January 9, 2010
The U.S. Tax Court has held that an organization cannot qualify as a tax-exempt charitable entity, in part because it has only one director (Ohio Disability Association v. Commissioner).
The court wrote that, where one individual controls an organization, there is an "obvious opportunity for abuse" and the situation "calls for an open and candid disclosure of the (entity’s) organization and operations." (State law permits a nonprofit organization with one director in Ohio.) Despite the conflict-of-interest policy and the articles’ prohibition against private inurement, "there are no procedures or personnel in place to ensure that either the stated policy will be followed or private inurement will not occur."
Bruce Hopkins commented: "Even though the decision is incorrect, it provides the IRS with authority for the propositions that (1) where there is only one director of a nonprofit organization, private inurement is just around the corner, (2) a charitable organization must have a conflict-of-interest policy, (3) it must have "procedures or personnel in place to ensure" that the policy will be followed, (4) and there must be some form of "oversight" to prevent the organization from being operated for the benefit of the individual."
"It is astounding that this opinion has been written. There is nothing in the law to support any of these propositions."
Source: NonprofitCounsel, January 2010
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