|What is a good neighbor? When we think about the best neighbors we’ve had, often we may think of those who saw a need and met it without being asked. They saw something that needed doing, and they did it. Fortunately, good neighbors are all around us – even today.|
Good neighbors see a need and meet it, often this need may be a collective need of the community. When this is the case, it is wise to consider if the need can be best met if those caring and motivated neighbors formally incorporate as a nonprofit corporation and seek tax exempt status from the IRS.
What are some potential needs, or organizational purposes, that might qualify as tax exempt? Exempt purposes include those purposes that are: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety.
Want to open a non-profit day care so families can have reliable childcare? That works.
See a need for a new private school? Check.
Does the local high school marching band need funds to travel? That satisfies the IRS.
You’d like to make it easier for the elderly or underprivileged to access necessities? That qualifies.
If you’ve identified a need in the community, but you’re unsure if you or your fellow neighbors want to go through all the trouble of forming a non-profit. Here are some things to consider:
1. Your non-profit will require financial resources to meet your identified need, and many donors and grant awarding organizations want to be confident in your non-profit tax status before committing their funds. This includes getting a determination letter from the IRS.
To successfully apply for grants, to confidently approach sophisticated donors, or participate in various fundraising activities like Facebook’s Giving Day, you’ll need to communicate that you are indeed a non-profit organization. It’s not likely that the public, the committee that awards the grant, or Facebook know you personally. Rather, they will ask to see a copy of your determination letter. This determination letter, awarded after a successful application for recognition of tax-exempt status, communicates to potential donors and the public that the IRS recognizes you as tax exempt and that you’re subject to certain reporting requirements that ensure you maintain your tax-exempt status.
Can you operate as a non-profit without obtaining a determination letter? Maybe. Some tax-exempt organizations aren’t required to apply for tax exempt status. However, your fundraising potential may be frustrated without one.
2. Formally incorporating as a business entity with your state and obtaining tax-exempt status will help to limit your personal liability. Some ventures are more apt to be involved in litigation than others. Engaged in roadway beautification you may be less likely to be engaged in litigation than if you were engaged in political advocacy, fundraising, or messaging. Regardless of the nature of your efforts, organizing as a non-profit can limit the personal liability of the officers and directors as the non-profit is considered a legal entity that can sue and be sued.
3. Of course, your tax-exempt status means you won’t be liable to pay federal or state income tax, you’ll benefit from special US mail rates, and your donors benefit from tax deductions.
Identifying a need in the community and galvanizing support to meet that need is easy and exciting. However, organizing as a non-profit and obtaining tax exempt status may require the assistance of an attorney. If you’re contemplating starting a non-profit or if you’ve identified a need and are ready to seek tax exempt status, the attorneys at Vogel Law Firm are happy to guide you through that process. Call today at (334) 409-0088 to set up an initial meeting.
Already operating a non-profit and finding it difficult to manage it effectively and efficiently? Next month’s newsletter will address some common challenges non-profits face and provide you with a simple path forward to accomplishing your non-profit’s mission.