The firm recently assisted the Plant a Million Corals Foundation in achieving tax-exempt status as a Section 501(c)(3) organization.

Tax-Exempt Status

Achieving a tax-exempt status means the nonprofit is not required to pay income tax. Donors may also be able to claim charitable deductions on their own individual taxes. This is a huge win for any nonprofit because charitable donations are often their lifeblood.

In order to qualify under Section 501(c)(3), an organization must be organized and operated exclusively for charitable-type purposes. Although employees and officers may draw a salary, the company and its assets cannot be distributed to members, officers, or shareholders.

Common Tax-Exempt Misconceptions

Many people mistakenly believe that organizing a business as a state nonprofit corporation is enough to be able to accept charitable donations. Unfortunately, it’s more complicated than that. In many cases, the IRS requires nonprofits to file IRS Form 1023, the application for recognition of tax-exempt status. The process is lengthy and depends upon a technical reading of the IRS instructions, tax code, and various treasury regulations. Among other things, applicants must supply their organizing documents, bylaws, and a projected balance sheet. There are also various state government requirements that apply. For example, in Michigan, an organization seeking to engage in a charitable solicitation must register with the Attorney General’s office.

Just because you have obtained tax-exempt status, does not mean it will stay that way forever. Organizations should continue to perform ongoing compliance to make sure they don’t run afoul of IRS rules. A loss of tax-exempt status would, of course, have severe consequences for a nonprofit.

Get Help With Your Nonprofit

If that isn’t enough, nonprofit leaders must also consider the same legal issues as any other business: corporate and employment policies, contractor agreements, commercial leases, and many other business issues. Questions? A business attorney at Fausone & Grysko, PLC can help your nonprofit with its legal and business needs. Call us at (248) 380-0000 or visit us at www.FB-Firm.com.