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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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1. I sit on a board for a not for profit that has made a lot

Resolved Question:

1. I sit on a board for a not for profit that has made a lot of money and owns a lot of assets .. if something went wrond am i possible liable ?
2. can we lease legally the assets to a newly created LLC to limit our liability and offer dividens to the partners in the LLC ?
3. is this better than applying to a Not for profit status with Dept of Commerce
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
1. I sit on a board for a not for profit that has made a lot of money and owns a lot of assets .. if something went wrong am i possible liable ?
Assuming you did nothing wrong - there is no personal liability just because you are a board member of a nonprofit organization.
Board Member Responsibilities are outlined in this document - http://www.tn.gov/attorneygeneral/nonprofit/nonprofitguidebook.pdf


You must act in good faith and in the best interests of your nonprofit organization. Failure
to do so can seriously harm your nonprofit. Furthermore, under Tennessee law, you may
be personally liable to the nonprofit for the harm it suffers if you breach your fiduciary
duties.



2. can we lease legally the assets to a newly created LLC to limit our liability and offer dividends to the partners in the LLC ?


Your duties include protecting the assets of your nonprofit organization. Tennessee law
requires nonprofit organizations to use their assets to fulfill their charitable purposes and
not for the benefit of private parties. You must ensure that your nonprofit is using its
resources as directed in its articles of incorporation and bylaws. If your nonprofit
organization sells assets to or purchase assets from a for-profit company, it is important
that the sale or purchase price be fair to your organization.


In additional - even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T. An organization must pay estimated tax if it expects its tax for the year to be $500 or more.

3. is this better than applying to a Not for profit status with Dept of Commerce
If you are looking to have tax benefits - you need top apply with the IRS. To apply for recognition by the IRS of exempt status under section 501(c)(3) of the Code, use Form 1023, Application for Recognition of Exemption, and its instructions. The application must be complete and accompanied by the appropriate user fee. See Application Process for a step-by-step review of what an organization needs to know and to do in order to apply for recognition by the IRS of tax-exempt status.
If you are looking for additional state tax benefits - you need to register in the state - see here - http://www.tn.gov/sos/forms/fg-np.pdf

Customer:

Thank you for the information .. We are considering creating an LLC and leasing assets and

Customer:

have the profit in the new LLC be dispersed as dividents ... we have too much money sitting around at this point to continue as a not for profit

Lev :

As we already mentioned - Tennessee law (and a federal law as well) requires nonprofit organizations to use their assets to fulfill their charitable purposes and not for the benefit of private parties. If assets of a not for profit organization are used to benefit private parties - there is a risk of losing not for profit status.
Assets and the money which belong to a not for profit organization must be used ONLY for charitable purposes.

Customer:

I do understand that .. that is why we would creat an LLC which would not fall under the guidlines

Customer:

of NFP

Lev :

That is Ok - but the LLC which is created as a a for profit business - may not use asserts belongs to a not for profit organization - that would be a violation of the not for profit status.

Customer:

shit

Customer:

lol

Lev :

Sorry...

Customer:

any advice ?

Lev :

We need to keep separately not for profit activities and for profit activities.
If you have too much funds accumulated - we need to find the way to use these funds for not for profit purposes.

Customer:

could we change the charter and give ourselves "directors benefits" cause as of now we all get zero not even expense money

Lev :

Yes - officers of a non for profit organization may receive compensation for their services.
The compensation will be treated as wages.
In additional - related job expenses might be reimbursed.

Customer:

Ok thank you for your excellent service

Lev :

Sorry - there is no simple solution...

Customer:

will I be able to save and pront this correspondence

Lev :

I suggest to verify following Compliance Guide for 501(c)(3) - www.irs.gov/pub/irs-pdf/p4221pc.pdf‎
Yes - you may print this page after we completed.
You may also come back later and find all text - here is the address - http://www.justanswer.com/business-law/84gcu-1-sit-board-not-profit-made-lot.html
You may also ask additional question if needed.
I might be not immediately available - but surely will reply.


 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23245
Experience: Taxes, Immigration, Labor Relations
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