To profit or not to profit, that’s the quest?
By: Elmer Diaz
Most real estate investors associations call themselves either for Profit Organizations or Non-
For-Profit Organizations. I’ve got news for you, whether you call your organization one way or
the other, chances are that you are in business and not making any profit.
Most of the associations are in operation with the purpose of educating and to share information
on real estate investing. To provide these benefits to the people involved or interested, there are
a particular set of expenses that tag along with the physical delivery of those benefits to the
association members. These expenses are very high; expenses such as meeting room rental,
newsletter production and delivery, advertising, bookkeeping and more. All those expenses add
up quickly. That’s one of the reasons a for profit organization doesn’t make any profit, most of it
are expenses.
Let me give you a better definition than for Profit or Non-for-Profit. The so called For Profit
Organizations are those created in a way that is recognized by the state or public in general as
a Partnership, Corporation, or simply, Associations. This type of entity may or may not need to
be registered with the state in which it operates. (There are a lot of requirements that each
organization has to follow. To find out whether your association needs to be registered with the
state where it resides or not you will have to consult with a competent lawyer and with the
Secretary of the State in which the organization will operate.)
More likely, when we make reference of Non-For-Profit Organizations, we refer to those
recognized by the State Comptroller and the Internal Revenue Service (I.R.S.) as organizations
with particular needs. These particular needs are recognized by the State and the IRS for the
purpose of obtaining some extra privileges. (Always remember that when the IRS offers certain
privileges there are tons of paperwork and rules that have to be followed.) I am going to narrow
down the Non-Profit status to two. Those recognized by IRS section 501 C-3 and those
recognized by IRS section 501 C-6. For our purpose we will call it C-3’s or C-6’s. The member
will not have any other particular benefits, only those probably of a business expense.
What is the difference between the two of them? The C-6’s are the groups or associations that
not only are recognized by the state where it resides as a non-for-profit corporation but the
purpose is to gather, network and be an organization for individuals that service in a particular
trade. The IRS calls them business leagues or trade associations. One particular benefit to the
member is the deductions of the dues under business deduction of dues and subscriptions.
Most of our local REIA’s belong to this category. These are organizations of businesses and
people who have some common business interest as opposed to engaging in some type of
commercial business. Their activities must be directed to the improvement of business
conditions generally as opposed to the performance of particular services for individual
members.
The C-3’s are also recognized as non-for-profit corporations but must have the following five
characteristics:
1.) They must have a public service mission.
2.) They must be organized as a not-for-profit or charitable corporation.
3.) Their governance structures must preclude self-interest and private financial gain.
4.) They must be exempt from paying federal tax.
5.) They must possess the special legal status that stipulates gifts made to them are tax
deductible.
These groups function as Philanthropic Organizations, Advocacy Groups, Educational
Institutions, Religious Organizations, and Service Organizations just to generalize. Their
particularity is to attract the public in general and likely the members of these organizations may
not be of any particular trade. It should be open to everyone that desires to be part of it. A
benefit to the members is the deduction of the dues and gifts as a personal deduction.
Nonprofit organizations receive a multitude of government benefits designed to assist and
motivate them in performing their public purposes. These benefits include favorable tax
treatment to the organization and to its donor, reduced postal rates, grants from the government
and other philanthropic organization, preferences on government contracts, etc.
Another general benefit of recognized Non-For-Profit organizations is the wide acceptance of
the community as an organization created to help and prosper the community. This particularity
will open the door for free advertising and free Public Relations that translate into more
exposure to acquire benefits and members for free. There have been many times when I have
been asked whether the organization that I represent is for profit or non-for-profit. Basically what
it boils down to is whether they will be willing to give me free PR or not!
The bottom line is: Are you and your members willing to do more bookkeeping and file more
paperwork with the IRS? Is it worth the hassle or not? Do you want more bureaucrats looking up
your business? To profit or not to profit…That’s the quest?
Filing for 501 (c) 6 of the IRS*
Application
1. 1024 Application for 501-(c) 6
2. 2848 – Power of Attorney to file on behalf of the organization
3. User Fees –Letter of application for request for Tax Exempt status Form 8717 – Figure
amount of fee and pay it with request-IRS will not process request until payment is
satisfied.
4. To find out users fee and length of time of request 1-877-829-5500 (Number for Exempt
Organizations Help Desk)
5. Must have EIN
Organization Documents
1. Articles of Incorporation
2. Certificate of Incorporation by State
3. By-Laws, Constitution or Governing document
4. Conformed Copy-Agrees with originals and all amendments
5. Every attachment should have organization’s name, address and EIN
6. Company books, profit & loss statement, balance sheet
7. Budget for the following three years
8. Corporation Events and Marketing for those events
9. Tabulate all sources of income
10. Do not submit originals, they become part of the IRS
Copy of other documentation
1. Newsletter, magazines, and other publications
2. Advertising and marketing material
3. Written material for expressing views on proposed legislation
4. Copies of leases, contracts and any other agreements that the organization has entered.
* Although the National REIA does its best to keep accurate files and information, we recommend visiting the IRS
website directly for the most up-to-date forms and guidelines.