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Are financials required to be made public in a 501(c)(3)?

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Are financials required to be made public in a 501(c)(3)?

Our recreational softball league began with an election but since then the board has become secretive. Recently we have heard that they are using League funds for food and alcohol purchases, amended by-laws that we as members have never seen, appointed themselves for three-year terms and will be appointing two persons to fill vacancies. My questions are: 1. Are financials required to be made public in a 501(c)(3)? 2. Can they fix the board positions? 3. Can they appoint directors? 4. Can League funds be used for food and alcohol?

These are almost all questions of state law.  Assuming that you are real members of a nonprofit corporation, with voting and other rights akin to those of a shareholder in a business corporation, you would normally have the right to inspect the books and records, including financial information, and would have the right to see the financials upon demand.  With a tax-exempt organization generating revenue of more than $50,000 a year, the Form 990 or Form 990-EZ tax information return is a public document when filed annually and must be shown to anyone who asks.  As a member of the corporation, you should not have to wait for that filing to get financial information, however.

The bylaws would normally spell out the right of the board to amend bylaws, fix terms, and appoint to fill vacancies.  (See Ready Reference Page:  “Bylaws Function as ‘Constitution’ of Nonprofit Corporations”) It would not be unusual for the board to have the right to fill vacancies, at least between annual elections.  You also have a right to see the bylaws to see whether they are in compliance.

I don’t know enough about the use of funds for food and alcohol to venture a guess at that question, but you can imagine food and wine at a fundraiser, or even food and beer at the end of adult softball games that would be incidental and permissible. If you find out that the spending report is true and you don’t like the circumstances, you can ask the board to change the policy. If the incumbents don’t want to change but enough members do want to change, your recourse is to elect new directors. Of course, if you are not a legal member and are just a contributor, you don't have legal rights other than to see the filed tax returns.  You may be able to apply some pressure with the other "members" but you don't have the right to see financial records or throw the bums out.

Tuesday, October 2, 2012

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