Location: Texas, United States
So for background my in-laws are missionaries in Germany and have been for 33 years. Financial support has been difficult but they have managed to gain support from several churches in the United States. Their biggest supporter is now in Texas.
While doing their rounds this summer visiting different churches, their biggest supporter stated that they were uncomfortable sending support to individuals due to tax legality issues, and would feel more comfortable if they were giving the money through a non-profit organization. They got the advice from a gentleman who says he’s opened many 501C3 organizations that they should just do that and then this problem would be fixed.
According to my husband they had a call last night with the kids while I was at work (we are all American citizens who live in Germany) that they thought that they could just go to the bank and connect their current bank account to the 501C3. My husband was once a business manger of a non-profit theater and explained that’s not how it works. That you have to open a separate account for the 501C3 and essentially pay yourself out of the business. He also said they just couldn’t take all the money out of the business to pay themselves. My husband’s mother joked that she should just appoint the children as officers. My husband truly thought it was in jest. They ended the call and most of the adult kids went to sleep while I was still at work.
I get off work to the message that they have filed their organization paperwork and in that filing they have named my husband Treasurer, his brother Director, and their sister 2nd Director. I am just catching up on everything as I am getting off work and am essentially like WTF. I think my husband‘s mom thought that this is like high school class officers and doesn’t actually have legal standing. I informed them that you can’t just name someone an officer of an organization without their consent especially to the IRS. It’s not technically legally binding (I left out that this could constitute as fraud). They at least ended that convo saying they should have asked first and if anyone wanted to remove themself off the organization they would do that, but the paper work is filed and they would have to wait until it’s processed.
My question: what are the legal and tax liability ramifications of an officer of a 501C3? If the organization ever had tax issues could the siblings be audited as well or would it just be the 501C3 that gets audited? They aren’t the most knowledgeable people when it comes to tax law and my worry is just from that we could have issues. I appreciate the legal advice over some random guy at a church who has opened a ton of 501C3. I have worked for a for profit that had a non-profit branch that went through a tax audit and it was one of the worst working experiences so I am a bit scarred. Any advice is appreciated.