Nonprofits Take Note!
As many as 400,000 nonprofit organizations are weeks away from a doomsday. At midnight, May 15, an estimated one-fifth to one quarter of some 1.6 million charities, trade associations and membership groups will lose their tax exemptions, thanks to a provision buried in a 2006 federal bill aimed at pension reform.” said Stephanie Storm
In 2006, the Pension Protection Act was passed, and within the Act was a provision giving the IRS the authority to revoke tax exemptions for groups that did not file for three consecutive years. (Before this law, only organizations making $25,000 or more had to file.) The three years will be up next week, and many small organizations may be surprised, even though the IRS has made a great effort to get the word out. Probably most at risk are small organizations that have been inactive for a period of time.
The IRS needs a way of tracking organizations, but “It’s going to be an unholy mess once these organizations realize what’s happened to them,” said Diana Aviv, president of the Independent Sector, a nonprofit trade group.
For detailed information on the filing of form 990 with the IRS go to http://www.irs.gov/newsroom/article/0,,id=218550,00.html
Non-Stock, Non-Profit, No Stock……what difference does it make?
Filed Under: 101, Stock
Tags: Delaware, Non-Profit, Non-Stock, Stock
Over time, the Non-Stock Corporation has pretty much become synonymous with the term Non-Profit. The common use of the Non-Stock Corporation as the vehicle to obtain tax-exempt or Non-Profit status from the IRS has led to an “interchange-ability” of the two terms, but not without its faults. The notion that the two are equal has led many individuals to believe that if you form a Non-Stock Corporation that you are a non-profit organization. Also, though not as common, we see individuals who assume that as long as the Corporation has no stock, that it is a Non-Stock Corporation and therefore eligible for tax exemption. These misconceptions can lead to wasted time and money…….so let’s clear the air.
A Non-Profit (notice I left out corporation) is most commonly an organization that has obtained tax exemption under section 501(c)(3) of the IRS code by filing Form 1023. To qualify, the organization must be a corporation, community chest, fund, or foundation (a trust is a fund or foundation and will qualify), organized and operated exclusively for one or more of the following purposes:
• Religious
• Charitable
• Scientific
• Testing for public safety
• Literary
• Educational
• Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations, later in this post)
• The prevention of cruelty to children or animals.
It just so happens that many states, including Delaware, have a type of entity whose articles are designed to facilitate the application for tax exemption. Can you guess what that entity is called? That’s right, it’s the Non-stock Corporation. Do not confuse this with a Stock Corporation that has no authorized stock. Is that even possible? Yes. Even though it makes no sense, Delaware does allow Stock Corporations to file articles without authorizing shares of stock. It is rare but we have seen individuals accidentally file corporations this way. This error can be corrected, but it will cost you precious time and money!
A Delaware Non-Stock Corporation has no capital stock and is required to disclose its “non-profit” intentions in its articles of incorporation at the time of filing. It is typically used, but not exclusively, by organizations which plan to apply for tax exemption under section 501(c)(3) of the IRS code. Other applications of the Non-Stock Corporation may include civic leagues, labor organizations, business leagues, recreational clubs or other organizations that unify a common social goal; these organizations may be eligible for tax exemption under a different section of the IRS code. For more information on Tax-Exempt Status for your Organization check out IRS Publication 557. To form a Delaware Non-Stock Corporation for your non-profit organization, call us at 800-345-2677.
