aanp third annual state leadership conference
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AANP Third Annual State Leadership Conference. Non-Profit Corporations and Tax-Exempt Organizations Ed Rodriguez Fort Lauderdale, Fla. January 8, 2006. Non-Profits & TEOs. For -profit corporations v. non -profit corporations: - PowerPoint PPT PresentationTRANSCRIPT
AANP Third Annual State Leadership Conference
Non-Profit Corporations and Tax-Exempt OrganizationsEd Rodriguez
Fort Lauderdale, Fla. January 8, 2006
Non-Profits & TEOs
• For-profit corporations v. non-profit corporations:
- for-profit (or stock) corporations exist to increase shareholder (owners’) value
- non-profit (or non-stock) corporations exist to increase its own value
Non-Profits & TEOs
• Non-profit corporations are created by state law
- most jurisdictions have non-profit corporation codes
-- Va. Nonstock Corp. Act
-- Calif. Nonprofit Corp. Law
Non-Profits & TEOs
• Articles of Incorporation
- establish corporation’s purpose
- submitted to state government agency for approval
-- Va. State Corp. Comm.
-- N.Y. Dept. of State
Non-Profits & TEOs
• Articles of Incorporation
- not necessarily the organization’s “Charter”
- some are “one pagers”
- don’t confuse with a strategic plan with its purpose, vision and mission
Non-Profits & TEOs
• Bylaws
- consistent with articles of incorporation
- amplify corporation’s purpose
- are not filed with government
- easier to amend
Non-Profits & TEOs
• Tax–exempt status
- “determined to be exempt from federal income taxation”
- determination by federal (not state) government agency –IRS
Non-Profits & TEOs
• All tax–exempt organizations (TEOs) are non–profits, but not all non-profits are TEOs
Non-Profits & TEOs
• IRC § 501(a) exempts from federal income tax, organizations described under IRC § 501(c)
Non-Profits & TEOs
• 28 categories of 501(c)TEOs - 501(c)(3) – religious, charitable, scientific and educational organizations
- 501(c)(4) – social welfare organizations
- 501(c)(6) – business and trade associations
Non-Profits & TEOs
• 501(c)(3) – “Corporations, ... [i] organized and operated exclusively for religious, charitable, scientific, ... or educational purposes, ... [ii] no part of the net earnings of which inures to the benefit of any private ... individual, [iii] no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation ...and which [iv] does not participate in... any political campaign on behalf of (or in opposition to) any candidate for public office.”
Non-Profits & TEOs
• 501(c)(3)
– exist to serve the public interest
Non-Profits & TEOs
• 501(c)(4)
- “Civic ... organizations [i] not organized for profit but [ii] operating exclusively for the promotion of social welfare, ... and [iii] the net earnings of which are devoted exclusively to charitable, educational or recreational purposes... [iv] no part of the net earnings of such entity inures to the benefit of any private ... individual.”
Non-Profits & TEOs
• 501(c)(4)
- exist to serve the social welfare of a community or
- exist to engage in advocacy (i.e., legislative lobbying [not political activities]) as an action organization
Non-Profits & TEOs
• 501(c)(6)
- “Business leagues, chambers of commerce, real estate boards, boards of trade, or professional football leagues ... [i] not organized for profit and [ii] no part of the net earnings of which inures to the benefit of any private ... individual.”
Non-Profits & TEOs
• 501(c)(6)
- exist to improve business conditions of one or more business lines, not a particular business
Non-Profits & TEOs
• Application for Recognition of Exemption
- IRS Form 1023
-- 501(c)(3)
- IRS Form 1024
-- 501(c)(4)&(6)
Non-Profits & TEOs
• Common Requirements
- organized for tax-exempt purpose
-- the “preach”
- operated for tax-exempt purpose
-- the “practice”
Non-Profits & TEOs
• Organized for tax-exempt purpose
- organizational test
-- articles of incorporation and bylaws
--- corporate purposes must be limited to tax-exempt purpose
Non-Profits & TEOs
• “The Corporation is organized and shall be operated exclusively for tax - exempt purposes within the meaning of Section 501(c) (3) of the Internal Revenue Code .... In furtherance of such purposes, the corporation shall be authorized:
(a) To promote, support, and engage in activities carried on for charitable, scientific or educational purposes, including, but not limited to fostering, developing and contributing to the support of individuals, with brain based disorders, by making gifts, grants, loans and advances to any organization, institution, agency or other body legally authorized to receive the same for such purposes. The Foundation shall make disbursements in accordance with the decisions of its Board of Directors ... to such organizations, institutions, agencies or other bodies as have control of the type of project for which the disbursements are provided and by making gifts, grants, loans and advances to other organizations, institutions, agencies or other bodies engaged in charitable, scientific or educational activities.”
***
Non-Profits & TEOs
• “The Association is organized and shall be operated exclusively for tax - exempt purposes within the meaning of Section 501(c)(6) of the Internal Revenue Code .... In furtherance of such purposes, the Association shall be authorized:
(a) To promote, support and engage in purposes and activities permitted by Section 501(c)(6) of the Code, including, but not limited to, (i) improvement and advancement of the philosophy, science, art and practice of naturopathic medicine as defined by the American Association of Naturopathic Physicians (the “American Association”); (ii) service of the common interest in the improvement and advancement of naturopathic medicine shared by members of the Association; (iii) promotion of professional and social interaction among members of the Association and members of the American Association; (iv) provision of moral, professional and social support to members of the Association, including, if necessary and appropriate, financial support and legal assistance, subject to the restrictions herein; (v) education of the general public regarding the merits and best uses of naturopathic medicine; (vi) fostering of cooperation between the naturopathic medical profession and other health care professionals in keeping with the general public’s interest in quality health care; (vii) promotion of the general public’s right to freedom of choice in health care; and (viii) engagement in any lawful activities that further the purposes of the Association as restricted herein.”
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Non-Profits & TEOs
• Operated for tax-exempt purpose
- operational test
-- corporation must engage primarily in its tax-exempt purpose
-- no private inurement (profiting)
Non-Profits & TEOs
• Upon application approval
- IRS issues Letter Determination of Exemption from Federal Taxation
Non-Profits & TEOs
• Tax-deductible contributions - only charitable contributions to 501(c)(3)(not
501[c][4]and[6]) organizations are deductible pursuant to IRC § 170
- contributions are deductible if the IRS has determined the organization to be exempt from federal income taxation ( i.e., has approved the organization’s Form 1023)
- however, if the organization files its Form 1023 within 27 months of the end of the month in which the organization was incorporated and if determined to be an exempt organization, contributions made within that period will be deductible
Non-Profits & TEOs
• IRS Form 990• IRS Form 990T Unrelated Business Income
- TEO income is subject to tax (UBIT) if:
-- from a trade or business, -- regularly carried on and -- not substantially related to TEO’s tax-exempt purpose
Non-Profits & TEOs
• Corporate Minute Book - Articles of Incorporation - Bylaws - Exemption Application - IRS Determination Letter - Meeting Minutes -- Board -- Committee
Non-Profits & TEOs
• Director’s Duty of Care
- attend meetings
- participate in decisions
- be reasonably informed
Non-Profits & TEOs
• Director’s Duty of Loyalty
- exercise powers in the interest of the corporation rather than any individual
Non-Profits & TEOs
• State Protection of Volunteers - VA. Code § 8.01-220.1:1. Civil immunity for officers, trustees and directors of certain TEOs
- VA. Code § 13.1-870.1. Limitation on liability of officers and directors; exception.
Non-Profits & TEOs
• Federal Volunteer Protection Act of 1997, 42 U.S.C. §14501
Non-Profits & TEOs
• Take Away Lesson - just because the organization is properly incorporated as a non-profit, doesn’t mean that it’s a TEO
- non-profit and tax-exempt are two different things
Non-Profits & TEOs
• Resources - www.irs.gov/charities -- EO Update -- EO Tax Law Workshops - www.nonprofitcenter.com - C. Clemons, The Perfect Board, 2005
-- www.theperfectboard.com - F. Howe, Welcome to the Board, 1995
Non-Profits & TEOs
• Resources, con’t.
- www.independentsector.org
- www.boardsource.org
-- The Sarbanes-Oxley Act and
Implications for Nonprofit
Organizations,
--- www.independentsector.org/PDFs/
sarbanesoxley.pdf
Non-Profits & TEOs
• Resources, con’t.
- Policy Governance
www.carvergovernance.com
