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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 36978
Experience:  Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
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I am the Treasurer of a 501c4 nonprofit benefit organization.

Customer Question

I am the Treasurer of a 501c4 nonprofit benefit organization. It has come to my attention that in 2009, payments were made to private individuals who were friends of the then-President (who is also the President now). I know that our nonprofit Articles of Incorporation and Bylaws state that "....no part of the net income or assets of this corporation shall ever inure to the benefit of any director, officer or member thereof or to the benefit of any private person".

To whom and how do I report these violations? What is the penalty for such payments made to individuals? Are we past the statute of limitations for penalties? What will happen to our non-exempt status as a result of reporting these violations?
Submitted: 9 months ago.
Category: Legal
Expert:  Dimitry K., Esq. replied 9 months ago.

Thank you for your question. Please permit me to assist you with your concerns.

To answer directly:
To whom and how do I report these violations?
This is an IRS violation and also a violation that you can pursue by contacting the DA's office and their white collar crime division. Taking funds and misappropriating them is potentially embezzlement and it is most definitely breach of fiduciary duty. There are both criminal and civil options, since you as the officer of the company can also file suit on behalf of the non-profit against the president for violations and damages that he caused to the company by his behavior.

What is the penalty for such payments made to individuals?
That very much depends. Embezzlement is a 'wobbler', meaning it can be pursued either as a misdemeanor of a felony. If the amount taken is over $400, it can have a jail sentence of up to 1 year and up to $10,00 fine per each occurrence. For IRS fraud, as per the IRS directly:
"
Civil fraud can include a penalty of up to 75% of the underpayment of tax attributable to fraud, in addition to the taxes owed. Criminal convictions of promoters and investors may result in fines up to $250,000 and up to five years in prison.
"

Are we past the statute of limitations for penalties?
No, the statute begins running from discovery. You still have time to pursue.

What will happen to our non-exempt status as a result of reporting these violations?
Provided you do so responsibly, remove the president, and pursue this in a most transparent manner possible, along with the entity pursuing the president, you should likely be fine. But the state can revoke your status (highly unlikely if you yourselves come out to report). In this case it may still be the wisest option.

Good luck.

 

Dimitry K., Esq., Attorney
Category: Legal
Satisfied Customers: 36978
Experience: Multiple jurisdictions, specialize in business/contract disputes, estate creation and administration.
Dimitry K., Esq. and 5 other Legal Specialists are ready to help you
Customer: replied 9 months ago.


I have a follow-up question: the President is currently on a campaign to oust both myself (the Treasurer) and the Secretary for reasons that are too ridiculous to repeat. Could she be in additional trouble with the law if she continues in this campaign?

Expert:  Dimitry K., Esq. replied 9 months ago.

Thank you for your follow-up.

Technically it is not a violation unless the comments he is making are completely ludicrous, and false. In that case you may have a personal cause of action for defamation of character. You can also likely use that as a basis to pursue additional claims of his breaching his fiduciary duty to the company, and should it get to the courts, would likely make it easier for you to remove him from leadership.

Hope that helps.

Customer: replied 9 months ago.

The President has indeed made ludicrous and false accusations, for which she has not a shred of evidence. What can I do about that, legally?


 


She has gathered her other officer-lackeys and has enough votes, per the by-laws, to remove both myself and the secretary. However, I believe we can call a meeting of the general membership to bring this issue to light and call for her resignation.


 


I never thought that volunteering at this particular organization would ever come to this. I'm truly flabbergasted.

Expert:  Dimitry K., Esq. replied 9 months ago.

Thank you for your follow-up.

If she made false accusations, retain personal counsel. That may be a personal suit for defamation of character against you if the allegations are false and unprovable.

As for your situation, I am genuinely sorry to hear it, but I can say that the non-profit world can have some serious issues and such fights that you describe, while not terribly common, are not uncommon either. It tends to happen more in organizations started by a person who remains as president, and still considers the entity 'his/hers'. Good luck to you!

Customer: replied 9 months ago.

Thank you very much for all your help.

Expert:  Dimitry K., Esq. replied 9 months ago.
You are most welcome, and good luck to you! I wish you the best of luck!

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