Prospect filed for 501(C)3 approval then used 501(C)3 name & EIN & filed Sch C

[AZ-Tax]

Don't know if I should take this prospect as a client. Prospect filed for a 501(c)3 approval back in 2001. At that time IRS replied requiring additional info for which prospect mailed to IRS (I have a copy of the letter). IRS never replied on a Yea or Nea of the 501(c) 3 approval to this day. Prospect brought in 2005 individual tax return and attached was a Sch C with a business name that matched the 501(C)3 name in the IRS letter dated 2001. The tax preparer who prepared that tax return is no longer in the business. Prospect brought in 2009 & 2010 tax returns. Both individual tax returns also had a Sch C with business name as 2005 Sch C but under an EIN that was assigned to the 501(C)3 back in 2001. Never was there a form 990 filed. Your thoughts.

[DaveO]

It depends on what kind of activity he is engaged in.

As far as the IRS is concerned the 501c(3) does not exist. Any income reported on the "C" is taxed at the indivdual level. The only matching the IRS does between a EIN on a "C" is with employment returns. If he is running a business with no employees I would just drop the EIN useage and treat it as a regular "C". If he is trying to take tax deductible contributions or has program costs then different story.

[Uncle Sam]

501(c)(3) EI Used for 1040

I would first check with the state's Dep't of State to see if the State still has the entity on its records.
By this time - it's probably a defunct entity.
Even IF the entity did exist at one time - if no 990 form was filed for 3 consecutive years - IRS would
have terminated the exempt status by now.

[AZ-Tax]

Current with the AZ Corp Commission

I would first check with the state's Dep't of State to see if the State still has the entity on its records.

I checked with the AZ Corp Commission and the entity received Incorporation approval back in 2001 as a non profit 501(C)3 and the Incorporation is current on its annual filings.

[jsamans]

Don't know if I should take this prospect as a client. Prospect filed for a 501(c)3 approval back in 2001. At that time IRS replied requiring additional info for which prospect mailed to IRS (I have a copy of the letter). IRS never replied on a Yea or Nea of the 501(c) 3 approval to this day. Prospect brought in 2005 individual tax return and attached was a Sch C with a business name that matched the 501(C)3 name in the IRS letter dated 2001. The tax preparer who prepared that tax return is no longer in the business. Prospect brought in 2009 & 2010 tax returns. Both individual tax returns also had a Sch C with business name as 2005 Sch C but under an EIN that was assigned to the 501(C)3 back in 2001. Never was there a form 990 filed. Your thoughts.

...wow. Well, I guess it comes down to your impression of the prospect: do you get the impression that he made these decisions on the basis of some knowledge (or perceived knowledge), or was he counting on the good counsel of his former preparer, who happened to guide him in quite the wrong direction?