Tax Exempt Organizations IRS Cod

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Tax Exempt Organizations IRS Cod Powered By Docstoc
					     March 18, 2010

           by
Ward, Miller & Geyer, LLC

   Lewis Miller, Esq.
   Clint Stewart, Esq.
   Matt Molloy, Esq.
THE INFORMATION OUTLINED IN THIS SLIDESHOW AND
ACCOMPANYING MATERIALS IS SUMMARY IN NATURE AND
IS NOT INTENDED TO COVER ALL ASPECTS OF STATE AND/OR
FEDERAL LAW WITH REGARD TO THE TOPICS DISCUSSED.
THESE MATERIALS SHALL NOT CONSTITUTE LEGAL OR
PROFESSIONAL ADVICE BY WARD MILLER & GEYER, LLC
(“WMG”), OR ITS ATTORNEYS AND MAY NOT BE RELIED
UPON AS SUCH. FURTHERMORE, ATTENDANCE AT THIS
CLASS OR USE OF THE ACCOMPANYING MATERIALS DOES
NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN
WMG AND THE RECIPIENT AND ATTENDEES SHOULD SEEK
LEGAL ASSISTANCE AND ADVICE CONCERNING HIS OR HER
UNIQUE INDIVIDUAL SITUATION.
Attachments

 1.   Utah Nonprofits Association - The Art of
      Forming a New Nonprofit
 2.   State of Utah - Department of Commerce -
      Division of Corporations & Commercial Code
      - Articles of Incorporation (Nonprofit)
      Instructions
 3.   State of Utah - Department of Commerce -
      Division of Consumer Protection –
      Instructions for Charitable Organization
      Permit Application Form
 4.   Example – Utah Refugee Coalition (“URC”)
      Application for 501(c)(3) Status – IRS Form
      1023
 5.   IRS - Compliance Guide for 501 (c)(3) Public
      Charities
Steps to Create Non-Profit Corporation in Utah

1.   Select Name/Reserve Name
2.   File Articles of Incorporation
3.   Obtain an Employer Identification Number (EIN) from the
     Internal Revenue Service (IRS) – Form SS-4
4.   Adopt Bylaws
5.   Submit Charitable Organization Permit Application Form
     to the State of Utah
6.   Submit Application to get 501(c)(3) Status from the IRS –
     Form 1023
7.   Apply for Tax Exemption with State of Utah – Form TC160
8.   Keep Corporate Records

See Attached “The Art of Forming a New Nonprofit” from the
Utah Nonprofits Association for step-by-step instructions.
   Allows people to work together for
    common purpose

   Sets rules for how enterprise is
    governed

   Outlives individuals

   Can limit liability

   Useful for obtaining 501(c)(3) status
   Examples of business entities include partnerships,
    corporations, limited liability companies (“LLC”) and
    limited partnerships

   "A corporation is an artificial being, invisible, intangible,
    and existing only in contemplation of law. Being the mere
    creation of law, it possesses only those properties which
    the charter of its creation confers upon it… Among the
    most important are immortality … properties by which a
    perpetual succession of many persons are considered as
    the same, so that they may act as a single individual. A
    corporation manages its own affairs, and holds property
    without the … endless necessity of perpetual conveyance
    … from hand to hand. It is chiefly for [this] purpose …
    that corporations were invented, and are in use. By these
    means, a perpetual succession of individuals are capable
    of acting for the promotion of the particular object, like
    one immortal being.“ - Chief Justice Marshall in Dartmouth
    v Woodward (1819)

   The word “corporation” comes from the Latin word
    “corpus”, which means body. In other words, a
    corporation is a “body” for legal purposes
1.       Sole Proprietorships
     -      no limited liability
     -      one person
2.       General Partnerships
     -      no limited liability
     -      two or more people
3.       Limited Partnerships
     -      limited partners have limited liability
     -      must have at least one general partner with unlimited liability
4.       Profit Corporations
     -      shareholders own company and have limited liability
     -      governed by Board of Directors who are elected by shareholders
5.       Nonprofit Corporations
     -      like Profit Corporation, but no shareholders
     -      can have “members” or have a self-perpetuating Board of Directors
     -      use this if applying for 501(c)(3)
     -      purposes limited by state law
6.       Limited Liability Companies
     -      hybrid of partnership and corporation
     -      limited liability but flexibility of partnership


For more info, see: http://corporations.utah.gov/bizorg.html
   You cannot use a name that
    someone else is using – i.e. Microsoft
   First in time, first in right
   Federal registration gives rights
    nationwide
   Can search Utah registrations at
    https://secure.utah.gov/bes/action
   Can reserve name in Utah if you are
    not ready to file Articles of
    Incorporation yet
   Search Google as well
   Web address availability
   A corporation is created by filing “Articles of
    Incorporation” with the State
   In Utah, file with the Department of Commerce,
    Division of Corporations and Commercial Code
    (DCCC)
   DCCC has resources online for forming a nonprofit:
    http://corporations.utah.gov/business/nonprofart.ht
    ml
   See attached Instructions from DCCC
   DCCC has two forms online – one meets State
    requirements and the other meets requirements for
    501(c)(3). Use the latter if you intend to apply for
    501(c)(3)
Minimum Info for Articles
1.   Name of Corporation
2.   Purpose
        -   specific language required for 501(c)(3)
3.   Registered Agent
4.   Incorporator
5.   Voting Members/Stock
        -   member vs. non-member
6.   Assets
        -   nonprofits limited in what they can do with assets when dissolved


Optional Info
1.   Principal Address
2.   Directors
        -   must have 3 directors, but can wait to name them
To qualify for tax emption the Articles of
  Incorporation must:

  1.   Limit the organizations purposes to one or
       more tax exempt purposes;

  2. Not expressly empower the organization to
     engage in activities that are not in
     furtherance of its purposes; AND

  3. Permanently dedicate the organization’s
     assets to an exempt purpose.
   File a form SS-4 with the IRS to
    obtain EIN – like a Social Security
    Number for a company

   May be able to do it online at:
    http://www.irs.gov/businesses/small/
    article/0,,id=102767,00.html

   Can find info and forms at:
    http://www.irs.gov/businesses/small/
    article/0,,id=98350,00.html
   The Articles of Incorporation create a
    corporation, but the Bylaws are the
    rules for how the corporation is run

   Bylaws are not filed with the State

   Can be amended by Board of
    Directors unless otherwise provided
    in Articles

   Sample Bylaws in attached UNA
    article
   Before you can ask for money for a
    charity, you must register with the
    Utah Department of Commerce,
    Division of Consumer Protection

   Submit the “Charitable Organization
    Permit Application Form” (copy
    attached along with instructions)

   Application fee is $100

   http://consumerprotection.utah.gov/
    registrations/charities.html
   What does 501(c)(3) mean?
     -   purely a tax issue
     -   makes donations tax-deductible
     -   required for some grants


   Do you need to apply for this now?
     -   can be expensive and time-consuming




   Alternatives
     -   partnering with existing 501(c)(3)


   IRS Form 1023
     -   covered in detail below
    If you get 501(c)(3) status, then file
    with State of Utah for tax exemption

    Form TC-160

     http://tax.utah.gov/forms/current/tc
    -160.pdf
   What is governance and why is it
    important?
     Appointing Officers and Directors.
     Holding regular and annual meetings.
     Preparing minutes and resolutions.
 Maintaining the corporation as a
  separate legal entity helps ensure
  continued tax exempt status and
  protects those working for the
  corporation from liability
 Accounting is critical
 Annual tax returns
    “Non-profit” and “Tax-exempt” are
     NOT the same.
     Non-profit status is determined by STATE law,
      which governs ODs.
     Tax exempt status is governed by FEDERAL
      law.
       “Organized and operated”
        exclusively for one of eight (8)
        exempt purposes:
     Religious
     Charitable
     Scientific
     Testing for Public Safety
     Literary
     Educational Purposes
     To Foster National or International Amateur
      Sports Competition; or
     For the Prevention of Cruelty to Children or
      Animals.
 501(c)(3) Charitable, religious, and
educational organizations
 501(c)(4) Civic leagues and social welfare
organizations
 501(c)(5) Labor/agricultural/horticultural
organizations
 501(c)(6) Business and professional leagues
 501(c)(7) Social and recreational clubs
 501(c)(8) Fraternal beneficiary societies
 501(c)(19) Veterans organizations
 What is the difference?
  Primary difference is source of financial support
     A PC has a broad base of support from
       contributions while a PF has very limited sources
       of support
      An example of a well known PF is the Bill and
        Melinda Gates Foundation
 Private Foundations
   Subject to strict operating rules and regulations that
    do not apply to a public charity
   Presumption by IRS
     Unless statutorily recognized, the IRS presumes
       all organizations are PFs
     You must be able to show PC status
     Churches, schools, hospitals and medical research
       organizations have statutory PC status
   Elements required for PC status:
    1.   Receive a substantial part of support in the
         form of contributions from publicly
         supported organizations, governmental
         units and/or the general public; OR

    2. Normally receive no more than 1/3 of
       support from gross investment income and
       unrelated business income combined and
       gets more than 1/3 of support from
       contributions, membership fees, and gross
       receipts from activities related to exempt
       functions.
Organizational Test
    The Articles of Incorporation must:
     1.   Limit purposes to one or more of the eight
          exempt purposes (See Slide 6); and
     2.   Not permit the organization to engage in any
          non-exempt activity
     3.   The assets of the organization must also be
          permanently dedicated to an exempt purpose

Operational Test
    Organization must primarily engage in activities
     that further its exempt purposes
         The organization must limit participation in
          certain activities, while absolutely refraining
          from others
         If not, 501(c)(3) status in jeopardy
   The application for federal exempt
    status is made by use of Form 1023

   1023 should be filed within 27 months
    after the end of the month in which
    the Articles of Incorporation were
    filed

   Who does NOT have to file 1023?
     You qualify for PC status and DO NOT have
      more than $5,000 in annual gross receipts;
     Churches; and
     Subordinate Organizations.
       (IRS Publication 557 at
        http://www.irs.gov/pub/irs-pdf/p557.pdf )
    In Part I, the application supplies the
     informational material about the
     applicant, including:
     Name, address, phone and primary contact
      person
     EIN information
     If represented, the name of counsel
     Applicability of form 990
     Date of incorporation
   The majority of non-profits are
    organized as corporations

   This section asks you to indicate your
    organization structure and attach the
    Articles of Incorporation and Bylaws
   The Articles of Incorporation must:
    1. Limit the organizations purposes to one or
       more of the exempt purposes;
    2. Not expressly empower the organization to
       engage in activities that are not in
       furtherance of its purposes; AND
    3. Permanently dedicate the organization’s
       assets to an exempt purpose

   Unless these requirements are
    satisfied as stated in Part III, you will
    be unable to file 1023
   In drafting the Narrative Description of your
    activities, keep in mind the organizational
    test

   Provide a description of all past, present,
    and future activities

   For each activity explain:
    1. How the activity furthers the exempt
       purpose;
    2. When it started or will begin;
    3. Where and whom will conduct the activates;
    4. How the activities will be funded

   See sample of URC 1023 Form in
    Attachments
   The information requested in Part V has
    been expanded by the IRS in an attempt to
    prevent the creation of non-profits simply to
    benefit one or more of the founders,
    employees, or major contributors

   In this section, list all the information you
    have regarding compensation (if any) and
    relationships of people within the
    organization

   It’s also a good practice to have a conflict of
    interest policy in the event people are
    compensated for work in the organization
   If your organization plans to implement
    programs that provide goods, services, or
    funds to individuals, describe these
    programs and to whom these programs will
    be offered on an attachment page

   The goal is to show that your nonprofit is
    set-up to provide goods and/or services as
    part of a valid non-profit tax exempt
    program, and that members of the public
    have access to those goods and/or services
   Most organizations are applying for
    tax exempt status as a “new”
    organization so this section usually
    does not apply

   If this section is applicable, review the
    instructions for a more detailed
    explanation and to gain an
    understanding of “successor” since
    the meaning is crucial to completing
    this Section
   “Past, present and planned” activities of the
    organization

   The activities in Part VIII are either
    prohibited or strictly limited in context

   No benefiting or catering to special interests

   Remember “The Test!”
     Organization must primarily engage in
      activities that further its exempt purpose and
      must limit participation in certain activities,
      while absolutely refraining from others
   Financial Information is self
    explanatory

   Newly formed include numbers for
    the current year and projections for
    the next two years
   This section of Form 1023 is designed
    to determine whether your
    organization is a PC or private
    foundation

   Remember we are assuming that you
    want your organization to qualify as a
    PC

   For more information on private
    foundations see the Instructions for
    Part X of Form 1023
   Depending on your organization’s
    gross receipts (all the money you get)
    the application fee is between $300 -
    $750

   Your application will not be processed
    without paying the fee
   http://www.irs.gov/charities/charitabl
    e/index.html
   http://www.utahnonprofits.org/
   http://www.idealist.org/
   http://www2.guidestar.org/
   http://www.usa.gov/Business/Nonpr
    ofit.shtml
   http://www.nolo.com/resource.cfm/c
    atID/CE94A6B3-EFB6-4036-
    8498D5414328FD73/111/262/
   http://www.stayexempt.org/

				
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