Nonprofit Organization Inland Revenue Service (IRS) Tax Liens

The deregulation of community services has provided an opportunity for individuals with the requisite ability, to provide services to the community that are publicly wanting and yet unsatisfied by the municipality. When revenue for these organizations fails to reach expectations, a tax debt may accrue. This precipitates what is an unavoidable cycle of revenue flow, where the organization needs cash to continue its community needed operations and the tax administration need the taxes owed to fund public expenditure. Either way, funds are needed to meet the needs of the community, and the purchaser of a non-profit organization tax lien is able to provide that.

They Own Property Too
Land parcels are the foundation for many aspects of community and public life, and the predominance of nonprofit organizations that utilize land for their respective purposes is a testament to this.

Ideally a nonprofit organization is a group of people with the ability to satisfy a genuine need of the community, and also the ability to secure the resources to implement this vision.

Incorporation of a nonprofit organization legitimizes its existence and enables it to benefit from particular methods of taxation relief that would otherwise be imposed by the government or delegated authorities.

In return for their services to the community, non- profit organizations may apply to the relevant tax authority, and receive tax exempt status from some income they receive, such as donations, which then allows the donor to claim a refund on the tax paid on their donation.

Essentially they are not a profit making entity, so they enjoy various tax concessions for example when purchasing land, if they can demonstrate broad public support. However, these organizations often employ a number of individuals and are liable for payroll tax, Social Security tax, and Medicare levies that are withheld from wages, in the same way as any other employer.

Some nonprofit organizations are exempt from Federal income tax, but often are subject to the same property taxes as any other business. They may provide a praiseworthy service to the community but they are by law, taxable.

Only as a Last Resort
In the event of a tax debt accruing, the ordinary methods of recollection are at the disposal of taxation authorities, and a lien may be placed upon the property of the organization.
Non profit organization IRS tax liens are placed on a property belonging to a non-profit organization as a last resort, and many opportunities are offered to the organization to enable settlement of the outstanding debt.

This is so because the Federal government often make extensive grants to non-profit organizations, and if the issue is; are all non-profit assets vulnerable to IRS tax liens, this would be decided on a case by case basis, with a view to determining if the longevity of the organization supports deferral, or exemption of the tax payable in lieu of a further funding grant.

At this point, the taxation authority may find it in its best interests to sell the right to collection to a third party, and notwithstanding that a redemption period exists in accordance with due process of law, the holder is able to benefit from an attractive interest rate return on the investment.
In the event of the organization being unable to repay the tax liability, the holder of the tax lien is able to exercise powerful rights of foreclosure on the property, assuming of course that due process has been observed.

At times, a lien attached to the property of a nonprofit organization, may have attached a term that provides for the repurchase of the property should the lien be settled by foreclosure,and particularly this is the case when the taxing authority such as a municipality is in dire need of funds.

In such an instance, the purchaser of a lien may benefit from the predetermined interest rate return on the investment and if the lien is settled by foreclosure is able to realize a profit without prolonged exposure to the property market, by taking advantage of the repurchase provision.

Repurchase agreements may not be always possible for the purchaser of a lien, and if they were, logic would dictate that a discount would be attached to the purchase price of the lien in order to enjoy such security.

However, it is often the case in an economic downturn that non-profit organizations suffer cash flow crises, find themselves having to work with less money due to lower levels of funding from government authorities, and endure lower levels of revenue raising.This can lead to the imposition of a lien on the organizations property and the astute purchaser may be in the position to make a sound investment.

 

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