Pros and Cons of Creating a New NonProfit Organization

Pros and Cons of Creating a New 501 (c) (3) Organization Sponsored by the Support Center for Nonprofit Management www.supportcenteronline.org Presented by: Pat Richter, PRQuickhelp Nonprofit Consulting prquickhelp@aol.com Nonprofit environment Lots on nonprofits, and more every year  Decreasing revenue sources  Corporate mergers  Bank mergers  Donor fatigue/caution  Foundation “fads”  Aversion to “start-ups”  Don’t even think about it if…  Your organization is not “organized and operated exclusively for charitable, scientific, testing for public safety, literary or educational purposes, or to foster national or international sports competition..or for the prevention of cruelty to animals or children..” Examples of “charitable”…          Relief of the poor, distressed or underprivileged Lessening the burdens of government Advancement of religion Erection or maintenance of public buildings or monuments Advancement of education or science Elimination of prejudice and discrimination Defense of human and civil rights Lessening neighborhood tensions Combating community deterioration and juvenile delinquency Becoming a taxexempt organization is a two-step process Details: 1. First step – incorporation  A provision under state law, obtained by filing a certificate of incorporation with the Secretary of State The corporation applies to the IRS to be recognized as tax exempt by submitting IRS form 1023 2. Second step – tax exemption  First step- Incorporation as a not-for-profit  A not-for-profit corporation is defined as an organization formed not for pecuniary profit or financial gain, and no part of the assets, income or profits is distributable to or inures to the benefit of members, directors, or officers.* *NY Not for Profit Corporation Law Features of a not-for-profit corporation Bylaws – rules that the organization will follow  Membership or non-membership structure  Board of Directors  Officers  Staff  Organization of a membership not-for-profit corporation Members Directors Executive Director Other staff Pros and Cons of Incorporation Pros  Facilitates tax exemption  Helps generate revenue  Perpetual existence (unless dissolved) Cons  Sec of State filings  Attorney General filings  Record keeping  Observing corporate formalities  Recruiting and retaining folks to carry out these responsibilities  Perpetual existence How to Incorporate 1. 2. Reserve name (maybe) - $10 fee Draft Certificate of Incorporation  Membership or non-membership  Type A,B, C, or D (membership, charitable/educational, business purpose, housing development fund) 3. Agent for service (receiving process issued against the corporation)  Carefully stated mission, keeping in mind your intention to apply for tax exempt status  Signed by incorporators Obtain relevant agency approvals/waivers, if any  How to Incorporate 4. Hold first board meeting – appoint officers, other actions 5. Complete and file Organization and First Report - $25 fee  Name officers and directors  List principal office  Signed by a principal 6. Attorney General Registration/filing requirements Tax exemption      501 (c)(3) organizations can accept tax deductible donations* Do not have to pay income taxes No private benefit or inurement Multiple reporting requirements Restrictions on campaign and lobbying activities only one type that can accept tax deductible donations *there are 27 different types of tax exempt organization, but Tax exemption – How to apply   Obtain an EIN number from the IRS Complete and file IRS Form 1023  Details about the organization, including mission, programs, structure, fundraising program, sources of financial support, 3 year budget   $750 filing fee ($300 if expected annual revenue will be $10,000 or less File within 27 months of incorporating to get retroactive tax exemption Tax exemption – Filing requirements for nonprofits  IRS form 990 if gross receipts exceed $25,000 (due 15th day of 5th month after the end of fiscal year)  Changes to Certificate of Incorporation or Bylaws – inform IRS by letter or attachment to 990. (Address change requires IRS Form 8822) Tax exemption – NYS Registration and Reporting for nonprofits   Charities overseen by the Charities Bureau of the NYS Office of the Attorney General. Two important laws that required orgs to register and submit annual filings (fees required):   Article 7A of the NY Executive Law (solicit contributions) Section 8-1.4 of the NY Estates, Powers and Trusts Law (hold property)   Exemption from State Taxes (NYS Dept. of Taxation and Finance Games of Chance (NY Racing and Wagering Board) Tax exemption – Disclosures for Nonprofits    Three most recent 990 Informational Tax returns and application for Tax Exemption Documents must be available for public inspection at office and copies must be provided or made widely available. In person requests must be honored same day, requests in writing with 30 days Advice to Nonprofits From Charity Navigator:  Be transparent  Show results  Stick with what you do best  Promote, don’t harass IRS Hot Buttons Anti-Terrorism  Abusive Tax Avoidance Transactions  Credit Counseling  Excessive Compensation  Alternatives to Nonprofit tax exempt status  Functioning as a “program” under an umbrella organization Less stress and more time to build program  Less pressure to deal with fundraising, administrative or organizational issues  (Disadvantages include lack of control and separate identify) Alternatives to Nonprofit tax exempt status  Fiscal sponsorship under an existing nonprofit Benefit from the sponsors 501 (c) (3) status  Formal agreement recommended  (Mission must fit within the sponsor's corporate purposes as states in their certificate of incorporation) Resources  The Pro Bono Partnership New Jersey) www.probonopartnership.org (Westchester, Connecticut ,    Organization must primarily serve the poor and disadvantaged Must be focused on health and human services, affordable housing, community revitalization, or economic development Must be unable to pay for legal services w/o significant burden on program resources Detailed application process Must have business plan and income secured or proposals already submitted Processing fees  Lawyers Alliance (Manhattan) www.lany.org    Resources  IRS Sponsored One Day Workshops for small and mid sized 501(c)(3) organizations Last one was April 2006 United Federation of Teachers BLDG 52 Broadway NY, NY  Pre-registration is required  Go to www.IRS.gov  Resources      The Internal Revenue Service www.irs.gov New York Department of State http://www.dos.state.ny.us/ Charities Bureau http://www.oag.state.ny.us/charities.html Guidestar www.guidestar.org The ABCs of Nonprofits by Lisa A. Runquist, published by the American Bar Association, 2005