Does your nonprofit serve a charitable class? It matters, because, to obtain and maintain IRS 501(c)(3) tax-exempt status, non-profit corporations […]
â€œCo-workingâ€ has exploded in the last five years. Essentially, co-working spaces are places where workers – typically freelancers, self-employed individuals and start-up ventures – can go to work while being surrounded by like-minded, creative entrepreneurs without having to rent their own offices. Many co-working spaces have a mission to create social change and spur community rejuvenation, making them of great interest to the social impact sector.
A common misconception among nonprofits is that they canâ€™t lobby. In reality, this restriction applies only to private foundations, not public charities. Public charities are explicitly permitted to lobby so long as they adhere to limits.
There are 28 different exemptions under Code Section 501, the most popular of which is Section 501(c)(3). If the corporation plans to qualify for tax-exemption under Section 501(c)(3), the articles must limit the corporationâ€™s activities to tax-exempt purposes. Tax exempt purposes include:
testing for public safety,
to foster national or international amateur sports competition, or
promote the arts, or for the prevention of cruelty to children or animals.
The private inurement rule and private benefit rules exist to ensure that charitable assets are preserved for the benefit of the public and not diverted to private use. This is a fundamental concept that distinguishes tax-exempt organizations from for-profits.
The rules originate in the language of Code Section 501(c)(3). Code Section 501(c)(3) contains the specific requirement that:
[N]o part of the net earnings of [the exempt organization] inures to the benefit of any private shareholder or individual . . . .
In addition, under the regulations, an organization is not treated as organized and operated for exclusively exempt purposes â€œunless it serves a public rather than a private interest,â€ Based on this provision, tax exempt status is not available to any organization if its net earnings inure to the benefit of private individuals â€œin whole or in part.â€
In practice, the law distinguishes between different degrees of inurement depending upon who is being benefitted. The two types of inurement are referred to as â€œprivate inurementâ€ and â€œpublic benefit.â€
Once a non-profit founder has surveyed the non-profit landscape and found a legitimate need, recruited an initial board, created business and fundraising plans, and scraped together some start-up funding, he or she is ready to proceed. In Arizona, it usually makes the most sense to form the entity as an Arizona non-profit corporation. The steps required to form a nonprofit in Arizona are covered.