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Nonprofit Law/S.501(c) and the Canada/U.S. tax treaty

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Question
QUESTION: Can a Canadian environmental non-profit charitable organization, incorporated and awarded charitable status under Canadian federal law, register under s.501(c)3 in New York State, and pursuant to the terms of the Canada/U.S. tax treaty (or any other applicable arrangement) issue charitable receipts to American donors that will be approved by the IRS as tax deductible?

If so, where do I look for such authorization?

ANSWER: The only way to "register" in New York State is to set up a new entity, a U.S. entity.
The IRS has a policy that it will not grant exemption under
§501(c)(3) for U.S. organizations that merely funnel funds to a
particular foreign organization.

See the IRS publication at  www.irs.gov/pub/irs-wd/0504031.pdf for
details about international grants to and international activities
of U.S. exempt organizations, and, especially page 3-4 about grants
to foreign organizations starting on page 3 at "Deductibility -
Control Rules".

I have experiencing in working with those IRS regulations for U.S. entities that decide to send funds to foreign charitable organizations. I would be willing to work on your matter, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

The tax treaty has nothing to do with that, as the treaty only deals with Canadian income.
As to charitable deductions, see IRS Publication 526 "Charitable
Donations"  which is available at:
http://www.irs.gov/pub/irs-pdf/p526.pdf
in the middle column of page 3:
--- Start of Excerpt ---
Canadian charities. You [U.S. taxpayers] may be able to de-
duct contributions to certain Canadian charita-
ble organizations covered under an income tax
treaty with Canada.
To deduct your contribution to a Canadian
charity, you generally must have income from
sources in Canada. See Publication 597, Infor-
mation on the United States–Canada Income
Tax Treaty, for information on how to figure your
deduction.
---End of Excerpt---

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    




---------- FOLLOW-UP ----------

QUESTION: Thank you. Your reply is most helpful. I've read what you suggested, and it appears to me that we might be able to register, because the role of the corporation will not be to channel funds to Canada. The objective of the organization is to maintain habitat connectivity, and expand it where necessary, in the area from Algonquin Park in Ontario to Adirondack State Park in New York State. This area is the only north-south land connection east of Lake Ontario (through the Thousand Islands in the St. Lawrence River), and it is the critical link for connectivity in Eastern North America. Half of the A2A board is composed of American directors and half of Canadian. Donated funds from Americans will go to connectivity projects, some of which will be in Canada and some in the United States. Similarly for Canadian donors: some of their funds will go to projects in the United States and some to projects in Canada. Connectivity is important, because it supports biodiversity, and biodiversity is important because it provides ecosystem resilience, which is the most important factor in adapting to climate change.

Given this, do you still think we need to incorporate a new entity in the United States?

Answer
Yes. If you want U.S. donors to be able to have donations that are deductible as charitable contributions for U.S. federal income tax purposes on their U.S. income you would need to establish a charitable trust in the United States , incorporate under a state's nonprofit corporation law, or set up a U.S. unincorporated nonprofit association. Your organizing document would need to state that it is organizing under Internal Revenue Code Section 501(c)(3).
You would have at least 3 directors, with control of the board not in related persons.

  After the initial set up, you would need to apply for
a EIN (tax id number)
http://snipurl.com/gij28
and then you could apply for the IRS exemption
determination letter which could be effective
retroactively to the date of establishment of the
organization. The IRS minimum filing fee for such a
determination letter is $400 and goes up to $850.
http://goo.gl/X2UkK

See the IRS Publication 557 "Tax Exempt Status for Your
Organization" at:
www.irs.gov/pub/irs-pdf/p557.pdf
in the right column on page 25 under "Organizations Not
Required to File Form 1023" discusses who does not need
to file and among those is "Any organization (other than
a private foundation) normally having annual gross
receipts of not more than $5,000.  These organizations
are exempt automatically if they meet the requirements of
section 501(c)(3)."

The organization must have the required clauses in the
organizational document even if your organization is not
required to apply for federal exemption if you want the
benefits of being an exempt organization.
See, starting in the middle column of page 26 of
Publication 557  under "Organizational Test". Samples
start on page 77. Also you must operate as a 501(c)(3)
organization (see that publication 557 for the general
rules).

The Application for Exemption is at:
www.irs.gov/pub/irs-pdf/f1023.pdf

I would be willing to work on your matter, but I would need to spend a substantial amount of time in the set-up and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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