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    9 Replies Latest reply on Feb 26, 2008 10:13 PM by Lighthouse24

    need real answers for a confusing tax question.

    Keeler Wayfarer
      I was left a research group when my friend passed away. The research group takes donations for research by private groups and by giving "tours". I have been to the SBU and to both town and county buildings and neither knows what kind of business license I should carry as it's not a normal research group, and/or no one seems to know which kind of form I should fill so that I can make sure I am legal with the IRS. Everyone who is involved is a volunteer, however we try and make sure that no out of pocket expense occurs. I have looked at the list for non-profits and we don't fit. . I just figured that I would claim what the group made and pay the taxes that the IRS wants out of the donations. Any help would be welcome
      Thanks
      Keeler
        • Re: need real answers for a confusing tax question.
          Lighthouse24 Ranger
          You indicate that you were "left a research group" -- what exactly did you receive (stock, business property, financial assets, a bank account in the group's name)? What you'll need to do next really depends on what type of legal structure this group existed as before your friend's passing, and in what manner and form he/she transferred that entity to you. If you can provide some more information, I sure someone here can help.
            • Re: need real answers for a confusing tax question.
              Keeler Wayfarer

               

              I did research with the gentleman for 13 years. He left me the name, the bills, and the people who volunteered for him. I would like to keep the research going, so I have agreed to be their leader. There is equipment that was his, that is used for the research, but that is it. After he passed, I realized that he didn't claim anything. It was just a hobby to him. We basically do research and tell people about it. Nothing sold, and the only money gained is what comes from donations to help with gas, film, and equipment for the volunteers. There is no real profit as we only took in less than 2000 last year.
              Thank you for your reply and for any help any of you can give me.
                • Re: need real answers for a confusing tax question.
                  LUCKIEST Guide
                  Welcome to this web site. Great Question. Where are you??. What State??
                  You need some professional help, like a Lawyer or an Accountant.
                  Did he file TAX RETURNS??
                  What are your plans for the next 3 to 5 years.
                  Are you going to run this as a BUSINESS?? or continue like a hobby.
                  LUCKIEST
                    • Re: need real answers for a confusing tax question.
                      Keeler Wayfarer
                      He didn't file anything. No taxes, no license, nothing. I'm not looking to make any money on the business, just want to make sure that none of us pay out of pocket for doing the research. I do agree that I need to talk to a lawyer or someone, however, I didn't even know how to justify taking the funds out of the group to pay for it. As far as the next 5 years, I hope to prove what we need to, help a lot of people, and write a book, and not go to jail for tax fraud. lol.

                       

                      Thanks for the help
                      Keeler
                    • Re: need real answers for a confusing tax question.
                      Lighthouse24 Ranger

                      Let's start with the name -- is it registered with your state or county clerk, does it have a federal tax ID number, and/or a bank account under that name? It sounds like the answer to all of those is "no." In that case, the group really doesn't exist as a legal entity -- as you indicated, it was in a legal sense a "hobby" for your friend, so any taxes due or other obligations (including bills) that exist are a matter for his estate.

                      Since you refer to the gentleman as your friend, I assume you're not part of his estate, and didn't automatically inherit anything of his under your state's law. So as far as the equipment goes, did you get it in probate, did his estate simply agree that you could keep it, or does his estate not even know it exists? The same could be asked of any intellectual property that resulted from the group's research. It sounds as though the group's "assets" would all be considered his property under the law, so you need to confirm that you're in legal possession of them now.

                      Once you've done that, if your desire is to continue the work of group, my advice would be to register it, get a tax ID number, and open a bank account in the group's name -- so you can separate it from your personal obligations and finances, and take advantage of whatever tax benefits it offers. Choosing the preferred legal structure for the group and then following the process to register it depends on the state in which you are located, so a little more information about that is needed to point you in the right direction.

                      The people he "left" to you are volunteers, so they are not legally obligated to him or you. They can do whatever they want (including continuing to volunteer for the group as a separate legal entity under your leadership).
                        • Re: need real answers for a confusing tax question.
                          Keeler Wayfarer
                          That's just it. I went to both the city and county buildings to register it. It didn't fit any catagories. And don't laugh, but paranormal research just doesn't fit under any of the listings that the goverment has set up. The city people sent me to county, county sent me to city. The best they could come up with is a fortune teller classification. (and that was 500 dollars a year...more than we probably take in) There is no place of business as we walk around town and just talk to people. We go to people's homes to do investigations, but never take money from them. We are in Va .. and as far as the estate goes....
                          everyone just expected me to continue, so after the funeral they just told me that they would help me get the stuff out of his home. I did open a check account so that I could keep the money straight, however, it has a whole 36.00 dollars.
                          Thank you for all your help
                          Keeler
                            • Re: need real answers for a confusing tax question.
                              Lighthouse24 Ranger

                              As I understand the situation now, you seem to have three basic options:

                              1) Run the group as a hobby the way your friend did. According to the IRS, the activity is only considered to be a "business" if it is carried on with the reasonable expectation of earning a profit. If you are not expecting to earn a profit (and in fact don't earn a profit in at least three of five tax years), then it is a "hobby" and you'll have no tax worries. Of course, you can't generally itemize expenses or deduct losses for a hobby the way you could a business. Even if you decide it's a hobby, it's essential to keep good records as evidence that you're not earning a profit.

                              2) Incorporate the research group in Virginia, and file for exempt status as a "social club" under Internal Revenue Code section 501(c)(7). (I think this would a lot easier path than trying to qualify as a foundation or as an educational or religious organization.) Your volunteers would become "members" of the club. You'd also be required to comply with other applicable regulations, operate as a corporate entity, and file tax returns -- but you'd have tax-exempt status. For more info about forming a corporation in Virginia, visit http://www.scc.virginia.gov/division/clk/forms/brg.pdf. For more info about regulations regarding social clubs, visit http://www.irs.gov/charities/nonprofits/article/0,,id=96189,00.html.

                              3) Form a regular for-profit business in Virginia. This is probably the least appealing option since, as you noted, it could cost you more to have the business than it would make in profit. Reimbursing the volunteers for their work under this structure could also be tricky.

                              Are we getting closer to a helpful answer?
                      • Re: need real answers for a confusing tax question.
                        Ed O'Gee Adventurer
                        Not sure how long you can wait but if you look on the homepage, their is a tax expert coming on the site next week. Why don't you post this question there (or maybe Bank of America will move it for you) and see if you get an answer to this question.

                        Ed