Not too long ago it was not uncommon for a group of concerned citizens who wanted to make their community a better place to get together and form a charity to achieve their dream. Often these individuals would form the organization without the assistance of an attorney or any other professional. The world today is a different place. Even acts to carry out well-meaning charitable intent can be much more complicated than one would hope. Ask the three men who on January 11, 2008 were convicted in a federal court in USA et al v. Mubayyid et al for engaging in a scheme to conceal information from the United States government. These men were convicted for, among other reasons, filing inaccurate tax forms on behalf of an organization for which they sought tax-exempt status.
The court case may be the first, but undoubtedly not the last, of its kind. The three men were tried and convicted for not disclosing all of the relevant facts in connection with an organization's application for tax exempt status from the Internal Revenue Service ("IRS"), and for further concealing such information in its annual information returns filed with IRS (known as IRS Form 990). In this case, had all of the facts, as they have been determined at trial, been disclosed at the time the application was filed, the organization would not have received its tax-exempt status.
Although many individuals do not realize it, those submitting the application for tax exemption do so under penalties of perjury. The same is true of the IRS Form 990 (and for private foundations, the IRS Form 990PF). These forms are sworn statements. Thus, the failure to accurately complete these forms can be punishable as a criminal offense. While a great deal of information pertaining to the completion of these forms may be found on the Internet and in guidebooks available for purchase, these resources are not a substitute for experienced, skilled professionals who work with charities on a daily basis.
While it is unlikely that most individuals would find themselves in the situation of the men who were convicted in Boston, this case is nevertheless an important reminder that working with charities is complicated. The laws impacting charitable organizations have changed numerous times in recent years, and the IRS is becoming increasingly active in its regulation of charities. If you are involved with a charity, or are thinking of becoming involved with a charity, make sure you seek experienced, skilled professionals to work with you and your organization. The consequences of missteps in starting or administering the organization can extend far beyond the income tax ramifications.
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Schiff Hardin has an intense commitment to serving the legal needs of tax-exempt organizations, matched by significant experience and practice capabilities in this area. Our attorneys provide comprehensive counsel to a wide array of public and private philanthropic, health care, medical and scientific research, housing, neighborhood redevelopment, cultural, artistic, civic, college and educational, and religious organizations, as well as social welfare organizations, trade associations and business leagues, business and housing cooperatives, and professional fundraisers. For more information about the services Schiff Hardin LLP provides to tax-exempt organizations, please feel free to contact one of the attorneys listed below.
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