I have 2 questions about filing Form 1023 EZ for tax exempt status for a non-profit, re public charity status and compensation?
2. What is the difference between Sections 509(a)(1) / 170(b)(1)(A)(vi) & Section 509(a)(2)?
Sections 509(a)(1) / 170(b)(1)(A)(vi): one-third of your support from public sources or you normally receive at least 10 percent of your support from public sources and you have other characteristics of a publicly supported organization.
Section 509(a)(2): one-third of your support from a combination of gifts, grants, contributions, membership fees, and gross receipts (from permitted sources) from activities related to your exempt functions and normally receive not more than one-third of your support from investment income and unrelated business
2 attorney answers
Generally, 1023-EZ is for the non-profits that their gross receipts won’t be more than $40K over the next four years. It is e-filed and you may get approval within a month or so. Last one I field was on May 6, 2015, which was approved on June 4, 2015. Having worked with the IRS for a long time, I know that I may file another one (which I will be filing a regular 1023 soon), and may not hear from them for months, and they may not answer your telephone. This is not to disappoint you or your lawyer, in case it may take months. The IRS has a huge budgetary problem and these things may vary. The 1023-EZ IRS filing fee is $400, as opposed to regular form for which the fee is $850 and may take many months. Charitable 501(c)(3) organizations can pay their officers or directors reasonable (requires professional judgment under the circumstances) compensation. The 990-EZ tax returns are public records and anyone may visit the IRS’s website and look at the officers’ or directors’ compensation. The information presented herein is for general purposes only. It is not intended to, and may not be construed as, rendering legal, tax or accounting advice. For specific advice, please consult a tax attorney in person. Good luck. Zaher Fallahi, Tax & Business Attorney, CPA (California).
Generally, you inform the IRS of any changes in operations in your annual form 990 filing. Because 1023-EZ is an expedited process, it is likely that changes will receive more scrunity from the IRS. If you file the regular 1023, there is space to describe your future compensation plans. Of course this will need to be described in a way that keeps the IRS happy.
Regarding the two public charity schemes, (a)(1) generally envisions donations and in-kind support from the government and the general public, but not service or admission fees, covering 1/3 of your orgnization's gross sales (including in-kind value), and if your organization fails to do so, it can still try to prove it is a public charity by applying the 10-percent facts and circumstances test; (a)(2) generally envisions getting part of that 1/3 support from service or admission fees (e.g. entry ticket fees for a non-profit theatre), but also imposes a 1/3 income from investment and unrelated business income (e.g. selling t-shirts). This is a very generalized description, and if you want more specifics, you can read the IRS examination guidelines for both schemes here: https://www.irs.gov/irm/part4/irm_04-076-003.html
The choice of which to use ultimately depends on how you envision funding of your organization to happen.
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