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Unformatted text preview: Law of Nonprofit Organizations, Manny, Fall 2005 Nonprofit Organizations I. Introduction: CB 2 25, 33 49, Sup. 1-12, Excerpt from the Final Report of the Panel on the Nonprofit Sector 1. Code 501(a), (b), (c)(1) (25) [ 501(c)(8) (25) may be skimmed], 170(a), (b), (c), 508(a), (b), (c) 2. Problems: Introductory Problem, p. 58 3. General Principles Non-profits business association formed under state law, more lenient than fed law, but exempted from fed taxes under fed law. Non-distributional constraint hallmark of NPOs o NPOs can make a profit, but cant distribute it to those in control of the organization. o Any profits must be used for public rather than private purposes; all net profit after expenses go to fund orgs exempt public purposes. No dividends in the non-profit sector Profits cant be distributed to members/employees except as reasonable compensation or reimbursement for expenses o Upon dissolution, remaining assets must go to a charitable purpose. o Salaries have to be reasonable but comparable to those paid in the for-profit sector are fine. (In for profit sector, reasonable salaries also protect against irate shareholders). How salaries are set in non- profit sector is different though. o NPOs can still charge fees and dont have to give discounted services as long as for exempt purpose (i.e. educational) then it is still charitable. Can charge fair market value fees Can compete directly with for-profit orgs does raise questions of unfair competition The purpose not the method is the most important Tax exemption o Primarily concerned with exemption from fed income taxes, under IRC. Also a misnomer to some degree all NPOs subject to unrelated business income tax, also some excise taxes and penalties o Parallel State exemptions property taxes, etc o 501(a) Exemption from taxation: An organization described in subsection (c) or (d) or 401(a) shall be exempt from taxation under this subtitle unless such exemption is denied under 502 or 503. o 501(c) List of exempt organizations: The following organizations are referred to in subsection (a): 25 subparagraphs setting out categories of exemption Exempt Purposes o NPO doesnt require stereotypical purpose dont need to support the poor or needy, dont have to give services away for free Charitable means a lot more than this as construed by courts, IRS, states, legislatures Not only benevolent or philanthropic Keep definition flexible, evolve with society o When creating an NPO, organizational documents should establish broad charitable purposes Leave room for org to grown and expand, develop its mission Much harder to change purposes once the charter is filed o Org must be organized and operated exclusively for charitable purposes Exclusively under 501(c)(3) really means primarily must operate primarily for exempt purposes...
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- Fall '06
- Law, Tax exemption, Charitable organization, Non-profit organization, nonprofit organizations, Cy pres