Legal Question in Tax Law in Alaska

Re: I Am Filling out IRS Form 1023 And Need an Another Opinion

Your structure should be adequate for a private foundation and will probably be adequate for a public charity (which is what I believe you are seeking to create). As you are aware, there is not a black and white test to make sure. However, the requirement for unanimous agreement and the prohibition on receipt of compensation probably cures any control issues.

In addition to the control issues, another key concern is that the charity is not being used for "private inurement." Since your arrangement prohibits compensation for your services, that is a good start towards avoiding private inurement. However, private inurement problems can arise in contexts other than pay. For instance, excessive expense reimbursements or using the charity to steer work towards a private business are examples where private inurement isues could come into play.

In completing your 1023, in addition to attaching the corporate bylaws and documents, you should describe in detail the arrangement that you have created. It is important for two reasons that you make this arrangement clear to the IRS. First, if they do not approve, they can notify you and you can make changes (such as expanding the board members to five, etc.) and then get approval. Your application does not usually get completely denied if you have an problem. Normally there is an opportunity to make corrections and then receive approval.

Secondly, your exemption application will only get temporary approval. After a period of years, your activities will have to be approved by the IRS before you can get a final approval letter. If during this process for final approval, the IRS objects to the arrangement and wants to deny your final exemption letter, you can show that they previously approved the arrangement in the initial application and have a basis to prevent the denial of the final exemption letter.

I hope this is helpful and wish you the best of luck in your charitable endeavors. If we can be of further assistance, please do not hesitate to contact us.

Sincerely,

David Jacquot

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