Why a non-profit organization can still make its employees/corporate officers lots of money
Have you noticed that almost immediately after giving you their name, a debt consolidation company will say "a non-profit organization"? This is to lull you into a false sense of security that you are being "helped" by people who only have your best interests at heart.
Don't you find it strange that there are virtually (I personally have not seen one) no debt consolidation companies that are not non-profit?
Most non-profit organizations, in order to be officially declared non-profit, must qualify with the IRS under a tax code known as § 501(c)(3). The requirements for qualifying are vague. Here is quote from the IRS website concerning § 501(c)(3):
To be tax-exempt as an organization described in § 501(c)(3) of the Code, an organization must be organized and operated exclusively for one or more of the purposes set forth in § 501(c)(3) and none of the earnings of the organization may inure to any private shareholder or individual. In addition, it may not attempt to influence legislation as a substantial part of its activities and it may not participate at all in campaign activity for or against political candidates.
The organizations described in § 501(c)(3) are commonly referred to under the general heading of "charitable organizations." Organizations described in § 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with § 170.
The exempt purposes set forth in § 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, recreation and arts, and the prevention of cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening of neighborhood tensions; elimination of prejudice and discrimination; defense of human and civil rights secured by law; and combating community deterioration and juvenile delinquency. |
These terms are extremely general and fit lots of types of intents, or purposes. There is no in-depth analysis of the tax-exempt status other than the tax returns required, as are normal corporations. So how, you are thinking, do people make money out of a non-profit organization? Through employee salaries. The IRS does not specifically state limits other than "reasonableness." Is a million dollar salary reasonable for an executive whose company can afford to advertise regularly on nationwide TV? I don't know. Employees of non-profits have their salaries taxed just like employees of any other type of company.
All a company has to do to maintain it's non-profit status is to not make any money. Normal operating expenses of any company include employee salaries, advertising costs, business travel, business meals, etc. Those who control these non-profits are obviously in the position of benefitting from the control of all the money they received as "donations." Most debt consolidation companies do require a donation, either a flat fee or a percentage of your payment each month to cover "operating costs."
Did you also notice that while it may not participate in political campaigns, it is allowed to "influence legislation," as long as it is not a substantial part of its activities. So what is substantial? 50%? 25%? The wording is really too vague to police attempts by these companies to hire professional lobbyists, should they attempt to do so.
I, for one, do not like the smell of the success of these companies as they continue to proliferate.
Update May 2006: Always thought the the IRS was your enemy? Well, everyone or thing has a good side. Recently, the Wall Street Journal (May 16, 2006; Page D2) published an article the efforts of the IRS to investigate and revoke the non-profit status of credit counseling agencies who were taking advantage of their non-profit status to take advantage of consumers. You can see the list deletion here. (not all are credit counseling agencies) For a complete list of the efforts currently underway to identify these companies, click here.
Do you have a question you feel we haven't answered?
For a small fee, you can talk to a counselor on the phone or Buy the Book!
|
