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Here is the copy of a memo addressed by EV's president to City Contacts in June 1998.

PHONE: 818/889-1193 FAX: 818/889-6522

DATE: June 2, 1998

This memo addresses some of the legal aspects of local organizations. It has come to my attention that some communities have discussed actually setting up a nonprofit corporation and applying for tax exempt status. This is not a good idea. It creates potential exposure to the Internal Revenue Service and other governmental agencies. If a local nonprofit organization failed to take proper action and an investigation occurred, Elan Vital could be exposed. The goal is to function and achieve propagation with a minimum of formal organization.

Our recommendation is as follows: Most states recognize unincorporated associations as legal entities. If there is a question for a community within a particular state, you can contact a local attorney to find out if your particular state recognizes unincorporated associations.

A local community can "form" an unincorporated association, select a name and file a Fictitious Business Name Statement. You may need to research what is required to file a Fictitious Business Name. Usually some publication of the Fictitious Business name in a local newspaper is required.

The association should then file Form SS-4, Application for Employer Identification Number (EID), with the Internal Revenue Service. Don't let the name "Employer" fool you. It does not mean that the local organization will have employees. The IRS will assign a tax identification number to be used by the association the way an individual uses a Social Security number.

Once the unincorporated association is assigned an EID number by the IRS and completes publication of the Fictitious Business Name, it usually can open a non-interest bank account in the name of the association, e.g., Tahoe Resource Group. Most banks require an EID number and proof of publication of the Fictitious Business Name Statement before they will open a bank account.

Unlike a corporation, it is not usually necessary for an unincorporated association to prepare other legal documents such as statutes, articles, bylaws, etc. When in doubt, contact a local attorney in your area.

The bank account set up by the unincorporated association should not be an interest bearing account. Banks report interest income to the IRS. The IRS cross-references the report of interest income against the association 's income tax return. If the association does not have interest income, it does not have to file any tax returns.

A person who understands finances should handle the bank account for the association. Funds received for support of local video events should be deposited to the bank account. Expenses such as rent for location for local video events, Visions screening fees, and other expenses should be paid from the bank account. If, at the end of the year, the association does not have "net profits," it does not have to file a tax return. If any tax authority inquires as to why the association did not file a tax return, the person can show that the association had no "net income" or "net profits" because its expenses were greater than its receipts.

I do not recommend that these associations purchase Visions materials such as magazines and videos for resale as they then may have to file state sales tax returns. This does not preclude an individual within the community from purchasing several magazines or videos and "reselling" them at no profit to others.

When a prospective venue for a video event is contacted, the person can refer to the association as the organization seeking to rent the venue.

It is vital that the association obtain liability insurance in case anyone "slips and falls." Such liability insurance may protect such a person from suing Elan Vital since videos from Elan Vital will be shown as events. Elan Vital understands that even though the unincorporated association is not legally tied to Elan Vital, someone attending an association event can still sue it.

The association may be able to enter into a lease for space or agreement with a hotel for a place to show videos. Again, Elan Vital seeks to minimize its financial exposure and asks that the association handle such leases or agreements. In some cases, a prospective lessor may want an individual's name on the lease. Whether or not that happens depends on the willingness of an individual to expose himself or herself to such potential liability.

There is also a question of the purchase of video equipment. Again, it is our recommendation that either an individual or group of individuals pool their resources to purchase the equipment. The unincorporated association could also purchase the equipment, although individuals may have to guarantee any financing since the association will have little or no financial depth.

If anyone has a particular question, please call Elan Vital (818/889-1193) and leave a message with Terry or you can send a facsimile (818/889-0502 and leave any questions on a facsimile. I will get in touch with you as quickly as I can.

Checklist to obtain Unincorporated Association Status:

* Select a name and file a Fictitious Business Name Statement.

* Fill out the SS-4, Application for Employer Identification Number (EID) and submit to Internal Revenue Service.

* Once the EID has been assigned and the Fictitious Business Name process completed, open a non-interest bearing checking bank account in the name of the association.

* As long as a local association does not have "net profits" or "net income" or interest income, it need not file a tax return.

* Meticulous record keeping of receipts and disbursements must be kept so that an association can show that it has had no income in the event a tax authority requires.

* Purchase liability insurance to protect the association and, indirectly, Elan Vital. 

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