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I have a 501c3 non profit organization. I wish to start a nonprofit Resale Store in order to financially support our projects around the world which would help us further our vision/mission. I was wondering if it is possible to begin this busines...
Apart from whether an existing nonprofit corporation's articles of incorporation and bylaws would allow for the operation of a store as part of its operations, a board of such nonprofit will want to consider the federal tax law issues as well.
A 501(c)(3) organization must be operated primarily in furtherance of its 501(c)(3) exempt purpose(s) (e.g., charitable, educational, religious). This operational test requirement generally prohibits the organization from engaging in an unrelated business unless such business is insubstantial in relation to its exempt function activities.
Whether operation of a store is an exempt function activity or not depends on the facts and circumstances related to its operation but not upon the destination of any net income. In other words, the determination doesn't take into account whether profits from the store are used to further the organization's charitable purpose. The determination is based on the operation of the store itself. Does that further the organization's charitable purpose regardless of whether it generates any profits?
A 501(c)(3) museum that operates a store selling only reproductions of art works to educate the public would probably not have to worry about violating the operational test. However, a 501(c)(3) museum that operates a store selling only city souvenirs that have nothing to do with the museum's educational purpose should be concerned about such violation.
Even if an unrelated business is insubstantial in relation to a 501(c)(3) organization's exempt function activities, net revenues from an unrelated business may be subject to the unrelated business income tax (UBIT). There are many good resources on discussing unrelated business activities and UBIT, including from the IRS (e.g., http://www.nonprofitlawblog.com/unrelated-business-income-tax-explained/). But it would be a good idea for an organization looking to operate a new store to confer with an experienced nonprofit and tax-exempt organizations attorney before moving forward.See question
Recent changes to the 990 highlight the need to be registered in states where a 501(c) 3 does solicitation. However the implications to online solicitation and the need to be registered in a particular state (other than its home state) are unclear.
This is a complicated question because each state has its own laws regarding registration. You may start by looking at the Uniform Registration Statement site - http://www.multistatefiling.org/. Then, on the issue of internet fundraising, look at the Charleston Principles - http://www.nasconet.org/Charleston%20Principles,%20Final.pdf - adopted by the National Association of Charity State Officials (NASCO).See question
Does my nonprofit "have current 501(c)(3) status, as assigned by the IRS", if We meet the requirements and are automatically exempt because we get less than $5,000 per year?
Some organizations may be exempt under Section 501(c)(3) without filing for recognition of exemption under 501(c)(3). This includes organizations with less than $5,000 in annual revenues not required to file Form 990, 990-PF, or 990-EZ; provided that they otherwise comply with all of the requirements under 501(c)(3) (including the organizational and operational tests, the substantial lobbying limits, and the prohibition against electioneering). However, such organizations are now required to file Form 990-N (the online e-postcard). Failure to file 3 years in a row will result in revocation of exempt status.See question
I was intriuged to learn that a nonprofit LLC was an option in Kentucky. I would love to avoid forming a board of directors and other formalities of incorporating. If I could create a nonprofite LLC and be the initial sole member, it would be idea...
You may find the 2000 and 2001 CPE Texts from the IRS helpful: Limited Liability Companies as Exempt Organizations - http://www.irs.gov/pub/irs-tege/eotopich00.pdf and http://www.irs.gov/pub/irs-tege/eotopicb01.pdf (update). Also, here are links to the IRS Limited Liability Company Reference Guide Sheet and Instructions: http://www.irs.gov/pub/irs-tege/llc_guide_sheet.pdf; http://www.irs.gov/pub/irs-tege/llc_guide_sheet_instructions.pdf.
Even if you meet the 12 conditions, you'll likely meet some resistance from the IRS agent reviewing the application. It's been my experience that the IRS prefers not to give exempt status to LLCs, but if you meet the requirements for 501(c)(3) and the additional conditions provided by the IRS, they will eventually relent.See question
I own a non profit organization. I've raised about $5,000. we are going to purchase underwear and socks to need children in Cleveland. I also own a separate, local business (Zanny Clothes) that is a clothing store that sells undergarments, shirts,...
Nobody "owns" a nonprofit, but there may be state law prohibitions against an insider transaction between a nonprofit and one of its directors/officers for which you require local counsel. In addition, there may be federal tax law prohibitions, which may differ depending on the organization's tax-exempt status.
Assuming the nonprofit is exempt under Section 501(c)(3) of the Internal Revenue Code ("IRC"), it may be classified as either a private foundation or public charity. If the nonprofit is a private foundation, IRC Section 4941 (taxes on self-dealing) may prohibit your contemplated transaction. If the nonprofit is a public charity, IRC Section 4958 may or may not apply, depending on whether the transaction is an excess benefit transaction, generally, one in which the charity is paying more than fair market value for the goods received in return.
The nonprofit should have a conflict of interest policy to deal with such scenarios. Generally, to the extent an insider transaction is permissible, the policy would provide that the disinterested governing board members (directors) are responsible for deciding whether to approve the transaction and that the interested board members must abstain from such vote. It would also be wise to follow the rebuttable presumption procedures in the federal regulations. By doing so, you may shift the burden of proof to the IRS such that the IRS must prove that the nonprofit has paid an excessive amount to the insider (or his or her company). You can lean more about the rebuttable presumption procedures at: http://ftp.irs.gov/pub/irs-utl/m4958a2.pdf. Note, however, that there has been some recent discussion about changing these laws to help protect against charities overcompensating insiders.See question
each summer I go to south africa and volunteer in schools doing professional development for teachers. until recently I went as part of a university but would like to set it up as a separate entity.
Forming a nonprofit and applying for exemption under 501(c)(3) is one possibility, as mentioned by the previous respondent. However, if you decide to go this route, do so only with a strong business plan for a sustainable public charity. Fiscal sponsorship through another organization (e.g., Tides Center) may still be an advantageous arrangement over an independent operation. You can read more about fiscal sponsorship at www.fiscalsponsorship.com.
Note that operating internationally may create additional legal challenges. First, international laws will apply to your operations in such country. Second, you'll have to factor in applicable domestic laws. For example, if you plan to make grants to foreign charities, you must exercise appropriate due diligence to ensure you're not transfering funds to an individual or entity identified as a terrorist. In addition, if your donors state that their donations must be conveyed to a foreign charity through yours (i.e., your charity acts as a conduit), they will not be permitted to take a charitable deduction. You'll have to be careful about how you set things up and how you communicate your messages.See question
what are the common 501c3 violations seen by the irs
Here's a very partial list of compliance issues for 501(c)(3) organizations:
No Private Inurement. No part of the organization's net earnings may inure to the benefit of any private shareholder or individual. The private inurement doctrine generally prohibits an exempt organization from using its assets for the benefit of a person having a personal and private interest in the organization's activities (i.e., an insider such as a director, officer or key employee). An organization that engages in an inurement transaction (e.g., paying an unreasonable compensation to an insider) may face revocation of its exempt status.
No Private Benefit. A 501(c)(3) organization must serve a public rather than a private interest. To satisfy this requirement, referred to as the private benefit doctrine, the organization must establish that it is not operated for the benefit of private interests. This does not mean that the organization may not confer benefits to individuals; rather, it provides that such benefits must be incidental, quantitatively and qualitatively, to the furthering of the organization’s exempt purposes.
Excess Benefit Transactions. Federal tax laws also prohibit certain transactions characterized by a conflict of interest. IRC Section 4958(c)(1)(A), which applies to organizations exempt under either IRC Section 501(c)(3) or 501(c)(4) that are not private foundations, defines an excess benefit transaction as “any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person if the value of the economic benefit provided exceeds the value of the consideration (including the performance of services) received for providing such benefit.” An excess benefit transaction is prohibited and may subject the disqualified person and the directors who knowingly approved such transaction to significant federal excise taxes (“intermediate sanctions”).
No Substantial Lobbying. In general, no organization may qualify for Section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status. Legislation includes action by Congress, any State legislature, any local council or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure. It does not include actions by executive, judicial, or administrative bodies. An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation. Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.
No Electioneering. All Section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate this prohibition. Such violation may result in denial or revocation of tax-exempt status and the imposition of certain excise tax.See question
We would like to start an animal rescue group, not-for-profit, in the state of California.We will be taking dogs from the shelters, getting them medical attention, rehabilitating them and then placing them in good homes. I have tried to navigate t...
Starting a nonprofit is relatively easy following the mechanical steps. The Citizens Media Law Project provides some references which you may find helpful. If you decide to use the Nolo Press book by Anthonhy Mancuso, make sure you get the one specifically for California nonprofits.
Deciding on whether you should start a new nonprofit is a more difficult question. Do you have a plan to create a sustainable organization, including a plan to attract funds in a very competitive market and difficult economy? Do you have individuals who share your vision and commitment who are willing to serve on the governing body of the organization? Are you aware of your ongoing reponsibilities (e.g., oversight over the organization's finances and charitable activities; regular reporting to the IRS, Franchise Tax Board, Attorney General, and Secretary of State; providing the proper form of "receipts" to donors according to the amount and type of donation; making available to the public certain documents; dealing with conflicts of interest that may result, for example, if a board member is also compensated by the nonprofit)?
As a former director of the San Francisco SPCA's medical rehabilitation division and an attorney whose practice focuses only on nonprofits and tax-exempt organizations, I am very grateful for animal rescue groups that do wonderful work. At the same time, I don't like to see resources wasted by forming an unsustainable nonprofit that results in more administrative work and headaches and fewer animals saved. The key is to prepare in advance of starting the nonprofit and to make sound decisions. Are you duplicating services in your area or are you offering something unique? Will you be able to attract additional funds to help the animals in your area or will you be competing for existing monies already going to groups with a similar mission? Do your homework and consider the tough questions first. Then, if you've decided that your group will offer something in addition to what's out there now and will be sustainable over the short- and long-term, create and run the best rescue group you can. Good luck!See question
A boy scout troop requires payment to attend a campout. There is money left over is it legal for the troop to keep the money and put it into a general troop fund?
I agree that answers to many questions, including this one, may be contingent on many variables. Generally, if the payments represented a fee to attend, the campout, there is no prohibition applicable to a 501(c)(3) organization against making a profit from the activity or event. There may, however, be a problem if the organization represented that the payments would only be used on the campout. It seems doubtful on this level (presumably, very modest amounts were involved) that anyone would complain.See question
what is the procedure for becoming a nonprofit organization
Also note that nonprofit does not mean tax-exempt. You may form a nonprofit corporation by incorporating as a nonprofit corporation, but it may be a taxable entity unless you receive recognition of tax-exemption. Not all nonprofits must apply to the IRS to be tax-exempt; it depends on the nature of your activities and under which section of the Internal Revenue Code you are seeking exemption.
There is much involved with forming a charitable nonprofit exempt under Section 501(c)(3). You may find my website to be a helpful starting point: under the Forming a Nonprofit tab. If you are new to the process, Nolo Press publishes a book on starting nonprofits that may also serve as a basic resource.See question