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Nonprofit Law/Parent Club Operating for 2 years without Tax-Exemption

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QUESTION: Dear Mr Mechanic,
I just took the position of Treasurer for my children's school parent club. The club has been conducting fundraising since November 2011. Although the club intended to be non-profit, the document was never filed. The first year the club had just over $3000 in the bank, but the second year, over $18 thousand. All of this money has been raised for the school by volunteers helping with fundraising, and it will be donated to the school. Do I need to file tax returns for 2011 and 2012? If I apply for the 501c3 within the next month, can we file the 990EZ for the past two years so we don't pay income tax? I recently completed the form 1020, and our taxes owed for 2012 were over $3000. This would be such a shame as that money should have been given to the school. The previous board members were simply ignorant of tax compliance laws. Please help!

ANSWER: You wrote about a "club" and I am assuming that the club deposited money into a bank account that had a EIN (Employer Identification Number - or Taxpayer Id number) that was assigned, by the IRS to that club.  If that club was organized as a charitable trust, incorporated under a state's nonprofit corporation law, or set up as an unincorporated nonprofit association with certain IRS mandated clauses, the organization may, if operating correctly have the benefits of applying late for IRS exemption determination. See, starting in the middle column of page 26 of Publication 557  under "Organizational Test". Samples start on page 77 and the IRS discusses some of the textual requirements for the organizational document starting in the middle of page 26 of their Publication 557 and going through the paragraphs under the heading
"Dedication and Distribution of Assets" on page 27.
http://www.irs.gov/pub/irs-pdf/p557.pdf

Let me know about that organizational document issue and then, after you give me that information I will reply further. My summary of IRS regulations relating to 501c3 booster organizations is at:
http://goo.gl/ULw6f6
and you may be interested to read that as it indicates whether your organization has been operating properly and, therefore, would still be eligible for IRS consideration for retroactive determination.   The IRS may take months to issue the exemption determination
letter, but as long as you file your exemption application within 27 months and are approved for exemption status by the IRS you may begin full operations upon state incorporation.
In that IRS Publication 557 on page 24, right column, under the heading "Effective
date of exemption" we see that the exemption determination is granted  retroactively to the date of formation which is normal for 501(c)(3) organizations that apply for exemption within the first 27 months of their formation. "If the organization files the application within this 27 -month period, the organization's exemption will be recognized retroactively to the date it was organized."

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: Dear Mr. Mechanic,
Thank you for your detailed reply. Extremely helpful! To answer your question above: Yes, we were incorporated as a nonprofit public benefit corporation. The Articles were stamped by Secretary of State Jan. 17, 2013. Our EIN was granted on 11/16/2011. Which date takes precedence as date of incorporation? Thank you for your help.

Answer
You are welcome.

The date stamped filed by the Secretary of State is what counts according to that Publication 557, page 24. However, at the start of Schedule E for Form 1023 application for exemption you will see:
--- Start of Excerpt ---
Schedule E is intended to determine whether you are eligible for tax exemption under section 501(c)(3) from the postmark date of your application or from your date of incorporation or formation, whichever is earlier. If you are not eligible for tax exemption
under section 501(c)(3) from your date of incorporation or formation, Schedule E is also intended to determine whether you are eligible for tax exemption under section 501(c)(4) for the period between your date of incorporation or formation and the postmark date of your application.
--- End of Excerpt ---
http://www.irs.gov/pub/irs-pdf/f1023.pdf (pdf page 23)

You did not reply as to the other issues (clauses in articles of incorporation or operation as a proper 501(c)(3) booster organization.

So you may get some relief as a a 501(c)(4) organization for part of the period.

As for your not filing yet for 2012,  http://goo.gl/CTkSR explains which 990 series return to file and, if you grossed less than $50,000 I would strongly advise you not to file 990-EZ late or at all, but to start filing Form 990-N.

In any case, as it appears you had not filed either form 1120 or Form 990

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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