honor among thieves

Since I am a law school grad, I often know things that people who didn't go to law school don't know.  I know, for example, that a 501(c)(3) nonprofit has to have, at a minimum, annual board meetings or it is not entitled to nonprofit status. I know, as another example, that a nonprofit board is jointly and severally liable for acts and negligence perpetrated by employees of the nonprofit. I once told this to a friend who abused the 501(c)(3) status to avoid paying income taxes but he never, not once, had a board meeting. When I told him a nonprofit board is liable for all liabilities of a nonprofit as well as any acts of negligence or malpractice, he said "Then what is the point of incorporating? I thought being a corporation protected the organization from liability."  "That's for-profit corporations. There is a price to pay for the not insignificant privilege of not paying organization income taxes: among such pricing is board liability and the IRS requirement that there be an objective and actual board of directors directing how that nonprofits finances are handled. A founder of a nonprofit can sit on its board but they can't direct the finances without a real board giving real approval to how an org's money is spent.

This person was furious with me when, as I confronted him about other examples of his lack of integrity, I threatened to report him to the IRS. Not having a board was just one of the illegal things he did with his nonprofit. He had a partner in this nonprofit fraud. He and his partner think of themselves as good men. And I, truth told, think of them as good men. But we get what we deserve. These guys said "Everyone uses nonprofits the way we do."  Yeah, many people abuse the nonprofit tax status although if the IRS were to audit such a fraudulent nonprofit, the people faking their right to not pay taxes on organization income would be personally liable. And they could be found guilty of criminal fraud.

So many people think they are smart enough to figure out the law as well as a lawyer who worked her ass off for years to acquire the knowledge a lawyer has to have to be licensed.

And guess what else? If a couple of 'good' guys form a for-profit corporation that is just a shell for an ordinary business partnership and if their corporation does not have enough capital assets to cover any and all potential liabililty if they screw something up, it is possible to pierce the corporate veil of a for-profit.

A fraudulent nonprofit wrongly reporting itself to the IRS as complying with 501(c)(3)