You might ask yourself! Why is it now – PBUSA, Inc. is 501 C (3) charitable organization?
And What is a 501 C (3)?
Answer: The Basic Section 501C (3) is the portion of the US internal Revenue code that allows for federal tax exemption of nonprofit organization, specifically those that are considered public charities, private foundation or private operation foundation. It is regulated and administered by the US Department of Treasury through the Internal Revenue service. There are other 501(C) organization, indicated by categories 501(C)1 – 501(C (28). We will focus on 501(C)(3).
Qualifying Entities– Entities that can seek 501(C) (3) determination from the IRS include corporations, trust, community chests, LLCs (1), and unincorporated associations. The overwhelming majority of 501 (c)(3) organizations are nonprofit corporations.
Provisions are Unique to 501(c)(3) – One of the most distinct provisions unique to section 501C(3) organizations as compared with other tax exempt entities is the tax deductibility of donations. 26 U.S.C 170, provides a deduction, for federal income tax purpose, for some donors who makes charitable to most types of 501(C) (3) organization.[2]
Other unique provisions tend to vary by state. Like federal law, most states allow for deductibility for state income tax purpose. Also many states allow 501(c)(3) to be exempt from sales tax on purchase, as well as exemption from property taxes. Special nonprofit, bulk rate postage discounts are available from the post office for qualifying organizations.
DO WE NEED OUR BOARD OF DIRECTORS IN PLACE BEFORE WE FILE PAPERWORK?
The Short answer is “YES”, It is not necessary that you have every board position filled before paper work filled, but you need an initial board in place. In a nonprofit organization, it is the members of the board of directors who are legally accountable.
DOES NONPROFIT 501(C) (3) AND TAX EXEMPT ALL MEAN THE SAME THING?
Actually, No! These terms are often used interchangeably, but they all mean different things.
Nonprofit means entity usually a Corporation, is organized for a nonprofit purpose.
501(c)(3) means a nonprofit organization that has been recognized by the IRS as being tax exempt by virtue of its charitable programs.
Tax-exemption is the result of a nonprofit organization being recognized by the IRS as being organized for any purpose allowable under 501(C)(3) – 501(C)(27).
TYPE OF 501 (C) (3) ORGANIZATION
501(C) (3) organization fall into one three primary categories: public Charities, private foundation and private operating foundations.
A public charity is generally defined by the IRS as “not a private foundation”, It receives a substantial portion of its revenue from the general public or from government. In order to remain a public charity (and not a private foundation), a 501(c) (3) must obtain at least 1 /3 of its donated revenue from a fairly broad base of public support. Public support can be from individual, companies and/or other public charities. Donation to public charities can be tax deductible to the individual donor up to 50% of the donor’s income {2.3}. Corporate limits are generally 10% {2.3). In addition, public charities must maintain a governing body that is mostly made up of unrelated individuals [4]. Public charities are what most people recognize as those organizations with active programs. Examples include churches, benevolence organizations, animal welfare agencies, educational, etc.
We will continue on next time regarding private foundation and private operating foundation, etc – STAY TUNED TO pbusa1.com ……………………….This is an opinion and research made possible By Nanding Soriano – Finance Chairman
A Private foundation is often referred to as non-operating foundation, as in typically does not have programs. Revenue may come from a relatively small number of donors, even single donors, Private foundation are usually thought of as nonprofit which support the work of public charities through grants, though that is not always the case. Donations to private foundations can be tax deductible to the individual donor up to 30% of the donor’s {2.3). Governance of a private foundation can be much more closely held than a public charity. A family foundation is an example of a private foundation. The third category is the least common: private operating foundation. These organization often maintain active programs similar to public charities, but may have attributes (such as close governance) similar to a foundation, As such, private operating foundation are often considered hybrids. Most of the earnings must go to the conduct of programs. Donation deductibility is similar to a public charity {2.3}.
Restrictions on Activities – 501C (3) organization are highly regulated entities. Strict rules apply to both the activities and the governance of these organizations. No part of the activities or the net earnings can unfairly benefit any director, officer, or any individual and no officer or private individual can share in the distribution of any of the corporate assets if any in the event the organization shuts down.
Further, lobbying, propaganda or other legislative activity must be kept relatively insubstantial {5}. Intervention in political campaigns or the endorsement/anti-endorsement of candidate for public office is strictly prohibited.
Obtaining 501C (3) – In order for a corporation or other qualifying entity to receive 501C (3) status, It must apply to the IRS for recognition by filing Form 1023 (or Form 1023EZ). Application for Recognition of Tax Exemption. The application is a thorough examination of the organization structure, governance and programs.
Compliance – Having 501C (3) status comes with compliance requirements, the most obvious of which is operating the organization within the IRS regulation. In addition, most organization must file some version of Form 990 with the IRS each year. Additional compliance requirement exist at the state level.