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Organizational umbrella decisions crucial to tax requirements

A New England charity aimed at helping to keep the local dairy economy going is having to clean up a little spilled milk. Improper business formation and planning has forced the group to reorganize as s 501C3 Corporation and pay more than a third of its earnings in taxes. However, because it was a self-imposed audit that recognized the mistakes, the IRS is not seeking any punitive tax collection actions.

The organization, Keep Local Farms, is based in Boston, Massachusetts, and launched in 2009. Originally set up under the umbrella of a state department of agriculture, a dairy cooperative and a dairy promotion board, the organization collected monies through dairy product sales, and farmer checkoff contributions. The money went toward promoting the health benefits of dairy products and assisting dairy farmers who were having a hard time making ends meet as milk prices continued to crumble.

Last year, an accounting firm was hired to evaluate and audit the program and recommend some long-term strategies and plans. The first order of duty was to reclassify itself as a nonprofit and pay more than $63,000 in taxes. The IRS has said that Keep Local Farms will have to still pay taxes for 2012 but the program will now be managed as a nonprofit fund. That way any of its future contributions can be awarded as grants.

Federal tax laws are highly complex. Currently, more than 25 million taxpayers are facing tax controversies and disputes for sums ranging anywhere from $1,000 or less to millions of dollars. Finding a tax attorney who can handle the full range of tax issues that your tax controversy and tax dispute may entail is essential to finding resolution.

Source: boston.com, "New England farm charity reorganizes after tax hit," Lisa Rathke, July 1, 2012

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