Over the years we have worked with organizations in many different states and have had the chance to form some opinions about choice of domicile for nonprofits. Some of the factors that have influenced our thoughts on this matter include states requiring mandatory audits, multiple agencies overseeing nonprofits, unclear statutes governing nonprofit corporations, and aggressive regulation.
The term “Fiscal Sponsorship” describes an arrangement between a non-profit organization with 501(c)(3) tax exempt status and a project, often a new charitable effort, conducted by an organization, group, or an individual that does not have 501(c)(3) status. Fiscal sponsorship permits the exempt sponsor to accept funds restricted for the sponsored project on the project’s behalf. The sponsor, in turn, accepts the responsibility to ensure the funds are properly spent to achieve the project’s goals. This arrangement is useful for new charitable endeavors that want to test the waters before deciding whether to form an independent entity as well as temporary projects or coalitions that are looking for a neutral party to administer their funds.
A plain language explanation of the difference between a nonprofit organization and one that is tax-exempt.
Before 1996, the only option the IRS had when faced with a tax-exempt organization that had violated the private inurement rules was to do nothing or to revoke the organization’s tax-exempt status, a penalty that often punished the organization’s beneficiaries more than the insiders who benefited from the inurement. To cure this problem, Code Section 4958 was added to the Internal Revenue Code in 1996 to provide the IRS with an “intermediate” tool between the extremes of either ignoring the problem or revoking the nonprofit’s tax-exempt status.
An unincorporated association” means a group of people who act together in a joint enterprise and for a common purpose.
Often prospective clients call us wanting to know whether we know of any dormant nonprofits that are going out of business that they could take over. The idea is that taking over an existing entity avoids the hassle and expense of incorporation, creating a governance structure and obtaining tax-exempt status for a brand new entity. Presumably, a new board of directors would be substituted in place of the old board and new officers would be elected.
The IRS has issued Notice 2021-56 outlining the requirements that LLCs seeking 501(c)(3) status must meet to be recognized as tax-exempt by the IRS. These
With the popularity and ease of donor advised funds, why do some donors still choose to start a private foundation to conduct their charitable giving?
Granting charity naming rights to buildings and programs can be a win-win for donors and the charities they support. From a charity’s perspective, granting naming
Misclassifying employees as independent contractors is a common mistake made by many nonprofits. Still, improperly misclassifying an employee as an independent contractor can be costly. Nonprofits can suffer payroll tax liabilities and penalties or lawsuits from federal and state authorities for reimbursement of workers’ compensation claims.
Most states require you to register your organization if you solicit donations from their residents. Many states also require registration if your organization collects substantial or ongoing donations from their residents, even if you aren’t specifically targeting donors in that state. Download our comprehensive list of each state’s requirements.
Download our free guide to learn about the many elements needed to run a successful nonprofit organization, as well as how to avoid common pitfalls and mistakes.