Are you considering forming a non-profit organization? ADKF can help guide you through the myriad of issues that should be considered; the following is a brief introduction of things you may need to know.
Non-profit organizations require operating exclusively for a tax-exempt purpose; and cannot provide any of the earnings benefits to any private shareholder or individual, nor may they participate in any campaign activities involving political candidates. A complete description of non-profit organization may be found in IRS code section 501(c)(3) and from information contained in IRS Publication 557. The IRS also provides a listing of approved organizations updated semi-annually in IRS Publication 78.
One of the key advantages of a tax-exempt organization is they do not have to pay federal income tax on the earnings of the organization. Organizations considered as tax-exempt provide benefits to private interests but cannot involve an “excess benefit transaction” to a person that might exert substantial influence over the non-profit organization. In other words, the organization must use non-discriminatory methods to offer benefits to individuals without prejudice and may not benefit individuals that are involved within the organization itself. There must be an independent process of evaluating applicants that meet the minimum standards set forth by the organization to be considered for receiving benefits provided. In addition, the organization must show that is organized and operated for purposes that are beneficial to the public interest.
As you would expect, many non-profit organizations provide needs or offer support services that many are unable to afford, such as providing food or medicine to the poor or delivering food to the elderly. Some non-profits are formed to raise funds by sponsoring an event, then giving the net proceeds to qualified persons in need. Recent worldwide events have magnified unmet needs around the world, such as the economic downturns from effects of the pandemic, or from localized disasters caused by earthquakes or tsunamis. These circumstances have demonstrated that government resources are not always sufficient or available to help those affected.
Forming a non-profit organization is comparable to forming most types of business entities. However, it may also require completion of Form 1023 - Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code to be submitted to the IRS for approval. If the annual amounts of charitable contributions are expected to be greater than $5,000, completing the application will require more time and consideration to fill out. To be considered for exemption, the form of the organization can be as a trust, a corporation, or an association. The 1023 application will require written articles of organization to be available for IRS review and must describe how it is organized and operated exclusively for its charitable or educational purpose; or any of the other purposes described in IRS Publication 557. Publication 557 also explains many of the rules and procedures concerning the application process and requirements necessary to obtain an acceptance letter from the IRS, which is required to operate a non-profit organization.
If you or your organization have a desire to see what’s involved with starting up a non-profit organization, let ADKF provide you with the expertise and experience to help you get started. Give us a call and let’s get started!