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Q&A #161 – Can a foreign nonprofit organization qualify for 501(c)(3) status?
Charities formed outside of the United States may qualify for 501(c)(3) status so long as they satisfy the requirements that apply to 501(c)(3) organizations under U.S. law. This status makes it easier for foreign organizations to receive grants from U.S. private foundations and mitigate or avoid U.S. income tax on revenue received from U.S. sources. However, donors generally cannot use the charitable deduction under U.S. tax law for contributions made to organizations formed outside of the U.S., so many foreign organizations form affiliated “friends of” organizations in the U.S. for this reason.
VIDEO: Getting a Tax ID Number (EIN) for a New Nonprofit | 5-Minute Lessons 4 Nonprofits
SE4N’s Benjamin Takis provides a short lesson on how to get a tax ID number (also known as employer identification number or EIN) for a new nonprofit organization, including tips for how to most quickly and efficiently obtain the EIN and a guided walk-through of the process using the actual online application (Form SS-4) on the IRS website.
Q&A #158 – What happens if a fraudulent Form 1023-EZ is filed for my organization?
Despite what some unscrupulous service providers may tell you, there are potentially serious penalties for submitting a Form 1023-EZ application for an organization that is clearly ineligible to do so. In addition to revocation of 501(c)(3) status, this can include criminal fines and even prison pursuant to the Internal Revenue Code’s fraud and false statements provisions (26 U.S.C. § 7206). However, if a Form 1023-EZ was fraudulently filed without your knowledge, approval, or participation then these criminal sanctions very likely will not apply.
Q&A #155 – Can a nonprofit convert to 501(c)(3) status from another tax-exempt status?
An organization that was previously recognized as tax-exempt under another subsection of 501(c), such as 501(c)(4) or 501(c)(6), generally may convert to 501(c)(3) status by making the necessary amendments to its Articles of Incorporation and submitting a Form 1023 application to the IRS. However, there may be complications to this process if the organization’s activities have not been consistent with 501(c)(3) status.
VIDEO: Opening a Bank Account for a New Nonprofit | 5-Minute Lessons 4 Nonprofits
SE4N's Benjamin Takis provides a short lesson on what new nonprofit organizations should have in mind when opening a bank account, including the preliminary steps that must be completed before opening the account and what documents and information the bank will require.
VIDEO: What is a Registered Agent? | Nonprofit Glossary
SE4N's Benjamin Takis provides a short summary of what a “registered agent” is, why state law requires nonprofit organizations to name a registered agent if the organization is incorporated in the state or doing business in the state, and who can serve as a registered agent.
Q&A #150 – Can a nonprofit change its mission without IRS approval?
A 501(c)(3) public charity is generally permitted to change its mission and purpose and undertake new program areas that were not described in its Form 1023 application so long as these changes are consistent with 501(c)(3) status and properly disclosed in the organization’s Form 990. Advance IRS approval is not required, although significant changes in mission, purpose, and programs can affect an organization’s ability to rely on the IRS determination letter approving 501(c)(3) status.
Drafting Dissolution Language for the Articles of Incorporation
The “dissolution” clause in a nonprofit organization’s Articles of Incorporation is one of the key provisions required to qualify for 501(c)(3) status. This language must require that the organization’s assets remain dedicated to 501(c)(3) exempt purposes in the event it dissolves. While this basic principle is easy to understand, many overlook the significance of subtle differences in how to approach drafting this language.
Q&A #142 – Can a home address be used when incorporating a new nonprofit?
Virtually all states requires that nonprofit corporations designate a street address (and not a P.O. box) as their principal office in the state and/or the office of their “registered agent.” It is generally permissible to use a residential address for this purpose, although some jurisdictions may have special permitting or zoning requirements. However, there are several disadvantages to consider.
Q&A #134 – Are pending applications for tax-exempt status subject to public disclosure requirements?
A tax-exempt organization is generally required, upon request, to make its application for tax-exempt status available for public inspection and copying (this includes the Form 1023, Form 1023-EZ, Form 1024, or Form 1024-A, as well as all supporting documents and related correspondence with the IRS). However, this requirement does not apply to applications that have not yet been approved by the IRS, so applications in “pending” status are not required to be disclosed.
Drafting Purpose and Mission Language for the Articles of Incorporation
The “purpose” clause is one of the most important provisions in a nonprofit organization’s Articles of Incorporation. This language satisfies a core legal requirement while also establishing the organization’s main mission and permissible range of activities. However, it can be deceptively challenging to get this language right.
Q&A #129 – Are 501(c)(3) organizations automatically exempt from state corporate income tax?
Organizations that receive IRS approval of 501(c)(3) status are almost always eligible for exemption from state corporate income tax, subject to exceptions for certain types of revenue. However, the process varies widely depending on the state and you should not assume that the exemption from state corporate income tax is automatic. In some states, this exemption automatically applies upon IRS approval of 501(c)(3) status and no additional steps are required. Other states require a separate application to be filed.
Q&A #128 – Does the tax-exemption reinstatement process require organizations to file the Forms 990 they missed?
The process for reinstating the tax-exempt status of an automatically revoked organization is described in IRS Revenue Procedure 2014-11. In short, to obtain the maximum protection of the reinstatement process, organizations must file any missed Forms 990 or 990-EZ except to the extent they: (1) were eligible to file Form 990-N during the relevant years; and (2) file for reinstatement by the 15-month deadline.
Q&A #126 – Are 501(c)(3) organizations automatically exempt from sales and use tax?
A nonprofit organization’s eligibility to qualify for exemption from sales tax (and a related tax called “use tax”) is determined by the laws and procedures of the applicable state, but in general IRS approval of 501(c)(3) status does not result in automatic exemption from sales and use tax. 501(c)(3) status is often a prerequisite for exemption from sales and use tax, but most states have a separate detailed application process for this exemption. Further, in many states the sales and use tax exemption has rigid criteria and not all 501(c)(3) organizations will qualify.
The Wrong Way to Add a Charitable Arm to a For-Profit Business
I often receive inquiries from entrepreneurs who are looking to add a philanthropic component to an existing for-profit business, such as by forming a nonprofit as a charitable arm or subsidiary of their business or starting a corporate foundation. These ideas are usually well-intentioned. However, mixing business and charitable activities too closely can make IRS approval of 501(c)(3) status an uphill battle.