Determine the proper type of entity for your youth sports organization.
The most common type of entity for a youth sports organization is a not for profit corporation. Other possible entities are LLC's or unincorporated associations. However, the cost to form a not for profit corporation are fairly low, and the process can be quite simple. In some states like Colorado, you can use online forms on the department of state web site to file your articles of incorporation online, and the filing fee is $50.00. You will need to have determined the name of the entity, the physical and mailing address for the corporation, and the individuals responsible for forming the corporation and who will be able to accept legal service for the corporation. However, before you file, you must look forward as to the goals of the organization and address the need to be tax exempt.
Determining the exempt purpose(s).
In the likely event that you will seek tax exempt status from the IRS you will also need to include special provisions setting forth that you are organized to fulfill and exempt purpose, and an acceptable dissolution provision. To become tax exempt you must file IRS form 1023 which is available online at the IRS web site. (Go to irs.gov - under the Charities & Non-Profits tab). Youth sports organizations can typically qualify on any one or more of three approved basis. You can apply based upon section 501(c)(3) charitable and educational purposes, as well as under the basis of an amateur athletic organization. However, all your purposes must be for acceptable tax exempt basis. The IRS web site also contains links to instructions in completing form 1023 and describes the requirements for each of these basis to obtain tax exempt status. This is a time consuming technical application, and should be done with the help of a lawyer.
More planning ahead for Form 1023.
You should complete a draft of form 1023 before you file your corporate formation documents. Then, once the entity is formed, with the proper tax exempt purpose and dissolution provisions, you will obtain and attach a signed copy or certified copy of an unsigned electronically filed version of the Articles of Incorporation to the tax exempt application.
Hold an Organizational Meeting of the Corporation.
You will then need to hold an organizational meeting to elect the initial Board of Directors of the corporation. Try to include people who are leaders, and who have competitive and coaching athletic experience beyond being a parent; those that are representative of the group, and who are supportive of its purpose; people who are like mined and hard working; and people who can get along and work well with others.
Adopt the Corporate Bylaws.
Once the Directors are elected they need to have a committee work on the bylaws. Then, hold a special meeting to adopt a set of bylaws. The bylaws will set forth the corporate purposes in more detail than the vague Articles of Incorporation, since the bylaws can be changed more easily in the future. The purposes in the bylaws need to correspond to the purposes and activities set forth in Part IV of the tax exempt application. The bylaws also set forth the regular meeting times, the procedures for electing officers, and the general operating rules for the organization. Those rules should include the signors required and approved to carry out the organizations banking. A copy of the adopted Bylaws along with proof they were adopted by resolution of the Board of Directors also needs to be attached to the tax exempt application per Part II (5) of Form 1023.
Approve a Conflict of Interest Policy.
The Board should also adopt a Conflict of Interest policy, as this is requested as part of the tax exempt application. A form Conflict of Interest Policy is available on the IRS web site as well. The adopted Policy must be copied and attached to the application with proof that the Board approved it. The purpose of this requirement is to limit use of the organization's funds to hire insiders in the organization at above market pay rates, essentially funneling tax exempt money to the individuals as a windfall or as profits. As you could imagine, this is consistent with the tax laws and will cause you to be rejected for or lose tax exempt status. See Part V(5)(a) of form 1023.
The same board meeting can be used to elect the Corporate officers per the terms of the Bylaws. The corporate officers typically include President, Vice President(s), Secretary and Treasurer, and are members of the board who are nominated and elected by the Board. A resolution approving the elections should be prepared and signed by the Secretary or Acting Secretary. The names, titles, mailing addresses and compensation of each Director and Officer must be included on the tax exempt application along with the anticipated duties and number of hours being contributed by each. See Part V of Form 1023 and the instructions there to.
Apply for a Tax ID number
You need to proceed to obtain an EID number (also known as a tax ID number) next. This number can be obtained by applying online at the IRS web site. Once you complete the fairly simple questionnaire online, you will be assigned a number immediately. Don't forget to print out a copy of the application summary and the IRS letter issued to assign the number to the organization. The number must be filled in on the Form 1023 tax exempt application. Be sure to be consistent with your draft tax exempt application when completing the questionnaire. This advice applies to all documents and websites relative to the organization. Be consistent, so that you leave no room for argument that you are not entitled to tax exempt status.
Form 1023 requires that you submit budgets to show the organizations income and expenses. This is important. The Board should prepare a draft budget, and have your attorney review it for preparation to include it on the tax exempt application. If the gross income level is above $10,000 per year you some income reporting requirements, and your filing fee for the tax exempt application will be $700.00. If you are under $10,000 you do not have to file, and your filing fee is $300.00. Please keep in mind that for a youth sports organization, the uniform fees and tournament fees are usually passed through to the players. You can avoid including these numbers in the budgets to keep your gross income numbers down. In order to do this, you will need a separate EID number for a banking escrow account you will use to hold tournament fees collected or uniform costs collected. Another way to do it is to have uniforms paid for by parents directly to the uniform supplier.
Review the budgets closely
The budgets need to meet the IRS requirements, to avoid being considered a private foundation. Income must be limited to less than one-third from investment income, and you will need to show more than one-third of income from contributions, membership fees, and gross receipts from activities related to its exempt purpose. As such, most youth sports organizations will need to charge a membership fee, will need to seek contributions or sponsorships. Part X (h) will usually apply to most sports organizations seeking approval and that box should be checked if the budgets will support doing so.
Open a bank account
Use the tax ID number and corporate documents to open up a bank account with your initial contributions and or membership fees collected. Use this account o pay your required tax exempt application fee.
Complete the final form 1023 and file it.
Now that you have the form ready to finalize do so carefully. The form needs to be accompanied by the Form 1023 checklist which outlines the order to include the documents in, and tells you exactly what need to be included for a complete application. If an application is complete and your application meets the tax exempt requirements, you will receive a letter in approximately 60 days approving your temporary status. You may act as a tax exempt organization at this point pursuant to the new IRS regulations set forth in September 2008. If your application is incomplete, you will be advised of that, and your application will be delayed for your further submission and review.
Register with your State before you do fundraising
Most states require not-for profit organizations to register with the state before they begin fundraising activities. Please look into your state's requirements and be sure to register, if required.
Get to work on the membership and coaching materials and participation
Draft applications for member players and coaches including the necessary liability waivers and medical authorization forms. Prepare coaching manuals and guidelines. Get your committees working on team selection, coaching selection, and scheduling for facilities to practice on and play games. Get equipment and safety guidelines, and injury report forms distributed. Organize team fundraisers and community sponsorship drives, with parent involvement on a team by team basis. Stay organized and keep communication at a high level, with coaches and players through the use of e-mail and a good chain of command. Be sure to delegate as much as possible to people who want to get the jobs done for your organization.
Have fun, play ball with class, and adopt a code of conduct
Youth sports can be very rewarding to the children and families involved, and can be the foundation for developing skills confidence, and a work ethic needed for success in their lives. Friendships and social skills are also increased through competition in youth sports. The key is to keep it fun for all regardless of the outcomes of games. The biggest pitfall is caused by pressure to win placed on athletes by coaches and parents. I strongly advise any youth sports organization to adopt a code of conduct which sets forth acceptable and unacceptable standards consistent with zero tolerance for inappropriate behavior of adults in front of the youth participants. There is no benefit to yelling at umpires, opposing coaches, or players in youth sports. Patience and emphasis on teaching the skill sets necessary to compete in your sport is of utmost importance. Giving children added responsibilities as they grow older also keeps things new and exciting for children.
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