Nonprofit Law/Charity Golf Tournament with no 501c3 Status
My family is looking to start an annual memorial charity golf tournament. 100% of the funds will go to the hospital where my brother was treated for cancer. Can we do the tournament with no 501c3 status? If we proceed with no 501c3 status, what will be the consequences if any? I know some of the issues will be that the sponsors will want to deduct their donations for tax purposes, but they can't if we are not 501c3. I was told sponsors can give their donation directly to the hospital if they would like a letter confirming their donation, but we need those donor funds for initial costs (deposits, etc). The hospital has given us a letter certifying that our event is sanctioned by the hospital, but that really doesn't help us in terms of 501c3 status. Is there any way to get around some of these issues? If someone donates to the tournament can they deduct their donation #because it is ending up going to the hospital)? Any help would be appreciated...thank you!
You would want to organize as a nonprofit entity. If you want donors to be able to deduct donations and not to have your sales income, if any, taxed as long as you comply with fundraising guidelines for 501(c)(3) organizations, you would need to establish a charitable trust, incorporate under a state's nonprofit corporation law, or set up an unincorporated nonprofit association. Your organizing document would need to state that it is organizing under Internal Revenue Code Section 501(c)(3) and have other required clauses. You would have at least 3 directors, with control of the board not in persons related by blood, marriage or other business.
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. See IRS Publication 557 "Tax Exempt Status for Your Organization" http://
www.irs.gov/pub/irs-pdf/p557.pdf which has on page 24, right column, under the heading ""Effective date of exemption" 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."
The IRS has published:
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Contributors to the organization do not have advance assurance of deductibility while the organization's application is pending. If the organization ultimately qualifies for exemption for the period in which the contribution is made, the contribution will be tax deductible by the donor. Alternatively, if the organization ultimately does not qualify for exemption, then the contribution will not be tax deductible.
If all of any person's donation is going to go to the hospital, then, even if your organization is a for-profit, that donation would be deductible by the donor in certain circumstances, but if an organization is not properly set up as a 501(c)(3) organization, then if your organization keeps part of the donation for your own use, the donor would not get a deduction. If the donor's desire a split, however, we can arrange a contract with the donor, which would be necessary in any case when funds are passed through to the hospital.
Harvey Mechanic, Attorney at Law -
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.