02 Dec 2020 / 02:46 GMT
01 Articles Overview
02 Business Planning, Benefits & Strategies
03 S Corporations and C Corporations
04 Estate Tax, Discussion
05 Non profit corporation
06 Schedule C, Unincorporated Businesses
07 Section 1244 Stock
08 Stock transaction tax rules For Day Traders
09 Tax Treaty Countries
10 Trademarks
11 USA, State Death taxes
Articles of Interest
Nonprofit Corporations

  • What is a nonprofit corporation?

    A nonprofit corporation is a corporation formed for purposes other than generating a profit and in which no part of the organization's income is distributed to its directors or officers. Nonprofit corporations are formed pursuant to state law, often under the Revised Model Non-Profit Corporation Act (1986). A nonprofit corporation can be a church or church association, school, charity, medical provider, legal aid society, volunteer services organization, professional association, research institute, museum, or in some cases a sports association. Nonprofit corporations must apply for tax-exempt status at both the federal and state level.
  • What steps need to be taken to form a nonprofit corporation?

    The first step is to file nonprofit articles of incorporation with the proper state agency. It is important that the articles contain the required clauses to make sure your articles will qualify for tax-exempt status.
    After the nonprofit articles are filed, tax-exempt status must be applied for at both the federal and state levels. To apply at the federal level, a timely filing of form 1023 must be made. To determine what form needs to be filed at the state level, contact the state department that deals with taxation.
    The corporation must comply with corporate formalities and hold annual meetings of directors and members. Bylaws must be adopted for the corporation.
  • What purposes are valid for a nonprofit?

    To qualify for federal tax-exempt status under 501(c)(3) of the federal tax code, the nonprofit corporation must be organized and operate for some religious, charitable, educational, literary, or scientific purpose permitted under this section of the code. Nonprofit corporations may also be formed for other purposes pursuant to different sections of the IRS code. To qualify for federal tax-exempt status as a nonprofit under a different section of the code, your corporation must comply with the requirements of that federal tax code section.
    The religious category refers to general types of religious organizations and more formal institutionalized churches.
    Charitable purpose is defined in section 501(c)(3) as providing services beneficial to the public interest.
    Scientific research that is carried on in the public interest qualifies for tax-exempt status; however, research incidental to commercial or industrial operations does not qualify.
    The literary purpose includes writing, publishing and distribution of books, which are directed toward promoting the public interest rather than engaging in commercial book writing and selling.
    The educational purpose is a broad purpose that allows instruction for both self-development and the benefit of the community.
    The purpose must be listed in the articles of incorporation; therefore, it is very important that the purpose of the corporation be well described in the articles of incorporation. Additionally, certain states require approvals from state departments prior to approving the formation of a nonprofit corporation. One example of this is New York. New York often requires one or several departmental approvals based on the business purpose of the prospective nonprofit corporation. Please keep in mind that there may be additional time required to obtain these approvals, and additional fees charged, this varies by state. If you would designate us to obtain these approvals on behalf of your prospective nonprofit corporation, the fee is $100 per approval.
    For a specific answer to whether or not your company's purpose is acceptable to be classified as a nonprofit corporation, contact Weygandt, Nesarajah & Company, LLC.
  • What are the IRS classifications of nonprofit corporations?

    We prepare articles of incorporation for nonprofit corporations pursuant to section 501(c)(3) of the IRS code. Nonprofits formed under 501(c)(3) must be formed for some religious, charitable, educational, literary, or scientific purpose. Nonprofit corporations may also be formed for other purposes pursuant to different sections of the IRS code. If you want us to form your nonprofit pursuant to a different provision of the IRS code, please let us know the code section in the purpose portion of our order form.
    To determine if your nonprofit needs to be formed pursuant to another provision of the IRS code, please consult the IRS organizational reference chart. (Click here to view the IRS organizational chart.)
    For specific advice, please consult an attorney or accountant.
  • What form needs to be filed to apply for federal tax-exempt status?

    For a nonprofit company to qualify for 501(c)(3) federal tax-exempt status, a timely filing of IRS form 1023 must be made.
    A few groups are NOT technically required to file form 1023. Examples of these include:
    • A church, interchurch organization, convention of churches, or an integrated auxiliary of a church
    • A subordinate organization covered by a group exemption letter (a parent tax- exempt company must submit a letter saying its subsidiary company will be tax- exempt).
    • A group that qualifies for public charity status and which normally has gross receipts of LESS than $5,000 per year.

    However, the only way to be assured that the IRS views the corporation as a 501(c)(3) tax-exempt group. is to file for tax-exempt status. If the IRS successfully challenges your corporation's tax-exempt status, your corporation may be subject to back taxes and tax fines for the period it operated as a corporation. It is always advisable to discuss your particular situation with an attorney or accountant.
  • When must form 1023 be filed?

    The 1023 application must be filed in a timely manner in order for tax-exemption to be effective retroactively. This means it needs to be postmarked within 15 months after the end of the month when your articles of incorporation were filed.
  • How many directors are nonprofit corporations required to have?

    Most states require nonprofit corporations to have a minimum of three directors; however, some only require one director and others allow for less than three members.
  • What are the advantages of filing a nonprofit corporation?

    If your nonprofit is granted tax-exempt status under 501(c)(3) of the tax code, your corporation will be exempt from payment of federal corporate income taxes. With federal income tax rates at between 15% to 34% this can amount to quite a tax savings.
    A 501(c)(3) nonprofit is eligible to receive both public and private grants. Individual donors can claim a federal income tax deduction of up to 50% of income for donations made to 501(c)(3) groups.
    Nonprofits also receive the same limited liability protection as for-profit companies. This means that directors or trustees, officers, and members are typically not personally responsible for the debts and liabilities of the corporation.
    Other benefits include:
    • A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
    • Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation
    • 501(c)(3) corporations receive lower postal rates on some bulk mailings.

  • What are the disadvantages of forming a nonprofit corporation?

    The main disadvantage of forming a nonprofit company is the increased paperwork that is required. Articles of incorporation must be filed with the state, bylaws prepared, and meeting minutes must be kept with your corporation's records. We can help with these steps by preparing and filing your incorporation papers, and our nonprofit kit contains sample bylaws and meeting minutes. Also, applications for tax-exempt status must be filed at both the federal and state levels. It is important to remember that nonprofits cannot be used to generate profits for the owners, and the purpose must conform to IRS regulations.