
MIME-Version: 1.0
Content-Type: text/plain; charset=US-ASCII
Content-Transfer-Encoding: 7bit
Content-Length: 34444
Approved-By:  Mark Schuldenfrei <schuldy@ABEL.MATH.HARVARD.EDU>
Message-ID:  <199510051601.MAA29495@abel.math.harvard.edu>
Date:         Thu, 5 Oct 1995 12:01:17 -0400
Reply-To: SCA Grand Council Discussion list <SCAGC-L@LISTSERV.AOL.COM>
Sender: SCA Grand Council Discussion list <SCAGC-L@LISTSERV.AOL.COM>
From: Mark Schuldenfrei <schuldy@abel.MATH.HARVARD.EDU>
Subject:      Full Report on SCA's Tax Status
To: Multiple recipients of list SCAGC-L <SCAGC-L@LISTSERV.AOL.COM>

Greetings to the Board of Directors, from Mark Schuldenfrei (Tibor).

What follows is a important document, with grave potential for the
organization.  I urge you to read it carefully, along with the accompanying
opinion letter from tax attorney Lisa Steele (Esclarmonde du Colleur).  We
were assisted by Harold Feld (Yaakov Ha Mizrachi) an administrative law
attorney.  This letter is not written by an attorney.


SUMMARY:

Lisa, Harold and I investigated the validity of the federal tax-exempt
status of the SCA Incorporated.  What we have found is that the SCA is
almost certainly NOT a valid tax-exempt organization under the Internal
Revenue Code statutes which govern such organizations.  Not as the 501(c)(3)
tax exempt organization that we have claimed, and not as any other form of
tax exempt organization.  The specific violations are that the SCA has a
significant social purpose, which is not related to the exempt purposes
listed in our bylaws, and that we have a history of private inurement via
theft.  Please note that if the IRS chooses to address these issues, the
the burden of proof that we have always complied with the law is upon us.

While the risk of the IRS discovering this on their own is minimal, the
Directors have a legal, moral and fiduciary responsibility to report this
status, and possibly correct it.  It is my opinion that no such correction
is possible, without damaging the organization beyond recognition, and
attempts to convert the existing organization to another form of exempt
organization would be ground-breaking, and probably fruitless.

If this interpretation is correct, the only appropriate path is to inform
the IRS, and pay back taxes, and dissolve the Corporation.  The stakes rise,
however, if you fail to notify the IRS.  There is grave risk to any Director
or Fiduciary officer who knows (or can be expected to know) that the
organization is in violation of IRS Codes, and fails to report it. This
risk includes civil, or even criminal fraud charges, fines and penalties,
which may not be covered by our Directors and Officers insurance (in my
opinion).

This letter and the accompanying legal opinion letter are notice enough.
You cannot fail to act, in some way.  At best, you should seek a binding
opinion (letter ruling) from the IRS that the SCA is still a valid exempt
organization.


RECOMMENDATION:

The Board of Directors seek highly competent tax counsel at once, brief them
fully, and act either to dissolve the Corporation, or have the IRS rule that
it is not in violation of exempt organization laws.  The authors of this
report are prepared to be of full assistance.   Action must be taken before
the next annual tax deadline falls due: which would be May 15th 1996,
covering the 1995 tax year.


A BACKGROUND ON THE RELEVANT LAW:

The SCA Incorporated is best described by the following long-winded legal
description:

    A nonprofit organization, incorporated in California, ruled tax exempt
    from federal income taxes and some state taxes, organized under section
    501(c)(3) of the IRS code as an educational institution, and as a
    public charity.

This means that we are organized so as to have no owners, and pay no
resulting profits to anyone (the nonprofit part).  We are incorporated in
the state of California in the US (the corporation part).  We are exempt
from some taxes under state and federal regulations. We applied for tax
exemption under the Federal tax code section 501(c)(3), and within that
portion of the code are a public charity form of exempt organization.

Federal and state governments place very strict regulations and restrictions
upon organizations that wish to become exempt organizations, and in exchange
for those restrictions, provide valuable benefits. The theory is that the
public will be better served thereby.  Those benefits include reduced legal
liability for directors, freedom from certain taxation, reduced or free access
to government services, reduced or waived fees, tax deductions for those
citizens who donate to the organization, and heavily subsidized postage.

In order to get that status, a corporation must be nonprofit.  This means
that any money it earns cannot be distributed to owners, and must remain
with the organization.  It must also comply with all Federal and State
regulations, and go through a rigorous application process.  If it applied
to be a public charity, it also had to file form 872-C, which allows taxes
to be assessed for an extended period.  It also must promise that every
penny and asset entrusted to the organization will always belong to it,
or other tax-exempt organizations. It must also act in a way that prevents
it from becoming a means of enrichment of private persons.

If exempt status is granted, the IRS does not certify that an organization
is or always will be tax-exempt.  It merely recognizes that a group appears
to be in good order for exemption.  It may choose to question that, at any
time. If so, the burden of proof will be upon the organization to prove
it's compliance throughout any period under question.

This lack of certification becomes important, should an organization fail
to keep it's tax exempt status, for it allows the IRS to collect taxes
retroactively.  That is, from the moment the IRS determines the organization
was no longer in conformance with the law.

To keep its exemption, the organization must file appropriate documents and
forms, obey all laws, and remain dedicated to only the exempt purposes that
are listed in the articles of incorporation of the corporation, and on the
paperwork that it filed when it requested recognition of exemption.

Any corporation that wishes to become recognized as a 501(c)(3) exempt
organization must do so under one of the major categories of organizations.
The SCA Incorporated has chosen to qualify as an Educational corporation.
Within that, there are three subtypes of qualified organization: private
foundation, private operating foundation, and public charities.  Unless
special circumstances are met, each exempt organization is a private
foundation, and it must meet strict financial prohibitions. Those
organizations that wish public charity status must specifically apply and
receive a certification from the IRS.  This is a problem I will discuss
later.

THE PLAYERS IN THE LEGAL WORLD:

The IRS is the agency of the government with the responsibility to collect
taxes, and make rulings on tax exempt status.  If it choses to, it can
investigate us (thereby costing the organization money).  If it choses to
take the organization to court, it will take it to one of the many regional
Tax Courts.  It may also choose to deny (retroactively) exempt status.

The regional Tax Courts produce rulings, and memos.  These rulings and memos
are not binding on other regional courts, but they generally are consistent
from one to another.  Appeals of tax court decisions are heard in various
Federal courts, up to the Supreme Court, and those rulings have wider
binding powers on subsidiary courts.  If the IRS issues a ruling on what
it will consider worthy (or not) of litigation, organizations can use that
as a shield.

The citations I refer to here, casually, are listed with precision in Lisa's
letter.  So is the hierarchy of authorities, and their applicability.  When
you are in doubt, it is worth investigating whether a reference is a real
binding precedent, or just a likelihood.


THE LEGAL STANDARDS:

There are five standard tests that are applied to nonprofits with a
tax-exempt status in the educational category.  They are, in no particular
order:

  [Political Test]
  1. Does it engage in any political lobbying

  [Financial Test]
  2. Does it meet income reporting and distribution standards

  [Operational Test]
  3. Is it exclusively dedicated to its exempt purpose

  [Organizational Test]
  4. Were and are it's organizational documents in correct order

  [Private Inurement Test]
  5. Did anyone have, or has anyone had access to its funds for private
     inurement.

Any one of those tests, if failed, revokes the tax-exempt status of the
organization.  Consider them the legal equivalent of a third rail.

About the only one of those standards the Society for Creative Anachronism
meet for certain, is the political activity test.  The others are doubtful, or
clearly failed.

Specifically:

  [Political Test]
  1. I know of no overt political activity within the SCA.

  [Financial Test]
  2. The SCA may not meet the income distribution requirements for a private
     foundation, and may not have gotten certification as a public charity.
     It's reporting of donations is also suspect.

  [Operational Test]
  3. It has at least one substantial purpose, not related to it's exempt
     purposes: it is a social organization. (See St. Louis Science Fiction
     Limited v. Commissioner, included as an addendum to the opinion letter).
     I doubt that anyone could argue we don't have a substantial social
     purpose. Our ability to meet the educational standard is also
     debatable, as we do not use conventional means of education.

  [Organizational Test]
  4. It's organizational documents are not reliably updated, and it has
     consistently failed to file taxes promptly. We frequently apply for
     two filing extensions each year. At least twice the corporation has
     failed to file at all.  The filings may be substantially incorrect.
     (See below.) Not to mention that the organization has been successfully
     litigated against for violating it's bylaws, and that it fails to
     comply with IRS regulations for public disclosure of tax documents.

  [Private Inurement Test]
  5. Several times money been stolen from the SCA, and applied to private
     uses.  This IN AND OF ITSELF is something the IRS can treat as a
     violation. In addition, we frequently operate in a fashion which allows
     merchants to benefit privately.  This MAY be private inurement (again,
     see St. Louis Science Fiction Limited v. Commissioner).  There is some
     doubt that Kingdom travel funds are not private inurement.


DETAILS OF THE FIVE TESTS AND POSSIBLE VIOLATIONS OF THEM:

Background. Some of the analysis below is less than authoritative.  In some
cases, there are Tax Court memos or opinions which are not necessarily
binding on other courts.  However, I believe that these previous rulings
can reliably guide us on the likelihoods of our situation.

Congress is looking to increase funding for oversight of tax exempt
organizations in an attempt to increase revenue.  Exempt organizations
are being judged quite harshly, especially in light of the publicity from
the United Way chairman being jailed in 1995.

Financial Test.  The direction one can take on this discussion is quite
complex, as so much depends upon facts we don't have.  But, after tracing
all the potential situations down, I have come to the conclusion that we
are in violation, no matter what final determination we make as to our
filing status.

There are many categories of exempt organization.  We have chosen to file as
an educational one.  Within that, there are 2 different types of exempt
organization: Private Foundation, and Public Charity.

Problem one: Filing status.
All educational exempt organizations are private foundations, unless the
IRS separately certifies them as public charities.  We have filed tax returns,
and generally acted as if we are a public charity.  But the IRS and the SCA
do not have any of the requisite paperwork as a public charity.

Problem two: Qualifications for filing as a private foundation.
Private foundations are required to file tax forms we have not filed in
the last several years, such as the 990-PF.  This could be a problem.  It
owes taxes on investment income, such as the SCA was receiving while it
held Kingdom Historical Trust Incorporated's income (aka the West Kingdom
Land Fund).  There are strict rules against self-dealing, such as when Dave
Thewlis helped to provide the SCA with computer equipment while he was a
Director.  Furthermore, private foundations are required to distribute at
least 5% of their income as grants to other agencies, which we have never
done.

Problem three: Qualifications for filing as a public charity.
We have, consistently, been filing as if the IRS had determined us to be a
public charity.  I have been unable to find any evidence that we have public
charity status.  This would have required a separate ruling by the IRS.  If
we never did receive that ruling, we are still a private foundation.  The
copy of a letter from the IRS, dated as received September 2, 1989, does not
show public charity status.  Requests of IRS documents since that date, and
examination of Board Minutes, do not show any such filing.

Problem four: Irregularities in reports.
Candidly, It is difficult to trust the numbers in the tax reports, as they
are inconsistent with facts that SCA participants know, but which the IRS
would not.

For example, in 1993, the total income reported for the SCA was 40,000
dollars.  This was a year in which the Board Minutes reported that income
was exceeding expenses.  Yet, the event we call Pennsic, alone, produced
15,000 dollars of income, and my local group in Boston earned around 2,000
dollars that year.  The group we call the East Kingdom earned around 3,000
dollars from profits unrelated to Pennsic.  This implies that, overall, all
other thousand groups earned a total of under 20,000 dollars?  Did the
corporate level lose so much money, despite never reporting a loss, that
it absorbed those profits?

Problem five: So many officers are responsible for accepting gifts of more
than an insubstantial nature, that I am confident we are failing to follow
IRS procedures for handling tax deductible gifts.  I have no proof,
however.

Operational Test:

A tax exempt organization must follow it's bylaws and articles of
incorporation perfectly, fulfilling those promises which are called it's
exempt purposes.  It doesn't have to do all of them. In order to prevent
people from fraudulently misusing tax exempt status for inappropriate
purposes, exempt organizations cannot serve serve any purpose outside of
its the list of exempt purposes in its founding documents.

The US Supreme Court ruled on this in Better Business Bureau v. United
States (see citations in the accompanying opinion letter), where it said
that the number and importance of an organizations purposes were not relevant,
so long as an organization serves any substantial purpose which is not
exempt.  In that case, the organization forfeits its exempt status.

There are several standard purposes which are considered specifically non-
exempt: commercial, recreational, and social.  Sure, organizations that are
gatherings of people in a common exempt cause will have social implications,
and the law allows for that.  But more than an insubstantial amount of social
activity is a reason for disallowing exempt status.  Please see two
relevant cases, for reasoning which closely parallels our own position:
Minnesota Kingsmen Chess Association v. Commissioner, and St. Louis Science
Fiction Society v. Commissioner.  (The abstracts for both of those cases are
part of the opinion letter, in an addendum).  These cases are not binding on
the IRS, or the tax court.  But they do reflect typical thinking and are
indicative of the treatment we can expect.

I don't think that anyone could accurately argue that the primary purpose
at our gatherings is solely educational in nature. There is always a
substantial social component.  In order to qualify properly, nearly all
our time and energy would have to be spent on educational activities.  This
is clearly not the case.  Consider how rarely, for example, the actual
history of the period is discussed in our documents, or mentioned at our
events in any formal way. Compare this to the fun activities, and the
social "face time" we spend.

One could also argue, quite successfully, that the SCA is not an educational
organization, in the narrow sense that the IRS would judge it upon.  This is
less clear, and there is a shortage of guiding material to enlighten us
with. However, we certainly do not have the trappings of a standard
educational organization that is not a school: noted professionals
lecturing, academic standards, certification of educators.  It is my opinion
that if we were to be formally and accurately considered educational for the
bulk of our re-creational activities, it would be breaking new ground for
educational organizations as evaluated by the IRS.  While this is always
possible, the current mood of Congress is away from generosity in exemptions,
in an attempt to raise revenue.  I would hate to rely upon such generosity.
And, as exempt organizations go, we are not exemplary in our conduct: I do
not expect us to be dealt with generously.  (The IRS and the Tax Court have
a history of evaluating exempt organizations narrowly, and not generously at
all.)

Organizational Test:

Our status for the organizational test (paperwork and associated legalism)
is fuzzy at best.

We are required to update our copies of our bylaws with the IRS whenever we
change them.   We have not been reporting changes to the IRS.

We have not reliably filed tax returns with the IRS.  As of my best ability
to determine, we have not yet signed our 1993 tax returns, and I believe the
same is true for 1992.  Our 1994 tax returns are not yet filed. (However, I
believe they are due the 15th of November, if we use all of our extension
time.  The original due date was May 15th.)  We routinely require most of
our fiscal year to file the previous years tax forms: this is not a
violation, but may apply when asking the IRS to make subjective evaluations.
When I say not filed, I mean that the documents have been returned as
incomplete.

While not the primary purpose of this report, I would note that we have a
history of filing incomplete CT2 reports with the state of California

I have already discussed the probable inaccuracy of the IRS filings.

It may also be relevant to the IRS that the corporation failed to abide
by it's bylaws when fiscal materials were requested, that litigation was
required, and the result was a finding against the organization, and a
payment of court costs and legal fees to the litigants under California's
private attorney general doctrine.  Yes, this is old news to the Board,
some of whom are quite weary of hearing of it.  But it may be significant
to the IRS.

We routinely fail to make public documents available as the IRS requires.
(I have an open request for some documents since July of 1994).  We charge
fees above and beyond what is reasonable. Some of those documents don't
seem to be in the SCA's possession.  The list of public documents includes
the 990s and documents related to tax filings, the bylaws, the articles
of incorporation, the application for recognition of exemption, the resulting
approval or refusal, and any documents relating to requests for public
charity status.  Documented failure to provide that information subjects
the SCA to daily fines which accrue until the documents are provided.

One could also discuss several other questions, none of which have an easy
answer.  For example, the SCA has sold many materials via the Stock Clerks
office.  Are those part of our exempt purpose, or are they unrelated
business income?  One could argue either way.  Certainly some of the things
that used to be available were purchased from outside vendors, and were
commercial endeavors.  And the avowed purpose of creating the SCA
Marketplace was to increase revenue, not to fulfill exempt purposes.

I gather we have run into this problem before, but the advertising in TI
is almost certainly unrelated business income.  We don't seem to report
it that way, however.  This was mentioned as a problem in previous audits,
according to information from historical Board Minutes.

Private Inurement Test:

The IRS has in the past, interpreted the private inurement test very
strictly indeed.  Not one penny of exempt organization income is permitted
to accrue to the benefit of those who control the funds in the corporation.
We have at least one report of such inurement at the Corporate level, and
many of such incidents at lower levels.  This is a pattern of inurement,
that could be uncovered by the IRS.  I can recall an incident 10 years ago,
where a private and for-profit event was advertised in a regional newsletter
as if it were an SCA sponsored event.  (Admittedly, this was oversight by the
responsible officers, and fraud on the part of the private individuals).

Lisa is reluctant to discuss this issue in detail, as she has done research
for a Tax Court Judge on this issue, for a case which is not yet finalized,
She does not wish to violate her duty to keep court matters confidential.
Nevertheless, the public laws and cases she has cited make it likely that,
should the IRS choose to remove our exempt status on this basis, they could
probably do so.

The case of St. Louis Science Fiction Society also creates a concern with
SCA events and merchants.  One of the reasons that Archon was denied exempt
status was not merely it's social purpose, but it's renting out of space to
commercial interests.  The income from merchant fees could very well be
unrelated business income to the SCA, and the sponsorship of commercial
interests could weaken our case even further.

Another issue for private inurement are our gifts to Crowns for travel.  The
travel they do has a significant social component, that is unrelated to
business or official requirements.  Are the funds cycled at all through SCA
accounts?  Do the donors take tax deductions on the donations?  Either way,
there may be trouble.


BUT WHAT ABOUT OUR HISTORY WITH THE IRS:

The SCA has had at least two audits that I am aware of.  However, passing an
audit does not mean that the organization is exempt.  The IRS is not bound by
what it considers previous mistakes.  The other obvious reasoning is the IRS
might have been given inaccurate or misleading information.

That is also why our annual filings are not conclusive.  They simply have
not been given sufficiently close scrutiny.  And, finding inaccuracies may
require significant knowledge of our actions and habits.

The legal challenge in 1981, in Arizona is also not conclusive.  Private
citizens do not have the legal standing to question tax status, and the
court which was filed in may not have been the appropriate one for the SCA's
jurisdiction.


WHAT DOES THIS MEAN:

It seems clear to me that we are not a valid tax-exempt organization under
section 501(c)(3) of the IRS Tax Code.  If there weren't the two obvious
violations of private inurement and purpose, there would be a large number
of cloudy cases, and reporting irregularities. The total picture of those
would make us unlikely to qualify, but it would be debatable.  But there is
no need to check the grey areas: we are in violation.


AREN'T THERE OTHER TYPES OF EXEMPT ORGANIZATIONS?:

Yes, there are a total of 28 types of exempt organizations, the overwhelming
majority of which we are not, and cannot become.

There is a legal impediment to becoming another type of exempt organization:
the laws that control 501(c)(3) organizations require that their assets
(meaning money and property), must always be controlled by a 501(c)(3)
corporation.  We would have to prove that while we are not (and have never
been) a 501(c)(3) organization, we are, and have always been, the other kind
of organization.  This may subject us to some taxation, as reporting rules
vary between different types of exempt organizations.

I do not know if other types of groups would have been exempt from State
filing fees or taxes.  I do know that other types of exempt organizations do
not qualify for postal subsidies.

There are two kinds of groups that we might possibly squeak into, when you
examine them categorically.  If you examine them in detail, you will find
that we do not.

One is Fraternal organizations, sections 501(c)(8) and 501(c)(10).  Type
(c)(8) organizations are fraternal beneficiary societies, which we have
never been.  We provide no benefits.  Domestic fraternal organizations are
required to pay out their annual profits to various purposes, which we have
not done.  Both must be operated under the so-called lodge system.  Our
system is not the lodge system.

Social organizations are formed under 501(c)(7).  But we would still have to
meet the private inurement test, and in addition, show that the membership
is limited, and that the benefits of membership are confined to those
members.  And, gross receipts must show that less than 15% of it's gross
income comes from non-members.  In addition, we have provided tax-exempt
donations for years to donors: this on the face of it means we have not
operated as a social club.


SO, WHAT DOES THIS MEAN:

If the above is true, it means that the SCA Incorporated has never been a
tax exempt organization, and is now liable for back taxes, penalties and
interest.  It also loses the other benefits listed at the beginning of this
report, such as other tax exemptions, reduced postal rates, and such.

Moreover, it's assets (money and property) must be turned over intact to
another 501(c)(3) corporation, as they were collected as if they belonged to
an exempt organization.

IMPORTANT: Any attempt to spend down cash, sell assets for below value, or
otherwise remove property from the organization is potentially fraud.  And
is something the IRS would quite likely prosecute, as the fines for even
civil fraud are substantial.  Criminal fraud charges are even worse.  It
is my opinion (and I am not an attorney) that systematic behavior which
attempted to remove property from multiple groups, or in cooperation with
others, might even be construed as racketeering, and prosecuted under RICO.
This includes transfers to groups outside the US.

Neither Lisa nor I have investigated the liability for taxes to the state of
California, or other states which we have not paid sales tax to.  Nor have
we investigated if the US Postal Service has the right to demand back
payment for postage.

We do know that SCA donors  who have taken a deduction for donations are
safe, provided they did not cause the tax status loss.  Even then, they are
protected to a reasonable level.

I suspect the IRS would freeze all accounts held under the SCA's tax
identification number at once, and begin auction proceedings on it's assets.
After back taxes were paid, the balance would be used to liquidate the
corporation under ordinary bankruptcy rules.  If the state of California
was due money, it would have to be paid.  If the US Postal Service was due
money, it would be paid, followed by secured creditors, contracted
creditors, and unsecured creditors.  In the unlikely event that any assets
or cash were left over, they would have to be turned over to other 501(c)(3)
exempt organizations.

Members and participants of the organization who were owed money by the
corporation would, in my non-legal opinion, be the last to be paid.  And
they would probably be out of luck.

There is the small potential that the IRS would chose to treat the
information provided on our previous audits as fraudulent.  I have no idea
how likely this is, nor do I have any idea if fraud was perpetrated.  If the
information gathered and presented was data that was "enriched" to show our
selves in an inaccurate manner, that is fraud.  If we just put our best foot
forward, that is normal.  This is an IRS opinion, upon which we cannot be
sure.

I do not know what the Postal service can, or may do, about our failure to
pay correct postage.  They have wide-ranging powers, some of which are quite
bizarre.  They may have legal rights to payment as well.  (Did you know they
can collect postage from corporations that fail to use them as a mail
carrier, and who use an alternate carrier instead?  And that they have done
so?)

Neither attorney who consulted on this report is licensed to practice in
California, and so they are not prepared to render an opinion.  I am not an
attorney, so my surmises are weak.  But I suspect that the state of California
would rescind its determination of exempt status, since it bases it's
determination on the federal standard, and that it would act to extract it's
back taxes as from the SCA as well.

I doubt that other states that are entitled to back payment of sales or food
resellers taxes would get on the band-wagon, but that is also possible.


SO, WHAT DO WE DO:

We have the option of attempting to bring the corporation into better
compliance with regulations.  While we cannot undo the mistakes of the past,
we can provide solid evidence that we have improved things.  A few years
down the road, we can report our status as accurate.

I am unsure of the legal implications upon directors that find
noncompliance, and fail to report it.  This makes me uneasy, and I presume
it makes you even more uneasy.

Actions we would have to take include tighter fiscal reporting for private
inurement, improved filing for paperwork and legal compliance, and removal
of our social purpose and significant improvement of the educational goals
of the organization, along with its educational standards and practices.

The results would not be the Society that exists today.  We would lose our
events, our titlature system, our newsletters, and so forth.  It seems a
bitter price to pay to keep a corporation alive.  And, there is still risk
to the Directors involved.  I cannot recommend this option.

If we were to retain a centralized system, we might want to consider
incorporation of a new corporation in Delaware (a state with almost no
corporate tax) which is nonprofit, but not tax-exempt.  The only way to
receive the collateral benefits of tax-exemption, is to a (c)(3) nonprofit,
and that would be difficult to meet.

There is no real reason to go for tax-exempt status that isn't 501(c)(3), if
the resulting organization is nonprofit.  So long as the organization's
profits do not accrue to an individual, but instead stay with the
corporation, why not pay taxes?  Prices would not rise that high.  The
benefits that our current operating structure most require (postal subsidies
for example) would not be available as another type of exempt organization.

Finally, you could sit tight, and fail to act.  Especially if the SCA
becomes better about filing its paperwork, there is a very real possibility
that it wouldn't get caught.  The IRS audits fewer than one half of one
percent of exempt organizations a year, and sticks to review of paperwork:
not actual facts.  However, the danger is, if caught, the directors and
officers responsible for failing to act, and all subsequent officers, are
open to significant risk of financial penalties, and jail time.

The likelihood of this information not being brought directly to the
attention of the IRS is minimal.  If we are in violation of the law, it
ought to be reported.  Our suspicions ought to be reported.

Of course, one ought to consider the moral dimension as well.  The federal
government is subsidizing our postal rates, the states are giving us
valuable litigation protection, we have access at reduced rates to many
sites and government services, and we are exempt from taxes.  In exchange
for those considerations, we have promised to obey the law, and its intent.

Our internal standards require us to embody chivalry, and decency. Feeding
from the public trough, without providing the benefits the government
requires of us, is morally indefensible.


WHAT CAN THE SCA DO TO PREPARE FOR ITS DISSOLUTION:

The Directors of the SCA, if they feel the organization is in danger of
dissolution, need to prevent over-zealous members from committing fraud, or
from placing themselves in jeopardy of personal financial loss.

Fraud prevention would require clear directives to not spend down accounts,
or hide assets, or purposely lose money.

Protecting themselves involves not loaning money (or fronting it for events)
nor signing contracts in their own name.  Contacts should be signed as
"agent for the SCA Incorporated".

Plans can be made for providing guidance to local groups.  The mailing list
can be disbursed to local groups, so that should the physical computer be
seized, the data is still available.

Mostly, the Board needs to be a guiding force in keeping the people and
their organization alive, even if the Corporation and the newsletters are
not available.

It is imperative that the Directors keep clean hands in all this.  Do not
use SCA assets or funds to plan replacement organizations: do not act
counter to the fiduciary responsibilities you have to the public, the
government, and the assets of the corporation.


A PERSONAL NOTE:

I first discovered this likelihood in the Spring of this year.  I have
worked hard and long with Lisa, Harold and others to try to see if there is
a problem, and reduce any potential impact.  I am honestly recommending what
I think is the SCA's only option.  Other options involve breaking or bending
the law, and would place Directors and Officers at personal risk.

I've been quite depressed about our conclusions.

It is true that I believe that the Corporation has not been the best steward
of the game that it could have been.  I was involved in the Mandamus
litigation because I feel that way.  I also became a member of the Grand
Council, because I feel that the SCA could have become a powerful tool for
improving the game.

I did not intend, or desire, a change of this magnitude.  I am not pleased,
and I fervently hope that (if this report is correct) the people, and our
game, survive and eventually prosper.  I am, however, afraid.

I am not looking forward to being known as the "Man Who Killed the SCA".  I
suspect that in some quarters it will be inevitable, and I am sure that
people will know my thoughts "better" than I do, and attempt to falsely read
my mind.  Motives will be imputed to me that I never had.

I ask your assistance, in acknowledging that my over-developed sense of duty
has lead me to bring bad news to you.  It is that sense of duty that keeps
me from burying this knowledge, and it is my conscience that requires me to
do what I detest doing.

        Mark Schuldenfrei / Lord Tibor of Rock Valley