Non.Profits Final Fall 08

Non.Profits Final Fall 08 - Law of Non profit Corporations...

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Unformatted text preview: Law of Non profit Corporations Fall 2008 Prof Jesse J. Avila Final Examination October 30, 2008 Please do not turn the page until advised to do so. If you are writing this test, please place your PIN number on your answer booklet before beginning your answer. This is a closed book examination. There are two questions. Each question has two parts, “A” and Answer both parts of both questions. Each question is worth 37.5 points. Your answers should address all applicable legal issues. Your answer will also be graded according to reasoning ability, application of relevant legal concepts to the facts, and progression to a conclusion or resolution of the problem or question presented. Please make your answers legible. You have the full class period in which to complete all your answers. Part “A” of each question presents a factual hypothetical and asks a relatively open-ended question. Each part “A” is weighted at 25 points. Part “B” of each question asks for relatively straight fonNard information. Each part “B” is weighted at 12.5 points. You may leave the examination room without asking. But if you do leave the room, do not consult any materials of any kind or discuss the examination with anyone. GOOD LUCK! Law of Non Profit Corporations Fall 2008 Final Examination Question 1 ANSWER PARTS “A” AND “B.” A. (Believers) was incorporated in 2000 as a California public benefit corporation. Its original members met a rally of religious ministers and workers in Sacramento protesting the first US—lraq war. It rotates its gatherings among Yuba City, Mariposa, Los Angeles and Desert City, California. Believers’ 2000 articles recite that its purpose is to “bring about the conditions for a transcendent and enduring peace, by actions and a way of life inspired by precepts revealed to this Body of Believers by the mystical and cosmic Oneness which is omnipresent in the universe.” Since its establishment, Believers has urged an end to the military presence of the US. in every foreign country. It has done so by holding speaker workshops, a regular newsletter, monthly “windows of revelation” meetings, raising funds, staging protests and rallies, and writing members of Congress, the President, the Governor, and state legislators. The cosmic Oneness “revealed” in a recent Believers gathering that it should begin meeting more regularly and that it should evolve into a closer community, in order to more effectively carry out the purposes that will be “revealed” in future meetings. At the time of this revelation, most members had begun living in close proximity to each other in order to hold regular services and strategize how they might affect the November 2008 elections to end U.S. involvement abroad. It has already distributed “Cosmic Conscience,” a pamphlet/ voter guide evaluating each senatorial and presidential candidate based on their military and foreign policies. It also started circulation of an initiative in California for a constitutional amendment barring investment or business dealings between any state or local government and a business “participating in a material financial way" in a “military operation” abroad, as defined in the initiative. Charles Castro is the President of the Board of Wisdom (Believers’ governing body). Castro’s former attorney amended Believers’ purpose statement in the articles of incorporation and re-organized Believers as a church in 2002. Castro is Believers chief contributor. Since 2000, he has contributed both his own services and those of his investment and public relations firms to various Believers’ projects, and deducted them (in the aggregate amount of $12,000,000.00) from his taxable income as charitable contributions. (In one year, he donated an original oil painting, and deducted $2,000,000 [the advertised asking amount for the 14 months that it was offered for sale at a reputable art gallery].) Believers’ members generally make generous contributions of services, cash, and personal property to Believers, and deduct those contributions from their income. You, Castro’s private attorney, rush down to Believers’ L.A. offices in response to Castro’s urgent call. The Board of Wisdom’s executive committee scheduled an emergency meeting with you because two representatives of the IRS Regional Office dropped in asking to see all Believers’ corporate records, due to “certain concerns that just came to the attention of the Service”. Castro has also just learned that his personal tax returns are being audited. What is your advice to Believer’s Board? What is your advice to Castro? (ALSO ANSWER PART B, IMMEDIATELY FOLLOWING.) B. Explain the doctrine of cy pres. In your explanation, a. List its elements b. Describe the conditions under which it may be invoked by a party, and applied to a non profit entity c. Distinguish the doctrine of deviation, and d. Give examples of how cy pres and deviation might be appHed. Law of Non Profit Corporations Fall 2008 Final Examination Question 2 ANSWER PARTS “A” AND “B.” A. Uptown All The Time (Uptown) is incorporated as a 501 (c) (3) public charity in California. Its members consist of all the owners of property within the two square mile historic central district of Malaise, California. Its purposes are to revitalize the central district through public works, social and cultural events, and dealing with the homeless populations that frequent the district. Most of Uptown’s work has been limited to placing “digital” speaking street signs, installing bus stops with holographic Uptown business advertising, and installing interactive audio-visual building directories, all with digital 21st century themes and architectural treatment. Uptown members are small business owners who decide they need to raise funds for the more expensive projects needed to bring more cultural events and stimulate commercial sales in the area, thus raising property values. The Uptown Board negotiates with and enters an Executive Director contract with Dinky Palladian, a member of its board of directors. Dinky is a sharp, recently retired business executive who negotiates a compensation package which includes $500,000 initial salary (almost triple the previous director’s salary). While some board members oppose the high salary, they favor hiring Dinky. Dinky has a stellar first year at Uptown. Dinky hires Pinky Brown to open an operation for Uptown, called Uptown Open. Open operates out of a huge facility just outside the central district. The entranceway area contains literature describing the central district, the City of Malaise, Uptown business marketing material and the various Uptown projects and plans. The interior facility is a series of rooms and chambers arranged in a circle around a large central area (“the pit”). Each room and chamber features series of computer, game and other digital devices clustered by theme. Pinky rents the pit to a third party for use as an electronic arcade and food mall. Uptown provides janitorial service for the arcade area and also services the machinery, equipment and devices in the pit. Revenue from Uptown Open quadruples Uptown’s income. Uptown did not pay tax on any of its income during the times in question. David Smith (the Board CEO) meets privately with Dinky at her request since her probationary retention/ dismissal period is coming up. In the meeting, Dinky floats the idea to use half of Uptown Open’s revenues to construct lightweight portable sheds on a vacant lot across town, where it hopes to lure the homeless with temporary but free shelter. Smith is so pleased with Dinky’s success and creativity that he authorizes the project and renegotiates her contract, increasing her salary by $100,000. The following month Smith shows you, Uptown’s attorney, a letter from a member of Uptown. The letter complains about Dinky’s initial salary and that Dinky is too aggressive and secretive in her management decisions, keeping the membership in the dark (e.g., Pinky is Dinky’s sister). He has called for a complete review of Dinky’s activities at the next board meeting. He is threatening to write to the IRS. Smith fills you in. Discuss. (ALSO ANSWER PART B, IMMEDIATELY FOLLOWING.) B. What is a “public charity" within the meaning of 509 (a) and Treasury Regulation 170 (b)(1)(A)? In your answer: a. List the general categories of such charities; and, b. Summarize the requirements such charities must meet (e.g., income and support tests, alternative tests, testing period). ...
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This note was uploaded on 10/24/2010 for the course PR 123 taught by Professor Gramer during the Spring '06 term at Loyola Law School Los Angeles.

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Non.Profits Final Fall 08 - Law of Non profit Corporations...

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