What are the rules for retaining nonprofit status

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Reference no: EM133494828

Question: Depreciation is an allocation of the fixed asset over its useful life. Deferred maintenance due to neglect, oversight, or inadequate funding can lead to significantly increased degradation of quality and value of the asset. This is mentioned here because the results of your homeless shelter's annual health inspection have arrived. The prognosis is poor. Several factors affected the health inspection, including:

Lead paint found on the baseboards in the kitchen.
On the day of the inspection, three homeless individuals residing at the shelter were suspected of having tuberculosis, a highly contagious disease.
Bed bugs were found in a bed frequented by an elderly male who has difficulty hearing.
Because of this, the health inspector has threatened to close the shelter in 60 days if these issues are not dealt with immediately. Stemming from the inspection, several questions arose:

How to fund repair and prevention efforts?
Did we make the right decision to become a nonprofit organization or would we have been better off as a government agency?
Even though we do not use depreciation as a tax-shield, we do incur the costs relative to revenue, so how do we record them?
The board of directors fears we may lose our nonprofit status should a follow up health inspection go badly or if the city suspends our license, even temporarily. Investigate this possibility and report your findings to the board.

What are the rules for retaining nonprofit status when health and license issues arise? How likely is it that the IRS will revoke nonprofit status in this case? What can the board do to avoid risks like these in the future?

Reference no: EM133494828

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