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Public finance

Public finance deals with how the government can collect money, as well as how it can use it. The sale of government bonds is an area that often sees attention.

John Patrick Kennedy | Jun 16, 2015

Qualifying as a 501(c)(3) Tax Exempt Organization

Requirement Number 1: Organized Must be organized as a corporation, trust, or unincorporated association. The organizing documents of such organization must: (A) limit its purposes to those described in section 501(c)(3) of the IRC; (B) Not expressly permit activities that do not further its exempt purposes; (C) Permanently dedicate its assets to exempt purposes. Requirement Number 2: Operated A substantial portion of every 501(c)(3)'s activities must be orchestrated in a way that furthers the purpose that allows the organization to qualify as a 501(c)(3). There are certain activities that the organization is prohibited from participating in, including, but not limited to: (A) refraining from any and all participation in the political campaigning of any local, state, or federal office candidate; (B) all lobbying activities may not be a substantial part of the 501(c)(3)'s total activities, or in the alternative, all lobbying activities must be an insubstantial part of the 501(c)(3)'s total activities; (C) the 501(c)(3) must also ensure that no private shareholder or individual of the 501(c)(3) is allowed to benefit from the earnings of the 501(c)(3); (D) the 501(c)(3) cannot under any circumstances operate for the benefit of private interests, which includes the interests of its founder or the founder's family members, the 501(c)(3)'s shareholders, or any person controlled by similar interests; (E) the 501(c)(3) cannot be operated with the primary purpose of furthering business or trade that is not substantially related to the 501(c)(3) organization's exempt purpose; and (F) the 501(c)(3) may not partake in any activities that are illegal or in some way violate fundamental public policy. Requirement Number 3: Exempt Purpose Any 501(c)(3) organization must be organized for one or more tax-exempt purposes. The IRC lists the following as exempt purposes: (A) charitable; (B) educational; (C) religious; (D) scientific; (E) literary; (F) fostering national or international sports competition; (G) preventing cruelty to children or animals; and (H) testing for public safety. While there are many tax exempt purposes, the three most common purposes under the Internal Revenue Code are charitable, educational, and religious. Exempt Purpose: Examples of Charitable Organizations Charitable organizations conduct activities that promote: relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. Exempt Purpose: Examples of Educational Organizations Educational organizations include: schools such as primary or secondary school; a college, or a professional or trade school; organizations that conduct pubic discussion groups, forums, panels, lectures, or similar programs; organizations that present a course of instruction by means of correspondence or through the use of television or radio; museums, zoos, planetariums, symphony orchestras, or similar organizations; nonprofit day-care centers; and youth sports organizations Exempt Purpose: Examples of Religious Organizations The term church includes synagogues, temples, mosques, and similar types of organizations. Although the IRC excludes these organizations from the requirement to file an application for exemption, many churches voluntarily file applications for exemption. Such recognition by the IRS assures church leaders, members, and contributors that the church is tax exempt under section 501(c)(3) of the IRC and qualifies for related tax benefits. Other religious organizations that do not carry out the functions of a church, such as mission organizations, speakers' organizations, nondenominational ministries, ecumenical organizations, or faith-based social agencies, may qualify for exemption. These "other" religious organizations must still apply for exemption from the Internal Revenue Service.

Nathan Robert Howard | Mar 17, 2014

SEC Municipal Continuing Disclosure Cooperation (MCDC) Initiative

Overview The SEC has recently announced the creation of the Municipal Continuing Disclosure Cooperation (MCDC) Initiative. Pursuant to the MCDC Initiative, municipal issuers are encouraged to self-report certain violations of federal securities laws rather than wait for such violations to be detected. In so doing, the SEC Enforcement Division will "recommend standardized, favorable settlement terms to municipal issuers who self-report that they have made inaccurate obligations specified in Rule 15c2-12 under the Securities Exchange Act of 1934." The MCDC Initiative is available to municipal issuers immediately and will remain available until September 10, 2014. As part of the MCDC Initiative the SEC has developed a questionnaire for municipal issuers who wish to self-report, which would require the issuer to provide information about themselves as well as the securities offering at issue. SEC Rule 15c2-12 Rule 15c2-12 generally requires that municipal bond offering documents contain a description of instances during the prior five year period in which the issuer has failed to comply with their continuing disclosure obligations in any material respect. Because these disclosures are viewed by the SEC as a "critical source of information for investors in municipal securities," the SEC has designed the MCDC Initiative to "promote improved compliance by encouraging responsible behavior by market participants who have failed to meet their obligations in the past." Use of MCDC Initiative Due to the fact that the SEC can file enforcement actions against municipal issuers for making misrepresentations in bond offering documents about the issuer's prior compliance with continuing disclosure obligations, the MCDC Initiative would allow municipal issuers to self-report any such prior misrepresentations in order to avoid potentially more costly penalties when and if such violations are discovered by the SEC. However, in announcing the MCDC Initiative, the SEC specifically noted that it provides no assurance that individuals associated with those municipal issuers who self-report, such as municipal officials, will receive the above-referenced standardized, favorable settlement terms. In addition, the SEC also notes that it can provide no assurance to municipal issuers who fail to self-report prior to September 10, 2014 that they will receive similar standardized, favorable settlement terms after this September deadline.

Kerry Blasingim | Apr 18, 2013

Nonprofits 101: An Outline of the 501(c)(3) Application Process

I remember my first nonprofit formation; it was during a semester I spent at Volunteer Lawyers for the Arts of Massachusetts. We didn’t realize, at first, that we were going to have to do a full-blown application; this was back when the changes to the reporting process were just beginning to cause small nonprofits to automatically lose their tax-exempt status. You see, the IRS had decided that, even if a given charitable organization didn’t have enough revenues to justify requiring them to return a full-blown 990 (the tax return that charities file), it was still going to insist on being sent some basic information – the identities of the board and managers, essentially. Any organization that failed to do this for three consecutive years would have its status automatically revoked. They put in an exemption for religious organizations, naturally, but that’s a separate issue. So, we got a call from a small nonprofit that had seen its status revoked for failure to submit the postcard for three consecutive years. This was in the mid-to-late fall, so the holiday fundraisers were coming up and this was going to have a huge impact on the nonprofit’s viability – a nonprofit that had been around for a significant period of time. Getting that organization’s exemption reinstated was something like a trial by fire for me; I spent 5 hours on the phone with the IRS (mostly on hold) to figure out how to answer very specific questions and how to deal with very specific events (for example, a natural disaster had destroyed some of the organization’s old documents – including its bylaws – and no other copies existed). The most basic and important thing that I learned? Filing for nonprofit status is a very unique and specific practice. That said, I wanted to give those who are interested in forming their own organization a brief overview of how that process works. Perhaps more than any other topic I’ve discussed thus far, however, I would advise having an attorney assist you in this process; working with the IRS is always a very detailed and exacting process, and nonprofit formation is incredibly complex. You can, however, go through a web tutorial offered by the IRS here. You can also download and look over the IRS publication on 501(c)(3) organizations here. The relevant text begins at or around page 23. So, you want to form a nonprofit. Where do you start? Ideally, by forming a valid business entity of one of the three general types accepted by the IRS for 501(c)(3) entities: a trust, a corporation, or an association. For small nonprofits, this is usually accomplished by filing as an LLC in the organization’s home state. Now, with your valid and accepted entity formed, you have to establish that you belong to one of the groups that are eligible for tax exemption. The most basic is the “charitable organization" class, which required that the organization have an appropriate charitable purpose. Examples include: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of the government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. Some other classes include literary organizations, amateur athletic organizations, scientific organizations, religious organizations, and organizations devoted to the prevention of cruelty to children or animals. (see IRS pub 557) So, now you have your exempt purpose and you know the class to which you belong. Congratulations! Now you get to file form 1023, the IRS form requesting recognition of a tax-exemption. You also get to apply for an EIN – a federal employer identification number. Sounds like you’re done, right? Nope. You see, to be eligible for tax exempt status, your organization must have adopted both appropriate organizing documents and effective policies regarding a number of issues (including whistle-blower protection, sexual harassment prevention, non-discrimination in hiring and firing, and more). For a new organization, you’re also going to need to provide your current financial statements and budgets for the next two years “including a detailed breakdown of revenue and expenses." You’re going to need to identify the attorney representing you in filing the 1023, if you’re using one. When all that’s done, you still have to enclose a check for the filing fee – currently either $400 or $850, depending on your organization’s annual gross receipts. When you’ve finally put together all of this information that’s necessary for the 1023 and it’s sent away, the feeling is one of great relief. But sending off the 1023 doesn’t mean that you have an exemption; you have to wait for the official letter of exemption to come back from the IRS. It’s a lot of work, but that shouldn’t scare away people who are passionate about creating an organization to introduce positive change into the world. Besides, that’s what lawyers are for – it’s our job to make the whole process feel as easy as possible. Even if we sometimes want to pull our hair out after an hour and a half on hold with the IRS to ask which box to check in response to a certain question.

Frank A. Natoli | Dec 18, 2012


Non-Profits as Businesses Have you been considering whether to start a non-profit versus a for-profit company? Operating as a non-profit does not mean that the principals in the organization must submit to a life of poverty. On the contrary, many directors of non-profit organizations are very well paid. The IRS requires “reasonable compensation," a mushy standard that is often best met by looking to the salaries of directors and employees in similar organizations. Non-profits may even earn a profit, or surplus, but that surplus must be retained by the organization for its preservation, expansion and future plans. Many business principles derived from for-profit entities can benefit non-profits, and many non-profits invest resources in developing effective internal management, monitoring performance, and ensuring accountability in the organization. The Basics on Non-Profits Non-profit organizations are often referred to as charitable organizations, but in fact a number of organizations that are not obviously “charitable" also qualify for non-profit status. A non-profit entity is one that is organized and operated exclusively for an exempt purpose, as recognized by the Internal Revenue Service (IRS) in Section 501(c) of the Internal Revenue Code (Code). Most non-profits derive their status under Section 501(c)(3) of the Code, which lists charitable, religious, educational, scientific, or literary purposes; testing for public safety, fostering national or international amateur sports competition, promoting the arts, and preventing cruelty to children or animals. Charitable purposes include relief of the poor or underprivileged, eliminating prejudice and discrimination, defending human and civil rights, erecting and maintaining public works and buildings, and lessening the burdens of government. Twenty-eight types of organizations qualify for tax-exempt status under Section 501(c) of the Code, including: ·Civic or Business Leagues ·Employee Benefit Associations or Funds ·Fraternal Societies ·Labor and Agricultural Organizations ·Social Clubs ·Social Welfare Organizations ·Veterans Organizations ·Credit Unions ·Private Foundations ·Political Organizations (under Section 527 of the Code) None of an organization’s earnings may inure to the benefit of any private shareholder or individual, and therefore any budget surplus at the end of the fiscal year must remain within the organization. Benefits of Organizing as a Non-Profit Qualifying non-profit organizations are exempt from federal taxation on income tax and often property tax as well. State and local tax exemptions from income, sales and property taxes are also available in accordance with state and local law. Contributors to the organization are permitted an income tax deduction for donations of both money and property. Limitations of Organizing as a Non-Profit Non-profits organized under Section 501(c)(3) are prohibited from engaging in certain political activities. Specifically, a 501(c)(3) cannot participate either directly or indirectly in a political campaign on behalf of any candidate for elected office. Charities may conduct lobbying so long as the lobbying does not amount to a “substantial part" of the organization’s activities. An otherwise exempt organization may be subject to the unrelated business income tax (UBIT) on certain activities if an activity: is a trade or business, regularly carried on, and not substantially related to the organization’s exempt purpose. For example, a museum that publishes a quarterly magazine containing advertisements would be subject to the UBIT on the profits generated by the advertisements. The museum would not be subject to the UBIT for offering art appreciation classes for a fee. What to Consider When Establishing a Non-Profit? Have you analyzed your primary objective and formulated a mission statement? Your primary objective must be for a charitable purpose that meets the requirements of the IRS. Your mission statement should address the question of why your organization exists, and it might identify your clients, describe your services and primary benefits to clients, and include the values that will guide your organization. How will you organize? Setting up a non-profit starts with creating the corporation at the state level. The process can get very complicated and there is usually a lot of correspondence with the IRS Examiner once the application has been submitted. It is always suggested to seek a competent professional to assist with this process. A non-profit entity may organize as a non-stock corporation, partnership, individual enterprise, unincorporated organization, or foundation, among a few others. Filing for exempt status follows incorporation and the development of a budget, since the amount of the filing fee depends upon your budget. If the organization's average annual gross receipts have exceeded or will exceed $10,000 annually over a four-year period, the IRS User fee is $850. If gross receipts have not exceeded or will not exceed $10,000 annually over a four-year period, the user fee is $400. You will also have state incorporation fees, which vary, but are not usually very high. Your organization may also need an Employer Identification Number (EIN) from the IRS, which can be obtained through the IRS web site. Will you have employees? If you have employees, the organization is responsible for Federal Income Tax Withholding and Social Security and Medicare taxes. In addition, some organizations are responsible for Federal Unemployment Tax. Will some of your activities be subjected to the UBIT? With a few exceptions, any business activities conducted by your organization will be subject to the UBIT if they are not substantially related to the purpose of the organization. Consider whether a good portion of your organization’s intended activities will be subject to taxation. Are you sure you want to start a non-profit? Consider whether you want your organization to focus on meeting an unmet need in the community, rather than on maximizing profits. The idea of forming a non-profit can seem more desirable in a tough economic climate, but the work required for starting a non-profit is not any different from starting a for-profit business. Instead of courting investors, you will be courting donors. While the tax deduction is an incentive for attracting donors, fundraising may be difficult if the services your organization will provide are not unique. You must do your research before starting your organization to ensure that your idea is original and that there is a need in the market for your services. Although you can start a non-profit on your own, an attorney knowledgeable in non-profit law can help to ensure that you do not make mistakes as you establish your organization, which will expedite your application for exempt status and get your organization off to a good start.

Donald Scarinci | Aug 25, 2012

Issues in Stockton Bankruptcy Case Could Impact Pension Plans

- 0 0 inShare EmailShare Challenges surfacing in the bankruptcy proceedings for the city of Stockton, California, could have wide-reaching ramifications regarding how future municipal bankruptcy law cases will handle the issue of retiree benefits and pension plans. Two of the city’s largest creditors, National Public Finance Guarantee Corp. and Assured Guaranty Corp., have challenged the bankruptcy filing, reports the Wall Street Journal, saying that the city should have also sought concessions from the the California Public Employees’ Retirement System (Calpers). The city pays roughly $10 million per year into an investment fund run by Calpers, which covers more than 3,000 communities across the state. However, because of contribution shortfalls, the paper says Stockton has a $147 million debt to the retirement plan. Should that debt be included in the restructuring, its unclear if Calpers would then reduce the pension payments it makes to former city employees. A spokesperson for Calpers told the paper that it was “committed to safeguarding" retirees’ benefits. “Nothing like this [about pensions] has been worked out in bankruptcy court before, and whichever way it is resolved, it could have far-reaching implications," Richard Larkin, credit analysis director a New Jersey bond underwriter, told the Journal. He added that a restructuring of pension obligations could impact many other California cities in the future, as more have been rumored to be considering filing for bankruptcy. Last year, the city of Vallejo emerged from a lengthy bankruptcy case in which it avoided adjusting pension payments. In late June, Stockton became the largest city ever to file for Chapter 9 bankruptcy protection after years of financial missteps. It owes its creditors more than $700 million.

Andrew Daniel Myers | Jun 6, 2010


Formation of a non-profit corporation can be a rewarding experience. On the other hand, it is not simple and some wonder why you would want to do it in the first place? If you register your corporation as a non-profit (in other words, a 501(c)(3)), any high salaries that you may distribute will be looked at closely. Most people consider it to be scandalous when an employee or even the director of a nonprofit organization makes more money than the average donor. Most likely, you are not going to get rich by becoming a non-profit corporation. You can, however, tap into numerous sources of funding as a non-profit corporation that would otherwise be unavailable to you. Non-profits qualify for tax exemptions, can give donors the incentive of being able to write off donations to the organization and perhaps most importantly, make the business eligible for grant funds from the government and private foundations. Forming a non-profit corporation does require some extra footwork. You will need to see if your organization meets the qualifications before you proceed. According to the Internal Revenue Code, a non-profit must operate for religious, educational, literary, charitable or scientific purposes. If you believe that your business qualifies, and that a non-profit corporation is the course of action that you wish to take, you will need to follow these steps: 1. Decide on a board of directors. Non-profits typically must have a board of directors consisting of at least three individuals who are dedicated to promoting and raising funds for the corporation. By way of example, New Hampshire law requires 5 directors, and this is fairly typical. This board will develop the corporate bylaws and organizational statement of purpose. You will want to select individuals who share your vision for the organization, who are trustworthy, and who are willing to devote time to the organization. 2. You will need to decide upon a name, and check to make sure that the name is available, just as you would with any other business. If your non-profit will cover an area that is larger than your state, you should do a nationwide search. Once you find the name that you want, be sure to reserve it. 3. You will need to develop your charter document, the Articles of Incorporation. Standard forms are provided by your Secretary of State, but there are reasons to customize them. The information that you will need to provide is the name of your corporation, the name and address of the agent and office of the corporation, the purpose of the corporation, the names and addresses of the members of the board of directors and the period of duration of the corporation. The IRS will also want a confirmed copy of these articles when you are applying for your tax-exempt status. 4. If you intend to apply for IRS federal tax exemption as a charitable organization, your articles of incorporation must contain a required purposed clause and a dissolution of assets provision. This is required by IRS Code Section 501(c)(3) for qualification for non profit status 5. After you have decided upon and reserved your corporate name, and set up a board of directors, file your Articles of Incorporation with your Secretary of State. The costs for filing vary from state to state. In New Hampshire, the filing fee is only, as of this writing $25. However, if you make mistakes, an amendment must be filed at an additional cost of $25. The legislature likes to increase various fees from time to time and so this should be checked before filing. The Office of the Secretary of State is not known for its speedy processing of documents, and it may take up to six months before your non-profit application is approved. 6. With the board of directors, develop a statement of purpose and bylaws for your organization. Bylaws basically state when meetings will be held, how often, what sort of notice will be given, how long the term of office for the board of directors will be and so on. They help ensure that your organization will run smoothly. 7. File the federal tax exemption application. This is another form that is best filed as soon as possible, as it will take time to be processed. When you are preparing and filing forms, it is very important to do it correctly the first time. You do not want to receive a letter three months from the date you filed informing you that you did it incorrectly and have to resubmit the form. This can delay your organization receiving its non-profit status for another few months, which can be a costly error. 8. Check with your Secretary of State and the IRS to see if there are any other forms that you need to fill out and file. Requirements change on a regular basis, and you will want to have the most up-to-date information. 9. Unless you are a professional accountant, find a good one. This is not optional. One of the downsides to having a non-profit corporation is the extra financial accountability that you will be responsible for. It is good to have professional advice in this area, so that you don't inadvertently violate an IRS tax law and risk losing your non-profit status. There are many decisions that you will need to make in the process of forming your non-profit organization. You will need to decide if you want to have members, how you will raise funds for the functioning of the organization, how you will promote your organization and who will be on your board of directors. It is not a decision that should be taken lightly, as you will soon see when your Secretary of State and the IRS provide you with the complete list of documents and forms that you will need to file! However, if your cause is a good one, you will have the satisfaction of knowing that all of your efforts are worth it, and may find that you will experience a great deal of success.

Alex M Grigorians | May 12, 2010

Corporations 101: California Entities Simplified (Unincorporated Associations)

orming an Unincorporated Association While many nonprofit associations benefit from forming nonprofit corporations, small, local, or labor organizations tend to prefer an unincorporated association format. Local musical, religious, or literary clubs, for example, may not have the financial or human resources to obtain and maintain nonprofit status. Nonprofit corporation status, discussed below, tends to be advantageous to larger groups with activities and relationships external to the organization. Small charitable organizations, such as family trusts, do not seek public funds or otherwise deal with people or organizations outside of the association. These organizations would not benefit from nonprofit corporation status, and incorporation would add additional and unnecessary legal requirements and possible liability. Unincorporated Association Law Just because an association takes a less formal approach to its formation does not mean that it should grow haphazardly. Members of unincorporated associations should be aware that without some formal planning, associations risk running afoul of the law. Early organization becomes particularly useful once an association starts to grow in membership and resources. Articles of Association Every association should have articles of association. Sometimes referred to as the charter or the constitution, the articles of association is the document containing a statement of the association's purpose and an outline of the procedures it will follow. Some states require an unincorporated association to file its articles of association with the secretary of state, the county clerk, or another state or local agency. Becoming a Tax-Exempt, Nonprofit Corporation Forming a tax-exempt, nonprofit corporation is a fairly complex endeavor that requires time, money, and an understanding of legal and tax technicalities--all of which may be scarce in organizations that would most likely benefit from tax-exempt treatment and nonprofit status. Still, the benefits available to nonprofits are so great that it often is worth the time and energy to become familiar with the necessary steps. Some of the rules governing how a nonprofit corporation must be formed and operated are complex. The process of becoming a tax-exempt, nonprofit corporation actually has two distinct phases: (1) creating the nonprofit corporation, and (2) applying for tax-exempt status for the corporation once it has been created. The chronology of these two phases is important. The second phase--applying for tax-exempt status--will be far simpler for organizations that keep that goal in mind during the first phase. Benefits of Tax-Exempt, Nonprofit Status The primary benefits of tax-exempt, nonprofit status are financial. All or most of the money made by a tax-exempt, nonprofit corporation is free from federal, state, and local taxation, so the organization can devote a larger share of its funds to the purpose for which it was formed. Furthermore, nonprofit status is often a prerequisite to obtaining private grants or government funding. Donors are more likely to contribute financially to tax-exempt, nonprofit corporations than to non-exempt organizations because donors can write off the donations on their tax returns. In addition to tax benefits, there may be low-cost postage and advertising rates available to nonprofit organizations, and many retail stores offer reduced rates to nonprofits and their employees. As with all other businesses, nonprofits are open to lawsuits and liability for the way they conduct themselves. Organizing as a not-for-profit corporation can shield the individuals who run the organization from personal liability for organizational debts. The often-overlooked advantages of forming a tax-exempt, nonprofit organization are the internal benefits that the organization gains when required to commit to writing its management structure and corporate purpose. Many nonprofits start out as a small group of committed persons working toward a definite goal. Having to think through the organization's purposes and management procedures can bring clarity, focus, commitment, and structure at an early stage in the organization's life. These qualities can be invaluable as the organization grows, takes on new projects, and adds new members, or if internal disputes arise. Drawbacks of Tax-Exempt, Nonprofit Status Just because an organization qualifies for tax-exempt, nonprofit status does not mean that seeking nonprofit status is the best plan. Tax-exempt, nonprofit status does have drawbacks: Profits of the organization cannot be divided among workers or directors (although workers and directors may be paid reasonable salaries) Only a small amount of the group's income can be earned from sources unrelated to the organization's reason for receiving tax-exempt status The assets of the group cannot go toward purposes other than those that warranted the tax-exempt status Many businesses do not take advantage of tax-exempt, nonprofit status because they prefer the flexibility and the possibility of personal financial gain associated with for-profit status. Other organizational leaders opt not to incorporate in order to avoid the paperwork. For a very small organization that does not need donations or that has few tax obligations, forming a nonprofit corporation and seeking tax-exempt status may be more trouble than it is worth. Nonprofit Corporations in California Most nonprofit corporations in California are governed by the Nonprofit Corporation Law, with administrative authority granted to the Secretary of State. Under this law, a nonprofit corporation may be formed for a wide variety of purposes, but nonprofit corporations generally are divided into three categories: public benefit corporations, mutual benefit corporations, and religious corporations. Public benefit corporations may be formed for any public or charitable purpose. Mutual benefit corporations may be formed for any lawful purpose.

Michael W. Eaton | Apr 21, 2010

How to Form a Non-Profit

Determine your mission with certainty It is important to define the organization's goals. Keep in mind the parameters of charitable, religious, educational, and scientific endeavor while choosing the areas in which your nonprofit will operate. 2. Seek input from others in the field Often existing nonprofits can share their experience in certain areas which may streamline your ability to become a going concern. You don't have to reinvent the wheel just because you are starting a new organization. Rather than being threatened by a new nonprofit, existing nonprofits often see newcomers as potential allies in ongoing efforts to improve visibility, funding, and available services. Gain advice from tax counsel at the outset, before forming any entities or boards Too often, persons interested in forming a nonprofit form a board or even file organizational documents before engaging counsel. As in many things, an ounce of prevention is worth a pound of cure, and in nonprofit organization formation and operations, this is especially true. Issues of private benefit, inurement, what qualifies as an exempt activity, and possibilities of reimbursements for certain expenses should be addressed before they cause problems, not after. Work on producing a realistic budget in advance of formation This is where both real world experience in budgeting and speaking to existing nonprofits in the field can be immensely helpful. Budgets should be realistic, and based upon bona fide expectations, not unsubstantiated speculation. Look at the 990 informational returns of several nonprofits to see how their funding and operational budgets work together. Form entities Once you have an initial board of directors and a clear vision of not only the charitable mission of the organization, but the initial three year budget projections, it is time to form the entity. Keep in mind that this is really when the clock starts running on tax exempt status. Begin collaborating with counsel on IRS Form 1023 The Form 10223 should be completed and filed as soon after the formation of the entity as possible. If the 1023 is filed within 15 months form the date of formation, the eventual determination of tax exempt status will be retroactive to the date of formation, and tax deduction confirmation letters may be issued retroactively as well.

Shahram Michael Miri | Nov 13, 2009

How to form a California non-profit corporation

Choose a name Naturally you need to know the name of your company before you can start, namely incorporate. The easiest way to check to see if your desired name is taken is to go to the California Secretary of State's website and do a name search. Its not fail-safe but its still pretty reliable. Draft and submit Articles of Incorporation to the Sec. of State The Articles of Incorporation are the primary rules that govern a corporation. At a minimum, the Articles will contain the name of the corporation, its stated purpose, its agent for service of process and its tax exempt status. The Secretary of State has sample Articles of Incorporation that can be used. Draft Corporate Bylaws The bylaws lay out the governing rules for the corporation that are typically omitted from the Articles of Incorporation.For example, the bylaws will set out when meetings are held, how many directors there are, how voting is conducted, how many officers there are, etc. Draft minutes of first meeting In the first meeting, directors are typically to elected, bylaws are approved, the Articles of Incorporation, etc. The minutes record this action and from there, the corporation can move forward with its stated goals. Apply for a Federal Employer Identification Number This is much easier than it was in the past, it takes about 5 minutes to obtain an EIN as opposed to 4 as was in the past. Apply for federal tax exemption This is the doozy when it comes to forming a non-profit corporation. IRS Form 1023 is long and asks very probing questions. It will take hours to complete. Although, the instructions provided by the IRS on how to complete Form 1023 are very helpful. Apply for California tax exemption If your non-profit is granted tax exempt status by the IRS, California will automatically grant your non-profit tax exempt status as well provided that you submit a copy of the determination letter for tax exempt status and complete Franchise Tax Board Form 3500A. File a Statement of Information with the Sec. of State Within 90 days of incorporating, you must file a statement of information with the California Secretary of State. The form is SI-100. Register with Attorney General's Registry of Charitable Trusts If your non-profit holds assets, such as money or property, you must register with the California Attorney General. The form is CT-1. Ongoing requirements Each year, your non-profit must file a statement of assets held with the California Attorney General. Form RRF-1 And file Form 990 with the IRS before April 15 There are other steps involved in the non-profit formation process but these are the most important ones.