Outside counsel . . .

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What do you do when you become unsure of your counselors’ competency to answer your questions?

I try to find new counselors.

This morning, I thought of the accounting firm whose services are used by all the 501(c)(3)s with which I’m familiar. I looked them up on the web and just wrote them an email:

To: info@___________.com
Subject: For Denver Office

Dear Friend:

My wife and I have been urged by our legacy planner to consider shifting our S-designated InquisiCorp Corporation to 501(c)(3) status, thus freeing millions of dollars, otherwise to be consumed by taxes, for Kingdom purposes. I should note that InquisiCorp makes virtually all of its approximately $_______ in annual profits from sales of educational materials through its subsidiary, Sonlight Curriculum, Ltd.

Let me tell you: our legacy planner’s proposal sounds great, and my wife and I would be delighted to make the shift to 501(c)(3) status if such a thing were legally and fiscally responsible.

I am concerned, however, that our legacy planner’s proposal may be outside his personal area of experience and knowledge. And, while he passed his proposal by our corporate CPA, I am quite sure his proposal is outside our corporate CPA’s area of primary experience and knowledge as well.

I am sure it is not outside your area of expertise, however! And so I come to you for specific input on the following issue.

My wife and I are happy to relinquish ownership of the company and to forgo all profits. We are not interested, however, in raising funds through appeals for donations. If “customers” want to donate toward various charitable purposes in which we are engaged, we are happy to receive their donations and would be delighted to offer them tax-deductible receipts. But we do not want to have to raise funds.

With these things in mind, then, I wrote to our legacy planner,

I just went to the http://form1023help.com/_wsn/page2.html webpage where the author discusses the “pros & cons” of 501(c)(3) status. I am curious:

How likely is it that we can really “prove” our sales of Sonlight Curriculum materials are related activities (rather than taxable “unrelated” activities)?

According to the list of 501(c)(3) responsibilities, a 501(c)(3) must “generate public support” for its activities. –What does that mean? Can sales of goods to lots and lots of people really be construed, accurately, as “public support”? Or does “public support” mean (and require) donations?

I asked these same questions of two personal contacts of mine who I thought might have experience in this area. First, from _______. He replied:

You may want to seriously consider connecting with _____ folks. I have a couple of friends there.

As far as I know, they switched from for-profit to 501(c)3. And as I recall, it was HUGELY painful.

And then from ________, founder of _________ and half a dozen other non-profit and profit organizations:

[Concerning the need to raise donations] I will add a guess. I know Scripture Press was non profit and thought they gained tax exemption but after a few years was deemed a moneymaking (not needing donations to operate) operation and had to pay $800,000 back taxes. Basically, any enterprise that does not need donations to operate (and thus give tax-deductible receipts) is considered able to pay taxes and thus denied tax exemption. Meanwhile a commercial operation cannot render tax deductible receipts.

I am wondering if you might be able to affirm or disconfirm what these gentlemen have said to me and/or answer my direct questions? Considering what I have stated concerning my wife’s and my interests in the matter: should we pursue changing our firm’s status?

Thanks so much!

Sincerely,

John Holzmann, Co-Owner

PS: I know of [your firm] from my 6 years on the board of ______ several years ago. I am currently on the board of _______. My wife is on the board of ______. (I am not on [this latter organization's] board, but I have been involved in some pretty “inside” counsel with and for them as well.) Both my wife and I were on staff at the U.S. Center for World Mission and then, for a couple of years, at Caleb Project . . . before Sonlight Curriculum completely consumed us. FWIW.

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