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Tax-Exempt-Orgs-Sp07

Tax-Exempt-Orgs-Sp07 - Tax-exempt outline Public benefit...

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Unformatted text preview: Tax-exempt outline Public benefit organization § 501(c) (3) public serving foundations § 170 for most of these guys (4) civic leagues or organizations organized exclusively for promotion of social welfare § 527 Non-profit For-profit Public purpose Halo effect Can make a profit Can make a profit Profit has to go to charitable purposes Non-distribution constraint Can distribute profit - dividends Tax benefits Exemptions – income, property, mailing rate Deductability (attract donations) Ability to attract grants More heavily regulated Less regulation Compensation restrictions Reasonable compensation Long formation process Can’t sell business Can sell business Forms of nonprofits (p. 4R) 1. Unincorporated association (disadvantages outweigh benefits) 2. Charitable trusts 3. Nonprofit corporation a. Charitable organizations (public benefit orgs) i. Private foundation (flunked § 509) • Operating (§ 4942(j)(3)) • Nonoperating ii. Not private foundations (public charities) b. Noncharitable organzations (mutual benefit organzations) Nonprofit corporation Charitable trust More time, formalities to set up Easy and fast formation More administrative requirements More flexibility; fewer formalities Exist in perpetuity Use if unrelated business Tax rates rise faster, higher level of care Less expensive to maintain Can have continuing control by the grantor Governing statutes like corporate law Lower standard of care than charitable trustees 1 Setting up a nonprofit (p. 4N; 3-4R) Easier to qualify under state than federal law 1. Qualifies under state law a. Lobbying, campaign restrictions b. Purpose 2. Federal and state tax qualifications 3. Choose a name 4. Select state 5. Certificates/Articles a. Articles help in process of getting tax-exempt status b. Draft stringently to get past IRS – quote § 501(c)(3)’s language directly c. Hard to change articles i. Keep it broad here d. File 6. Draft bylaws (p. 62) 7. Organizational meeting 8. Get federal tax exempt status – need to fill out Form 1023, which is hard to fill out b/c hard to get info (p. 1013 of supp.) 9. Determination letter from IRS about § 501(c)(3) and § 170(c) status 10. File with AG or some state gov’t agency 11. Make annual flings – Form 990s 12. Disclosure rules Two sets of nonprofit organizations Charitable organizations Noncharitable nonprofits § 501(c)(3) – public benefit § 501(c)(4)-(25) – mutual benefit Deductible Overlap with § 170(c)(2) makes fundraising easier Not as constrained Favorable tax treatement Preferential postage rate Charitable organizations Private foundations Not private foundations “Foundations”, “private charities” “Public charities” Flunked § 509’s requirements Fund of private wealth Get support from gov’t or general public Managed by its own trustees and directors OR activities make them accountable to broader constituency More onerous reporting and disclosure Stricter %age limits on deductions Excise tax on investment income...
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Tax-Exempt-Orgs-Sp07 - Tax-exempt outline Public benefit...

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