Charitable organizations, typically recognized as 501(c)(3) organizations, are beholden to the public financially and otherwise, which is one of the trade-offs for being exempt from paying most taxes. The IRS and the Attorney General in each state ensure that tax-exempt organizations are acting, in a very broad and general sense, “reasonably.” Focus is generally put upon compensation of key people (directors, officers), and private inurement (benefiting privately). Tax exempt organizations need to review their practices because, in my opinion, when the IRS announces “closer scrutiny,” audits are forthcoming.
Read this article to learn more about what the IRS will be scrutinizing, and steps for your organization to take:
March 15th is National #EverythingYouThinkIsWrongDay. Let’s celebrate by reading some things that many people believe, but are wrong:
- “Living together for 6 years means we are married.” No, at least not in Ohio. Common law marriages in Ohio are recognized only if they occurred prior to October of 1991.
- “Contracts must be in writing.” Oral contracts are enforceable in many situations. Exceptions exist, including most contracts for real property.
- “The United States Supreme Court has the final say of all laws in the U.S.” The U.S. Supreme Court is the final decider of federal laws and controversies involving federal law. State supreme courts have the final say over state law.
- “I can’t be arrested for public intoxication if I’m on private property.” You can be standing on your front porch, beer in hand, and if you are creating a disturbance you can be arrested for public intoxication.
- “I don’t have a will.” You might not have prepared a will, but every state has a plan for your asses should you die without having prepared your own will.
- “I don’t need a will because my spouse will get everything anyway.” Not likely true if you had a child together, or you have children from a previous relationship.
- “My donations to a nonprofit are tax deductible.” In order for donations made to a nonprofit to be tax deductible to you, the nonprofit must have tax exempt status from the IRS. Most commonly this is 501(c)(3) status.
- “If I’m arrested I’m entitled to one phone call.” This is partly true. You have a right to one call to an attorney. Generally the police allow an arrestee to call family or a friend but it is not a right.
- “The First Amendment protects your free speech from everyone.” This is a very common myth. The First Amendment only protects your right free speech against the government, and even that protection has limitations. People getting fired from a private employer for what they (employees) say is permissible, despite a hundred Facebook commenters lamenting that this person’s right to free speech has been violated.
- “If the house is in just my name, my spouse can’t get it if we divorce.” Not true, typically. Things acquired during the marriage are subject to equitable division and distribution. And, equitable doesn’t mean equal, it means fair according to the judge.
“I am going to plan and host a fundraiser for our child’s youth group. We plan to have obstacle courses with adults on tricycles and other fun and crazy activities. Should I have people sign a waiver?”
This was a real question and I’m posting it here because a lot of parents are holding events to raise money to benefit their kids’ activities. Some activities are funded by the school, others are not and rely upon parents raising money to keep the activity going.
Waivers and releases are definitely necessary if you are holding an event where you invite people to an event where there is a risk of harm. There is a general belief that a waiver-release provides little protection against a lawsuit by an injured party–true in some jurisdictions. Ohio, however, has case law providing language that, if contained in the waiver-release, provides fairly strong protection.
Who does the release cover–the participant only? (Not recommended.) What activities are covered? Who signs the document? What if the participant is a minor?
Downloading a general waiver-release from a Google search might offer little protection in Ohio. This is where contacting an attorney in your state to provide you with a state-specific document with the proper language is the best advice you can receive.
Yes. Really, you can do anything you want. The question is, should you?
I had a parent of a scout-like troop ask if the group should become a nonprofit in order to hold fundraisers. The answer depends upon who the group will benefit, what does the group want to offer donors, among other considerations.
- A nonprofit is a state-formed entity. To gain tax-exempt status (group does not pay certain taxes such as federal income tax; donors can take a deduction for donation on their taxes), the nonprofit needs to file for exemption with the IRS. The typical status you see is a 501(c)(3) charity.
- A tax-exempt nonprofit can only be formed to benefit the public (generally). For example, such an organization can be formed to fight childhood cancer, but cannot be formed to fund just Timmy’s cancer treatments and medical bills, even if you give away any “leftover” funds.
- Anyone can fundraise (note that your state’s Attorney General will want to know if you fundraise, likely regardless of whether or not you are a nonprofit, or tax exempt). The issue is what is offered to a donor. “Donations are tax deductible” can be offered only if you have tax-exempt status. You could hold a spaghetti dinner to benefit Timmy above, but if you are not tax exempt, you cannot say to donors that their donations are tax deductible.
- Becoming a tax exempt nonprofit is not something to consider unless you are ready to essentially run a business. You must first incorporate with your state, then apply for tax exempt status with the IRS. In Ohio, a nonprofit must have a minimum of 3 board of directors, must file articles of incorporation, should have organization bylaws, hold regular meetings and keep corporate minutes. A nonprofit is a corporate entity (C-corp, LLC, etc.), and by applying for tax-exempt status with the IRS, you are asking the federal government to exempt your corporation from paying certain taxes.
For smaller groups who still want to become tax exempt, the IRS has shortened their application by introducing the form 1023EZ a couple of years ago, see http://www.irs.gov. For information on forming nonprofit organizations in Ohio, see http://www.sos.state.oh.us/sos/upload/publications/busserv/Nonprofit.pdf. Also, read what the Ohio Attorney General has to say about nonprofits: http://www.ohioattorneygeneral.gov/Business/Services-for-Charities.