Answers to Reader Questions (July ’09)
At the end of every newsletter, we put out the call for “topic requests”. We have used quite a few reader questions or topic suggestions for article topics.
Some questions or topics do not require a whole article to answer or discuss. We save those to make a multi-topic article from time-to-time. That’s what we’re going to do today. Keep sending your questions or topics and make sure that you read our blog articles for more information on other topics. On to the questions…
Q: Can any or all of the nonprofit’s board members live out of state?
A: While not required by federal law, many states have residency requirements for a corporation’s board members. No states require that all board members live in the state of incorporation, only the registered agent is required to live in-state. Our suggestion is that at least one board member live in the state of incorporation.
Q: What are the differences between what the IRS considers a “ministry” and a “church”?
A: A more detailed explanation is needed (perhaps a future article), but some of the requirements for a religious organization to be determined a church rather than a ministry are that a church must have: a formal code of doctrine, an established meeting place, an established congregation and a definite and distinct ecclesiastical leadership. See the IRS Tax Guide for Churches and Religious Organizations for more information.
Q: Do we need to rent an office?
A: No. There is no requirement that a nonprofit organization have a fixed independent location.
Q: How do we determine the value of a car or other non-cash item donated to us?
A: Generally, non-cash items such as clothes, for example, require that you give out a receipt without a stated value. The value of the donation is left to the donor. Donations of items that would be valued above $5,000 require a qualified professional appraisal of the donated property from a qualified appraiser. Transportation items (cars, airplanes, boats, etc.), have different rules. If the organization, itself, is going to use the transportation item, then the donor determines fair market value. If the organization is going to sell the item, then the organization reports the amount of the sale back to the donor, and that determines the value of the item. See IRS Publication 526 for more information.
Q: We want to set up a nonprofit organization to raise money for a specific individual (who may be sick, out of work, etc.). Does the IRS allow this?
A: No. A nonprofit organization cannot be formed for the purpose of benefiting an individual or a specific family. When you see, on the news, that a fund has been set up at “ABC” bank for the “XYZ” family because their house burned down in a fire, know that donations to that fund are not tax deductible for the donor.
We will answer more reader questions at a later date, so stay tuned!
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Question: What happens when all but one the board of directors resign at one time – does authority to make decisions rests temporarily with the last board member and can directors resign like this under a 501c3? Thanks.
That’s a tough situation, Marie. Technically, a quorum becomes impossible to form when only one board member remains…but, you gotta do something, right? The best advice I can give you is to avoid any decisions of which you become solely liable. Recruit new members immediately and record such in the minutes of the organization. Add one board member via your vote, then have the two of you add the next by vote and so on. That’s about all you can do. Good luck!
What accounting books are needed for a 501(c)(3)?
I’m not sure what specifically you mean by the question, but I’ll give it a shot. There are a number of very good accounting software applications that are available at a relatively good price. It is usually unnecessary for the average nonprofit to invest in specialized accounting software for nonprofits. Usually it is the same program as the regular version, only with titles changed and a much higher price.
The most important thing to remember is “garbage in, garbage out.” In other words, if the person keeping the books doesn’t understand nonprofit accounting principles, it matters little the tool that is used.