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From: "William L. Thomson Jr." <wlt@...>
Subject: Re: Tax return and accounting discrepancies
Date: Fri, 25 Mar 2011 14:30:23 -0400
On Fri, 2011-03-25 at 16:21 +0000, Matthew Summers wrote:
> 
> We have been fortunate thus far in that the IRS has not actively
> sought to investigate or audit the organization

They are super slow, NPOs rarely show up on their radar without
substantial revenue. After all the IRS is a business, and anyone they go
after has to have considerable benefit vs the cost. If the cost of an
auditors time is greater than any amount recovered. IRS will likely just
move on to something higher paying :)

>  (however I want a
> complete audit, just not by the IRS, but this has been nearly
> impossible given the absence of documentation prior to 2008) .

My concern over the ~$9k adjustment is that it occurred in Q3 2010. Had
the adjustment taken place sometime in 2008, it would make much more
sense. But how can accounts be off for ~2yrs, and only
adjusted/corrected in Q3 2010.

> I hope that no rash action by anyone on this list would provide
> encouragement for the IRS in seeking an investigation or audit before
> we have the opportunity to establish proper status.

Given the change in stance, to having all paper work filed, to doing an
audit to check either way. I have no plans to take any action. I am not
seeking to harm Gentoo. But some harm will come if these things are not
done. That is my only concern.

Also in the future, this type of response is much better than the first
stance of everything is in order. There is nothing wrong with saying, I
am not sure and conducting an audit to make sure one way or another. Had
that been the initial reply, that would have been suffice for now.

> I will defer this to my CPA, with whom I will
> meet again regarding these items in early April (prior to the 15th, of
> course). I will provide a full report to the board at during the April
> meeting.

That is wonderful, but your time is better spent talking to and
retaining a CPA for the foundation. I have no doubt your CPA is
experienced, however does he practice in the state of New Mexico? If not
then he will only be able to help/consult on the federal matters, IRS,
not anything with regard to state compliance. Not a huge deal, state has
much less consequences, than federal government.

> As far as visible steps that are available to us at the moment, I am
> working with a local CPA specializing in non-profits to assist in
> handling our filings for the moment.

That is good. Also in the interest of disclosure. My father was a self
employed CPA with a sizable practice, for over a decade. After working
for Arther Anderson, who is not defunct, an my father passed long ago.
My mother is also a certified CPA in the state of California. My half
sister is also a CPA, but after years of promotions is a partner
overseeing internal acquisitions and such at Deloitte.

I have done my own taxes since as far back as I can recall. Though I did
have a CPA for a business out in California, mostly due to payroll. My
current business i have mostly 1099, and its a bit easier than dealing
with payroll, back payroll taxes, etc. Which is what got the IRS to
crawl up a clients but, and dictate their life style, tell them how much
they can spent on groceries etc.

>  Since my name is legally
> associated with the Foundation, as the signatory officer, I have
> knowingly accepted full responsibility and legal obligation.

That is appreciated, as I know what its like to stick my neck out on the
line. Most involved with Gentoo do not realize the personal liability.
Its not tremendous, but its very different than being a dev, foundation
member, user or anything else.

> I am also
> gathering quotes from CPAs across the country, based on
> recommendations from various non-profit directors with whom I have
> personal relationships, in the hope of identifying the most cost
> effective means of obtaining the long term support the Foundation
> needs going forward.

Ideally will be one located in New Mexico, but if not one that is versed
in New Mexico's laws as well as federal. Which federal is moot as to
where the CPA resides.

>  This will require an allocation of funds, and yes
> the other board members are aware of this. I believe we have
> sufficient funds to secure the required professional support.

Even to clean up the mess at top rate, should not be more than a few
thousand, maybe $5k or so at best. Likely no way to get an exact quote
upfront.

>  I think
> the dominant reason we need to contract a professional is the simple
> fact that with a contract we have greater accountability and legal
> recourse available, whereas with volunteers we do not have that.

Also when an accountant files, some of the liability is transfered to
them :)

>  At
> some point in the near future I believe a composite of professional
> and volunteer support will be possible, and this will be a good thing
> when the time comes. Now is not that time. Now is the time for
> professional assistance and support.

That would be great, but again payroll brings about its own tax issues.
Definitely need to proceed in order.

> In terms of the bottlenecks, there are a few. For one, it has been
> impossible to conduct an appropriate financial audit for the period
> prior to 2008. The records are simply unavailable to the best of my
> knowledge. Further, the original bank was purchased by another entity
> and we were only able to recover the funds from that previous account
> last year. Thankfully we were successful in recovering those funds as
> it was a good amount of money.

That is great, I was going to inquire about that as well. However I an
unable to see when that took place in the quarter financial statements
that are available. Even going back to 2008, there is no line item of a
deposit of money transfered from the previous account.

Are you sure this took place? Do you know the amounts and when it was
deposited into Gentoo's current bank account? Just something to check on
as part of your audit.

> We are all indebted to Mr. Joshua Jackson for his persistence in that matter.

That is wonderful, and appreciate Joshua's efforts. Though having worked
with him, and understand he has a day job. Some of those matters get
dealt with much slower than they should be. This is nothing personal
against Joshua, I have met him in person more than once at LWE and have
no issues with him personally.

That said I was doing some of his duties back in 2008, simply because
time kept passing. Its good the money from the old bank account was
recovered. But I would be more pleased if that occurred back in 2008, or
2009, but that it happened in 2010, better than not at all ;)

>  Additionally, we have no
> idea what paperwork, if any, has been filed with the IRS prior to
> 2008. There is some indication that the Foundation and/or D. Robbins
> was attempting to solicit donations to fund the application costs for
> Gentoo to become a 501(c)(6) trade organization, but we have no idea
> what became of that. We need some, if not all, of this information to
> satisfy the reporting requirements of the IRS since we are well past
> the 27 month filing 1023 form deadline. This deadline was passed in
> late 2006, so its been a long time ago.

And its also been 3yrs now since 2008. Plenty of time to correct both
the past and the present. The slowness in dealing with foundational
matters, was one of the other factors in my resignation. Since it was a
reason I told people not to vote for me, being time constrained. I
wanted to get as much done as fast as possible. Which many things could
have happened much faster and should have.

>  Regarding the 1023 form, I
> have completed the components that I was able to. We were working with
> the SFLC to handle the requirements to satisfy the late filing.
> Unfortunately they have not been able to provide this material after
> one year. Hence why I am now turning to familiar local resources for
> this support. This was discussed at the last board meeting, as well as
> general status, etc.

Has the SFLC invited Gentoo to join, after they have received adequate
funding. Last communication we had with them in 2008, they did not have
enough funding to take on any other entities. Nor had they invited
Gentoo or what ever to be part of the SFLC.

I was very hopeful after first the SFLC could help gentoo, but after
communicating with them. It became apparent quickly we were mostly on
our own.

> I will keep everyone posted on all pertinent developments. I really
> appreciate the interest and well reasoned questions. Gentoo is very
> important to a whole host of people, and we all want its health to be
> maintained and provide for its growth and future. I promise to
> continue to do my level best in this endeavor.

Thank you very much for your time on this matter, and serving Gentoo
through your foundational efforts. Please do not take my comments, or
inquiries personal. I am not bringing this stuff up for negative
purposes at all. Though its clear people react that way taking things
bot personally and negatively. Its business, its not personal ;)

-- 
William L. Thomson Jr.
Obsidian-Studios, Inc.
http://www.obsidian-studios.com



References:
Tax return and accounting discrepancies
-- William L. Thomson Jr.
Re: Tax return and accounting discrepancies
-- Rich Freeman
Re: Tax return and accounting discrepancies
-- Matthew Summers
Re: Tax return and accounting discrepancies
-- Alistair Bush
Re: Tax return and accounting discrepancies
-- Matthew Summers
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