Ask a Lawyer - Today's Q & A

Most non-profits are formed as non-profit organizations under state laws that deal specifically with such organizations. There are not shareholders or owners -- instead there are directors or trustees who control the entity for the benefit of the public or a defined class of members. So, there are no profits to distribute to any owners. Unless the non-profit also obtains tax-exempt status under federal law, though, it will still likely have to pay corporate tax on its net income.

This does not mean that a creator or founder cannot be paid a reasonable salary or fee for managing the non-profit. But this would be compensation for services rendered and not "profit" in the true sense of the word. In order to apply for and obtain tax-exempt status, it would also have to be shown that such payments would not violate prohibitations against private inurement.

The best known tax exempt status is probably as a public charity under Internal Revenue Code section 501(c)(3). Again, the basic steps are that you first have to form and duly organize a non-profit entity under state law. You then have to file a Form 1023 (Application for Recognition of Exemption under 501(c)(3) of the Internal Revenue Code) to seek tax-exempt status under federal law, and the IRS has to approve it.

You can pull up a copy of a Form 1023 on the IRS's website. Currently, there is a minimum $300 filing fee. You will see how complex the application process can be. It should help you, though, to develop a better understanding of what the requirements are for becoming a tax-exempt entity.

I recently received a phone call from a debt collector stating that I have an unpaid credit card from 1996!! I have no recollection of this credit card; and the credit card company no longer has files on this account. How is this possible?? And if I or the debt collector has no real proof am I required to pay this?

It's not clear if the debt collector bought this debt or is collecting it for someone else, but it probably isn't collecting it for the credit card company you called. In order for the debt collector to obtain a judgment against you, it will have to prove in court that you owe the money. That will take some kind of evidence.

It's often the case that debt collectors or debt buyers buy debts without anything other than the seller's word that the money is owed. Therefore, it's very possible that this collection agency does not have any proof that you owe this money. It just impacts the price that the debt buyer pays for the debt.

If you do not owe the money, then tell the debt collector that you do not owe it and ask that they stop calling you and contact you only in writing. I suggest that you also put that in writing and send it to them.

If they can't prove that you owe them anything, and you don't think that you do, then I wouldn't pay them a dime. Do check your credit report though to make sure this isn't there. Visit Federal Trade Commission (FTC) to learn more.