If you’re concerned about the misdoings of a nonprofit corporation, what can you do? What types of issues can you complain about? Who should you contact?
If you’ve been notified by a government agency that your nonprofit organization is being investigated, what should you do?
What type of organization is it?
State corporation? State tax-exempt? Since each state law has specific laws for nonprofit corporations and their directors (and some have laws for unincorporated associations), you need to know the organization’s type of business entity. You should check to see if the organization is a registered nonprofit corporation; each state should have a database you can search. For example, in Texas, you can search for which nonprofit organizations are registered as corporations and/or have a state tax exemption.
IRS Tax-Exempt? Check to see if the organization is an IRS tax-exempt organization. This will help you see is it is in good standing with the IRS and which type of 501(c) entity it is. This way, you can determine the Internal Revenue Code’s requirements. You can use the IRS’s search tool: EO Select Check.
Who reviews nonprofit corporation complaints?
Before filing a complaint, you have to consider the possible transgression that may have occurred. And, we recommend you deal with the organization directly first to try to resolve the concern. However, if you can’t resolve the problem with the organization’s board, depending on the nature of the complaint, you may chose to file a referral with either your state’s office of the attorney general, a state tax office, a state department of charity supervisors, a labor or employment department, and/or with the IRS.
Complaints with a State Office
States have various oversight offices. For example, some state tax agencies supervise all corporate tax matters, including those tax-exempt issues. Other states have a Secretary of State’s office manage ongoing corporate compliance. Most states have a charitable regulation agency. And most state Attorneys General have oversight over the actions of charities in its state.
Some offices that may supervise certain nonprofit organization activities:
- State tax office, comptroller
- State business or corporate office
- State attorney general
- State charitable compliance division
- State employment, labor department, or EEOC
- Gaming, raffle agencies
In Texas, for example, the Attorney General Charitable Trust Division may investigate issues involving mismanagement of charitable assets, such as:
- improper use of charitable funds
- diversion of charitable trust funds from their intended purpose
- sale of a charity or conversion of a non-profit corporation to “for profit” status at a price that is unfair to the charity
- excessive amounts paid by a non-profit corporation or charitable trust for salaries, benefits, travel and entertainment
- self-dealing transactions either between a director and/or trustees and the non-profit corporation
If you believe a Texas nonprofit organization has mismanaged its charitable assets, and you haven’t had success with working on the problem directly with the charity, you may consider filing a complaint by submitting a complaint form. While your complaint will be processed, not all of the ones submitted will be investigated. Additionally, recall that the Attorney General will not give individual citizens legal advice or opinions, and that office represents the public interest, not any one individual person’s concern.
Complaints with the IRS
The IRS has a similar process in place where individuals can report alleged abuses of a nonprofit organization’s tax-exempt status. To file a complaint, individuals must submit Form 13909 to the IRS.
Some examples of incidents that may brought to the IRS are as follows:
- Directors/officers/persons are using income/assets for personal gain
- Organization is engaged in commercial, for-profit business activities
- Income/assets are being used to support illegal or terrorist activities
- Organization is involved in a political campaign
- Organization is engaged in excessive lobbying activities
- Organization refused to disclose or provide a copy of Form 990
- Organization failed to report employment, income, or excise tax liability properly
- Organization failed to file required federal tax returns and forms
- Organization engaged in deceptive or improper fundraising practices
After reviewing the complaint, the IRS will determine the appropriate next step.
When does your organization need an attorney?
The Office of the Atttorney General and the IRS’s role in investigating complaints against nonprofit organizations is to protect the public’s interest. If your organization is being investigated by a state agency and/or an IRS review or audit, your organization should hire an attorney who specialized in nonprofit and tax-exempt organizations.
Our award-winning attorneys understand and can guide you through these complex, yet delicate, matters. Cullinane Law Group will work with your organization through daunting times, including:
- IRS audits and examinations
- Texas Attorney General investigations
- Fraud, embezzlement or illegal activity
- Board fiduciary, liability and indemnification
- Internal investigations
- Employee dispute
- Conflicts of interest
- Criminal concerns
- Insurance policy claims