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Nonprofit Law/Incorporated Family Organization

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Question
A family organization is incorporated. It holds several fundraisers & collects dues/donations each year for the primary purpose of awarding scholarships to FAMILY Member college bound students. 50% of profits are set aside for this purpose. What do you suggest they do to qualify as a 501(c)(3), e.g. award scholarships to the general public? Thank you

Answer
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.

  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/TXwq9

Specifically, as to scholarships, they must complete Schedule H of the IRS Exemption Application which is shown at the bottom of page 25 of Publication 557 at http://www.irs.gov/pub/irs-pdf/p557.pdf
and you can see there the issues that the IRS is concerned with.  Primarily, the organization would need to not give any preference to family members (or business associates) and open up the publicity for the applications for the awards to the general public.

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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