Last updated on 2014.03.05
The Madison Community Foundation faces an existential problem. It doesn't exist.
The folks trying to sell Madison on a publicly subsidized thrift store have said that their million-dollar secondhand shop would be owned by the Madison Community Foundation. That organization has engaged in other philanthropic activities and has perhaps $425,000 on hand... enough, I contend, to start a thrift store right now, without any public assistance. The Madison Community Foundation has filed as a 501(c)3 non-profit every year for the last decade.
But in the eyes of the State of South Dakota, the Madison Community Foundation has no authority to file tax returns, buy or sell property, or anything else. The Madison Community Foundation is not a legally recognized corporation.
Wilson Kleibacker, Pat Prostrollo, and Mark Lee incorporated the Madison Community Foundation in 1998. MCF managed to file annual reports in 1999 and 2002. Then they stopped. In April 2005, Secretary of State Chris Nelson sent MCF a note saying the needed to get on top of their paperwork or forfeit their corporate status. MCF apparently did not respond, as on June 17, 2005, Secretary Nelson dissolved the Madison Community Foundation for failure to report.
So what happens when the Secretary of State dissolves a corporation? Here's what the Madison Community Foundation's own 1998 by-laws said should happen:
Article VII: Upon dissolution of the corporation, the Board of Directors shall, after paying or making provisions for the payment of all the liabilities of the corporation, dispose of all the assets of the corporation in such manner, or to such organization or organizations organized and operated exclusively as tax exempt organizations organized under section 501 (c) of the Internal Revenue Code of 1954 (or the corresponding provision of any future United States Internal Revenue Law) as the Board of Directors shall determine. Any such assets not so distributed shall be disposed of by the Circuit Court of Lake County, South Dakota, in which the principal office of the corporation is located, exclusively for such purposes or to such organization or organizations as said Court shall determine, which are organized and operated exclusively for such purposes [Madison Community Foundation by-laws, Articles of Incorporation, 1998].
State law (Chapter 47-22) gives non-profit corporations all sorts of powers, but once a corporation is dissolved, the only business it can conduct is "to wind up and liquidate its affairs." Contra state law and its own by-laws, the Madison Community Foundation has not wound up and liquidated. It has lingered for seven years, claiming tax-exempt status, holding property, and conducting other business with its sizable bankroll.
The legal non-existence of the Madison Community Foundation throws two monkey wrenches into the thrift-store works.
- A legally non-existent corporation cannot own the thrift store. The thrift store boosters will have to reincorporate or find another shell under which to hide the thrift store title. (Here's a novel thought: if it's really a community thrift store, why not have the community own it: turn the title over to Lake County!)
- Citizens can't claim a tax deduction to a 501(c)3 corporation that does not exist. If you have donated any money to the Madison Community Foundation over the last seven years, legally speaking, you've just handed your money to Jon Knuths or Pat Prostrollo or some other member of a legally non-existent board. Nice as Jon and Pat and those other folks are, they aren't a charity. If you claimed a tax deduction for such donations since 2005, you might want to call the IRS... or you might not.
I know Madison's leaders like to play by their own rules. So does our current Secretary of State. But the IRS will likely take a dim view of continued fiscal charades from a non-existent corporation.
Wow, I'm not from Madison but it sounds to me like the Madison Community Foundation would be the last bunch I'd want running any business, for profit or non-profit. If the community wants a thrift store, I'd find a different outfit to work with.
I hope that you have sent this as a letter to the editor at the Madison Daily Leader, Cory, so that the community as a whole (i.e., the ones who don't read your blog) can hear about this. They need to know.
Frank, I'll settle for an outfit that legally exists... and remembers to file all the proper paperwork.
Eve, you mean there are still people who don't read the Madville Times? Dang: my marketing is as bad as the Chamber's. ;-)
Wow you're good. Talk about leaving no stone unturned. You should let the city know. That's got to get resolved before any action/decision can be made.
I'm a little baffled that an organization can keep filing federal 990s and that the IRS didn't catch they were dissolved? Did Chris Nelson forget to notify the IRS?
Thanks, John! Wayne, that's where I'm left wondering, too. My hypothesis is that there is no mandatory interface between SDSOS and IRS. Sec. Gant doesn't know what we're filing for federal taxes, and IRS doesn't know what our state-level corporate filing status looks like.
Sadly, a number of people don't read the Madville Times - including our Mayor...
Nicely done. If you haven't yet, log on to Guidestar.org and see if they've filed IRS Form 990's every year, the required annual statement the service requires of all 501c3's.
You are Madison's only journalist that does investigations. The other media outlets would never do this, as it might cause them to lose advertisers. All the names you listed have businesses that advertise frequently in the paper and radio. Thank you for holding people accountable.
I've been using Foundation Center; they show 990s filed each year, 2001–2010.
If the income is small, it was less than 25k now it's 50k, they don't have to file a 990. I suspect it will not be a big hurdle for them to get their status re-approved with the state. These things happen.
A side note here, apparently Pierre tried this with a thrift store and it failed. Is this correct?
If your n/p gross income (donations, grants, sales, etc) is less than 25k, it gets fuzzy with accounting tricks, you still need to file with the IRS a 990 N E-postcard, which is at most 8 lines of basic information, at the minimum of every 3 years, to maintain your federally recognized n/p status. State recognition and federal recognition are two different beasts, you can have state recognition in about 10 minutes of online work, while the federal standing can take upwards of a year or more.
Great job Cory. I talked to one of the committee members for almost a half hour last friday and had an interesting conversation. He was so optimistic it is about scary. I think some people should get together for a little meeting and slow this thing down a little. I have more to say but I am limited by my typing skills. Please call me at your conveniance at 480-3804
This whole idea is very strange indeed! According to the article in the June 18th MDL, it sounds as though the whole idea is to magically raise funds through donations and volunteer workers that will help supplement the city's charities. Apparently, Milbank has tried this as mentioned in the article. That seems like a whole lot of spending that might trickle down to the poor! It seems like the community isn't given much input in what would benefit Madison. I fondly remember our beautiful "Old Firehouse Gallery" that was funded by FEDERAL grant monies. A lot of very hard work and long volunteered hours made that an asset to our city. It's history now. If we need to spend tax payers money for a cause, how about some positive and progressive projects like a wind turbine to generate our own electricity? Or more important yet... let's invest in the flood issues of Madison.