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.

  1. 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!)
  2. 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.