Can I create a nonprofit if I owe IRS back taxes?

QUESTION OF THE MONTH: JUNE 2019

The short answer is "yes."

Nonprofits are tax-exempt corporations that are not "owned" by individuals. As a corporation, a nonprofit is a separate legal entity from its incorporators, founders, board members, trustees and employees. The corporation owns the assets, liabilities, and net income from business operations.

As the founder of the nonprofit, you will not have any ownership rights in the nonprofit. For that reason, your personal tax liabilities will not directly prevent you from being able to form the organization. Having said that, you should resolve any personal tax liabilities with federal and state governments to avoid garnished wages, asset seizures, and other tax evasion consequences.

Note that your personal tax liabilities could indirectly hinder the success of the organization. Nonprofits are accountable to the public. If the public discovers that the founder or any member of the governing body has evaded personal tax responsibilities, the reputation and public support of the nonprofit could be put at risk.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.