A Short Note on Managing the 501: Who is in Charge?
© 2014 EEASI Corporation

 

When new officers are elected, there arises a question in many member's minds as to who is in charge. The courts and the IRS have made it clear that it is only the full Board of Directors that is in charge, not the president or any other officer. For any mistakes that any officer makes, the Board is responsible as well as the officer.

The Board must be fully cognizant of any officer's decisions and must approve of their decisions before the officer carries them out. In short, the Board is charged by law to be constantly looking over the shoulder of the president or any other officer who is acting on behalf of the 501 organization. Further, no subset of the Board and officers are empowered to act independently of the full Board of Directors. Any such action is a violation of the laws governing the status of an organization as a 501.

Further conflicts can arise when a new set of officers are elected. The new officers may feel that they have the right to rearrange the board to suit their program. Any such action by a new set of officers can be viewed by the law as an attempt to commandeer the 501 for their personal use. Essentially, they will be viewed by the IRS as a rogue element intent on a takeover of the 501 in violation of the 501charter. A common problem among uninformed officers is that they have the right to force out members of the board that do not agree with their program. No such right exists and may result in a loss of the 501 status of the organization. By law, a 501 is no the property of any single person; it is a serious legal entity that is not to be used as a training ground for aspiring managers.

The 501 charter may be protected by an appeal of any member to the IRS for clarification through submitting form f13909 to the IRS. the form allows that the submitter's identity can be protected if retaliation is suspected by the submitter.

Violations do not have to be factual. If any action gives the appearance that a violation is in progress, it can be treated as if the violation was a fact in order to protect the good will of the organization from false perceptions.

In summary:

  1. Only the entire Board of Directors, not the officers, governs the 501 organization.
  2. The president and vice president serve at the pleasure of the board and have no autonomous authority whatsoever.  Therefore, all actions of the president and vice president must be approved by the full Board.
  3. Allowing the president and vice president or a subset of the Board and officers to act without the full Board’s approval is prohibited.
  4. The Board cannot even delegate authority to a subset of the Board and officers to perform on behalf of the 501 organization.
  5. If such invalid delegation is admitted, the Broad still remains fully responsible for the actions of the subset of the Board and officers and are thus liable for their actions.
  6. Such delegation, were it to occur, jeopardizes the 501 status of the Organization
  7. Even giving the "appearance" of a violation, may be considered a violation.
  8. Form f13909 may be used by any member of the organization to obtain help from the IRS in finding a remedy to any misconduct that could appear to be inconsistent with the organization's 501 charter.

Court cases involving 501(c)7 are rare so we must look at 501(c)3 for insight into how the law is interpreted. Any generic decision by the courts for 501(c)3 extends to all 501's by analogy.