Author Topic: Report: Nonprofits 'Gaming the System' for Farm Subsidies that Never Reach Farms  (Read 252 times)

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Offline Rapunzel

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Offline Oceander

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Without knocking the seriousness of the story, I would point out that a corporation not being in good standing, or even having been "involuntarily dissolved" by the state - also known as dissolution by proclamation - really doesn't mean anything at all; about the only real effect it has is to prevent such a corporation from suing in the state's courts (the corporation can respond in court if it's sued by someone else).  In particular, as far as the IRS is concerned dissolution by proclamation is a nothing, a "so what".  Why?  First because the definition of "corporation" in the tax code doesn't depend on whether the entity in question is in good standing with the jurisdiction in which it was formed.  Second, because the general classification into which separate legal entities fall is "association" which is much broader than merely "corporation".

For those who care, or who have finished organizing their sock drawer for the umpteenth time, there's an IRS article addressed to their Exempt Organizations officers (the folks who handle nonprofits and charities) that discusses this very topic:  http://www.irs.gov/pub/irs-tege/eotopici92.pdf

The more pertinent take-away from that article is this:
Quote
The Exempt Organizations specialist will sometimes be faced with an exempt corporation whose corporate charter has lapsed or been revoked by the state because the corporation has failed to pay the state corporate franchise tax. The question arises, is such entity an exempt organization for that year? We believe the answer is that a lapsed corporate charter will rarely have any adverse effect on the exempt status of an entity. If an entity is neither a statutory corporation, nor a de facto or de jure corporation, then consideration should be given to whether it is an association, which is treated as a corporation for federal tax purposes. Reg. 301.7701-2(a)(1). In almost all cases the lapsed charitable corporation will have directors or others associated to conduct its charitable activities and will otherwise meet the major characteristics of associations discussed below.



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