So You Think You’re A Nonprofit
I get it. Your primary concern is the DEA. But if the IRS isn’t a close second, remember that Al Capone was a very real person who went to a real prison for tax evasion.
This is the thing: If you are operating a dispensary, you’re operating a business, and it’s either for profit or it’s not. And if you think you’re a nonprofit but you really aren’t, you could be in trouble. Al Capone trouble.
In defense of those who have opened dispensaries in Michigan, some have made a real attempt to do things correctly, but just as many have not. Most started as nonprofits because law in this country tends to move West to East, and everyone did what California was doing, because that seemed like a good idea at the time. But if you are going to hold yourself out as a nonprofit, you actually have to be one, and that requires much more than putting a donation jar on the counter.
The only basic difference between a for-profit company and a nonprofit organization is that a nonprofit does not pay income tax on most of its revenues. At the end of the year, when it has money left over, it can’t distribute the leftovers. So, here’s a little test. You’re probably not a nonprofit if:
- You wink when you say “donation.”
- You get your legal advice from your friend’s brother who worked
at a dispensary in San Diego.
- You don’t have or cannot locate corporate documents, bylaws,
meeting minutes, resolutions, your federal tax ID number or board members;
- You think you own the company;
- You do not know your tax exempt status or
- The last thing you did was file “some papers” with the state three years ago.
Being a nonprofit organization is a task, and calling yourself one is serious business. For years these organizations have been vehicles for all manner of corrupt activity, so the IRS review and audit standards are rigorous. You must adopt articles and bylaws with specific language. You must keep meticulous financial records. You must select a tax-exempt purpose and then use that purpose as an operational guide every single day. You must notify your contributors that their donations are probably not tax-deductible. And you absolutely must file an application for tax exemption.
Nonprofits are a particularly excellent choice in Michigan; however, if you got into this for profit or don’t have the time, inclination or discipline to operate a truly nonprofit organization that can withstand an IRS audit, then you should not attempt it. The legal and tax implications are simply too significant.
So, what’s it going to be: for-profit dispensary or a nonprofit organization? Time to decide. And act.