Tip:
Highlight text to annotate it
X
Hi, I'm Anne Marie Segal.
I'm an attorney, I work with non-profits, and I'm here to speak to you
today about incorporation and tax exemption
for your nonprofit.
So let me just start by saying, if you're at the very onset of the process,
you haven't yet sorted out your mission statement,
you haven't figured out which specific needs in your community
or more broadly, [that] you're going to serve and you don't know really where your
fundraising is coming from,
you might want to take a step back,
[and] sort out those issues before you move to the incorporation and tax exemption
stage.
So
if you're ready to go,
incorporation: this is a state law process.
Generally I'll speak about New York State, although it's
applicable in other states, it's very similar.
In New York State
you want to draft your Certificate of Incorporation. You get consent from
whatever agency, for example, the Department of Education
needs to consent to filing
your Certificate of Incorporation.
You file it with the Department of State.
It includes
provisions specific to a non-profit, so you have a purposes clause that deals
with your public interest purpose,
and you have a dissolution clause that
in its entirety
says that the assets will not be passed on to an individual,
and they
are generally distributed to another 501(c)(3) [entity].
So
once you've got the certificate filed, you are for all intents and purposes a
non-profit. So congratulations if you've finished that piece.
What you don't have yet is tax exempt status, and that is really the
bigger piece.
It's very important. This is how you can
offer your
donors charitable deductions on their tax returns. This is how the
big money starts coming in. Rather than fives and tens and twenties, or
hopefully you've been getting more than that
you can start to get in thousands or maybe even millions of dollars,
planned giving,
... different ways that people can give money to make sure that your mission
is complete. I mean, that's how you do it.
So you offer a charitable deduction and you can work on your
charitable purpose.
So the tax-exempt piece, as I said, is the big one.
The application is very complex.
There a lot of different parts.
If you haven't been working with a lawyer in the past
with the incorporation process, you may want to hire one now, although you can do it on
your own if you have the determination and organization to finish it.
You want to make sure that you answer each question
in a way that matches up with each other question. So certainly you wouldn't want
to be dishonest in your application, but as your thinking evolves, as you're
going through the application and things dawn on you, oh...
that's not really what that question meant....
I want to answer it a different way. You need to make sure to go back and
assure yourself that everywhere else you've answered consistently,
so that you're giving a consistent message and really reflecting what your
organization is doing,
Different parts of the application that you want to pay close attention to
include
the statement of activities
this is specific to your organization and the financial data
that you need to present, for example the compensation of your directors and
officers and key employees, independent contractors as well as
your statement of
revenues and expenses and your balance sheet.
And then, depending on your organization, certain other questions may be key for
you.
So
you've finished this application.
You submit it
with a check.
.... and you follow all of the instructions, you answer all the questions. Your name
and Tax ID number [EIN] is at the top of each page.
Make sure that you're very methodical. You add the checklist that they've included
at the end of the form.
... and
you either get questions back from the IRS or you may be rejected,
but hopefully you'll get a Determination Letter,
maybe after you finish the questioning period.
... and the IRS Determination Letter is what gives you federal tax exempt status.
So now not only are you a nonprofit
which is the piece that was the incorporation
but you are a tax-exempt entity ... generally under [Internal Revenue Code Section] 501(c)(3).
Now, as I said, your donors can start to take charitable deductions and if
they've given you money
during that period that you were
entering into the
application process ... depending on whether you've met certain deadlines
they may be able to take certain deductions retroactively as well, so that is
something you should consult with an accountant or an attorney about
or suggest, specifically, to your donors that they do so.
Now, you can go back and get state tax exemption on income tax. You can get
local property tax exemptions....
But generally you're finished
with the big piece
once the Form 1023 is
in place and you've received the Determination Letter. I mean, that's the
most complex part of the process.
I hope this has been helpful.
I wish you the best of luck with your non-profit. Certainly if you have questions you
can reach me at my website www.amscounsel.com.
Or, there's a lot of information online, just be careful of the source but
certainly you can
find a lot of answers to your questions through different attorneys, government
organizations and the IRS itself. Good luck.