Nonprofit Law/Non Profit

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Question
I am looking to start a business where I do websites and like services for churches and Christian non profits. I am looking to donate all the money to various Christian charities. I am not taking a salary from this as I have a job and am more interested in helping these organizations. Maybe in the future I make take a salary.

Would it be best to form this as a non profit or sole proprietorship? Which would be better tax wise?

Answer
You may certainly get tax benefits for setting up a nonprofit organization and obtaining from the IRS 501(c)(3) organization status as that would mean that any annual surpluses would not be taxable under the regulations for income taxes.  However, 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.

There are some detailed regulations relating to proposed operations such as yours. See the 1986 EO CPE text, "H. IRC 501(c)(3) - Substantially Below Cost", on page 1:

    However, for a much smaller group of organizations
    whose activities are not inherently religious,
    charitable, or educational, the basis for recognition
    of exemption under IRC 501(c)(3) is not readily
    apparent. Such organizations may engage in activities
    that appear to be of a typical commercial nature, such
    as providing purchasing, investment, consulting, or
    insurance services. Because these services are provided
    only to organizations that are exempt under IRC
    501(c)(3),organizations providing the service claim to
    qualify for exemption under IRC 501(c)(3).
http://ftp.irs.gov/pub/irs-tege/eotopich86.pdf on page 1

    In that EO text, we see, on page 8 a comment about one such
organization that "would in effect be providing the investment
and custodial services to the participating organizations
virtually free of cost to them, or at least substantially below
what it would cost to carry on such investment functions. Such
subsidization was viewed as sufficient to qualify the
organization's operations as charitable."

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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