TAX-EXEMPT & NON-PROFIT ORGANIZATIONS

Benefits of Non-Profits

Limited liability protection of trustees and members

Exemption from federal income tax

Eligibility to receive tax-deductible contributions

Donors federal income tax deduction

Lower postal rates on certain bulk mailings

Disadvantages of Non-Profits

Limitations on the sources of income

Inability to divide profits among members beyond reasonable salaries

Paperwork, paperwork, paperwork

Restrictions on the use of assets to purposes

Justifying tax exemption; public scrutiny; availability of financial documents to public

Apply for recognition of exemption via form 1023.

include…

The Process- Federal

• EIN

• Organizing Documents

• Bylaws

• Description of activity

• Conformed copy

• Financial statements showing receipts and expenditure

• Balance sheet for this year and three previous years

The IRS may ask for more information, so have prepared…

• Copies of advertising placed

• Copies of publications distributed written material used for expressing views on legislation

• Copies of leases/contracts/agreements

Registration Time

The IRS will issue letter or recognition or request for additional information within 90 days for the following three

categories:

Those that are submitted on obsolete forms/do not include items specified in procedural checklist.

Those that can be approved immediately based on information submitted

Those that need minor additional information.

All other applications referred to Determination Specialist

to approve, withdraw, or deny application.

Currently, the federal government is processing applications within 2 months to 12 months.

Submit form 532 and a signed copy of articles of incorporation to Secretary of State,

include:

The Process- State

• Corporate name

• Place of principal office in Ohio

• Purpose for forming corporation

• Names and addresses of at least three (3)initial directors

Do not include anything with SSN or federal TIN

Secretary of State has discretion to accept or deny

application!

If corporation plans to sell items to general public, it will need to register for the appropriate vendor’s license

Regular: $25.00; Transient: $25.00;

Delivery: $25.00; Service: $25.00

The Process- Local

Although a non-profit may make a tremendous amount of income, it must remain

compliant. Non-profits must:

Restrictions on Non-Profits

Absolutely refrain from participation in political campaigns

Restrict lobbying activity

Ensure that it’s earning do not inure to private shareholders and individuals

Not operate for the benefit of private interests

Not operate for the primary purpose of conducting a trade or business that is not related to tax exempt purposes

May not have purposes of activities that are illegal

To further remain compliant, a non-profit must:

• File a990-EZ, 990PF, or submit an electronic 900 annually

• Failure to file for three (3) consecutive years revokes exempt status

• Must report significant changes to program services or organizational documents

• The following forms may be filed electronically through the approved IRS 990 efiler provider:

Maintenance- Federal

Form 990; Return of Organization Exempt from Income Tax; Form 990-EZ; Short Return of Organization Except from Income Tax,

Form 990-PF; Return of Private Foundation; Form 990-N (e-Postcard); Form 8868; Application for Extension of Time To File an

Exempt Organization Return; Form 1120-POL; U.S. Income Tax Return of Political Organizations Form 7004; Application for

Automatic Extension of Time To File Certain Business Income Tax; Information, and Other Returns (extension form for Form 1120-POL).

To further remain compliant, a non-profit must:

Maintenance- State

Must file a Statement of Continued Existence every five years and keep all information regarding the statutory agent current.

Articles may be amended by voting members at a meeting and a certificate containing a copy of the amended resolution,

and a statement of the basis of the adoption must be prepared, signed by an authorized officer, and filed with the

Secretary of State.

• If $10,000 or less in gross receipts, then $2,000.00• If $10,000 or more in gross receipts, then $2,500.00.• Pre-Existing Organization, then $3,250.00.

The Costs

• Signed Fee Agreement and Consult Fee.

• Signed Power of Attorney Form.

• Mission Statement 3-5 sentences.

• Contact information for your current accountant.

The Next Steps

• http://grantspace.org/Tools/Knowledge-Base/Nonprofit-Management/Establishment/Pros-and-cons

• http://www.irs.gov/charities/

• http://www.form-a-corp.com/non-profits_QA.php

• http://smallbusiness.findlaw.com/business-structures/non-profit/non-profit-tax-exempt-pro-con.html

Bibliography