NP.
Submitted: 1 year ago.
Category: Business Law
Expert:  Lindie-Moderator replied 1 year ago.

Hi,
I'm a moderator for this topic. I've been working hard to find a Professional to assist you with your Finance, but sometimes finding the right Professional can take a little longer than expected.
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Customer: replied 1 year ago.
I will continue to wait,syne it is a legal questions hanks!
Myrna
Expert:  Lindie-Moderator replied 1 year ago.
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Expert:  BizIPEsq. replied 1 year ago.

Hello, I will be assisting you. Can you describe the structure of the not for profit? is the NP a 501c3? Is there a board and if there is, who makes up the board? Then if you could let me know what is your specific tax/business question regrading the LLC? Looking forward

Customer: replied 1 year ago.

Hi, the NP has little structure. I am President and we have three Directors. It is not a 501c but our accountant plans to file for member-based federal status. (The NP is registered in the state of Illinois). Since the former Treasurer paid (his) LLC invoiced expenses from the NP account without the knowledge of the NP that these were his LLC expenses, what is the legal status of the property paid for by the NO -- but for the LLC invoices. What would you advise an accountant to do with these expenses? Are they legitimate expenses of the NP?


Thanks.

Expert:  BizIPEsq. replied 1 year ago.

The issue is not so much a tax issue but rather a legal question of how you would like to treat an apparent t unauthorized appropriation of funds from the NP to the LLC.

 

Legally speaking, the LLC is a separate entity from the person and property that generally speaking in such situations the LLC is a bona fide good faith purchaser and therefore would own the property notwithstanding the fact that the money to purchase that property may have been illegally misappropriated (this is largely because there are other members in the LLC that I assume were privy to the transfer of funfs from he NP to the LLC).

 

You have several choices: - You can demand the money back and have the person pay it from their own pocket. - file a criminal complaint for embezzlement - demand that the LLC hand over title to whatever it purchased (although as noted it may not have to) and if it doesn't file a law suit against as being a co-conspirator (companies have criminal liability as well) - or do nothing and move forward. You can treat it as an expense and your accountant would know best what type of expense it would be.

 

Be mindful though that on the 501c3 application you will need to disclose these expenditures.

Customer: replied 1 year ago.

I made a mistake when I wrote "I have 50% voting shares in the NP.". I have 50% voting shares in the LLC (and am President of the NP). The former Treasurer of the LLC is also a member of the NP.


I was not privy to the use, by the NP Treasurer, of NP funds to pay bills for the Treasurer in his role in the LLC. (Actually, most of the copies of the invoices that I recently obtained were made our to the Treasurer, personally, and not the LLC). Does that clarify things?

Expert:  BizIPEsq. replied 1 year ago.
Thank you for the clarification! I wasn't quite sure how one can own 50% of a not for profit that has no ownership per say...

The additional information makes the case of going to the cops even more compelling. You should have a heart to heart talk with the treasurer and make it clear that unless they return the money and make the NP whole that you will have to file a complaint with the police.

you should also note to the treasurer that unless they resolve the situation you will likely have difficulty having a 501c3 approved by the IRS in light of the questionable expenses (the IRS scrutinize the application and the activity in the NP prior to the application date) and if you ate denied 501c3 this will cause you great harm and you will hold the treasurer legally responsible for all the damages.

This should straighten things out one way or another. Hopefully the person has some sense left in them.

Thank you for allowing me to assist you

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BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience: I am a business attorney. I represent individuals and companies with all business related matters.
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