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How to Start & Maintain a Nonprofit Organization
Transcript of How to Start & Maintain a Nonprofit Organization
501(c)(3) Tax Exemption
Provide legal services to
community & nonprofit organizations
Forming, reviving & maintaining nonprofit organizations.
Leasing, transferring property.
Copyright & trademark.
Community associations: zoning appeals, liquor board appeals, drug nuisance abatement.
This workshop is for
informational purposes only.
Your attendance does
you or your organization
of Community Law Center.
form this nonprofit?
will it serve? Who will assist you with this organization?
will you have time to work on forming this organization? When will you do the work it takes to keep it running?
will you find financial resources for your organization?
Seek a fellowship
Find other groups with a similar mission:
1. Gather a core group of people.
2. Determine what the organization will do; create a mission statement.
3. Pick an available name (sdat.dat.maryland.gov/ucc-charter/Pages/CharterSearch)
4. Raise enough money for set-up
5. Elect interim leaders.
Board of Directors
3+ people (ideally 5+).
by business or family relationship.
Variety/diversity: skills, resources, funds.
Not looking for financial gain.
Reliable, work well with others.
Passion for mission of organization.
Governing rules of organization.
Should be easy to understand.
Should be amended as needed.
Two Ways to Structure the Organization
Board of Directors
Officers (President, VP, Treasurer, Secretary)
Board of Directors
Nonprofit Organizational Structure
Conflict of Interest Policy
We all wear different hats in our lives.
A conflict of interest policy makes sure board members are acting in best interest of organization, not in some other interest.
Managing Conflicts of Interest in 4 Steps:
1. Board member discloses conflict.
2. Board discusses whether the action is in the organization’s best interest (without input from conflicted Board member).
3. Board takes a vote (without input from conflicted Board member).
4. Record the above steps taken in the meeting minutes.
Be careful to avoid "excess benefit transactions."
Corporation = distinct legal entity
able to do business in its own name.
Benefit = liability protection.
Responsibilities = annual filings - MD Form 1 & IRS form 990.
How to file Articles of Inc.
File with State Department of Assessments and Taxation (SDAT) to create legal entity authorized to conduct business in Maryland.
Filing fee = $170 (additonal expediting fee = $50)
Personal property = any asset other than real estate.
Must file return, even if the corporation does not own any personal property.
Failure to file = forfeiture of corporation
Due each year on April 15th
MD Form No. 1 –
Personal Property Return
The Organization is Exempt from Personal Property Taxes Under Section 7-202 of the Tax-Property Article of the Annotated Code of Maryland.
Nonprofit v. tax-exempt
Nonprofit = corporate structure.
Defined by the state (in our case, Maryland).
Tax-exempt = status regarding income taxes,
Defined by the taxing government.
(can be local, state or federal government).
See checklist on p24. May have to confirm earlier actions.
Adopt articles of incorporation & bylaws.
Elect directors & officers.
Designate a bank.
Approve financial records.
Assign volunteer duties.
Approve agreements, contracts, obligations.
Authorize application for EIN.
Authorize application for tax-exempt status.
Employer Identification Number = EIN
Similar to a Social Security number for business entities -- must have to file for tax-exemption.
Form SS-4 h
Public benefit (cannot benefit one individual/family).
Purposes must be "charitable" (IRS definition).
ALL activities must be in furtherance of charitable purposes.
Restrictions on 501(c)(3)
Political and Legislative Activity
501(c)(3) nonprofits cannot
directly support or oppose any candidates for office.
Other Political Activity (e.g., attempting to influence legislation):
- cannot be a “substantial part” (more than 5%) of expenses and time.
(1) Form 1 (MD)
(2) Form 990 (IRS)
IRS websites: www.irs.gov AND www.stayexempt.org
Business Volunteers Maryland: http://businessvolunteersmd.org/nonprofit/
Volunteer Match: https://www.volunteermatch.org/
Local volunteer centers (e.g. Anne Arundel County Volunteer Center: http://www.aacvc.org/)
SCORE: workshops, mentorship (https://www.score.org/find-mentor)
does not have 501(c)(3)
Things to consider with Fiscal Sponsorships
Fiscal sponsors = legally responsible for activities of sponsored groups.
501(c)(3) Pros & Cons
Charitable income is tax exempt
Contributions: tax deductible for donors.
Eligibility for government and foundation grants.
Also eligible for exemption from state income, sales & property tax.
Low cost mailing & advertising rates.
Paperwork, expense & time of Form 1023.
Political activity limitations for 501(c)(3).
IRS's definition of "charitable"
testing for public safety
amateur sports competition
preventing cruelty to children/animals
relief of poor & distressed or underprivileged
advancement of religion, education, or science
lessening burdens of government
promotion of social welfare by organizations designed to accomplish any of the above purposes or:
to lessen neighborhood tensions
to eliminate prejudice and discrimination
defend human and civil rights secured by law or
combat community deterioration and juvenile delinquency.
A founder of a nonprofit does not own or control the organization.
A nonprofit is governed by a board of directors that makes all major policy decisions for the organization, including the hiring and evaluation of the CEO/Executive Director.
A founder's involvement in any organization is at the discretion of the board of directors.
Sponsored groups may have to give up some control of their programming.
Have an agreement in writing
Bylaws: provisions to include
Name, purposes & principal office
Membership: requirements & duties
Board of directors:
requirements & duties
Officers: requirements & duties
Quorum & voting
Amendments to the bylaws
Removal of members/directors
Articles of Incorporation sections to include
Resident Agent & Principal Office
Initial Board of Directors
Nonprofit issues we work on
How to apply for 501(c)(3) tax exempt status
Two paths to applying
Form 1023 (long form): $850
Longer (29 pages), requires more information
Attachments become public after filing: Articles of Inc., Bylaws, Conflict of Interest Policy, Projected Budget
Must write narrative description of past, present, and planned activities and events
Form 1023-EZ: $275
New since July 2014
Short, online form
Does not require many of the attachments
Limited to organizations that are eligible
Who is eligible to file Form 1023-EZ?
Cannot be a church, school, hospital, or hospital service organization
Annual gross receipts of $50,000 or less for each of next three years
No annual gross receipts in excess of $50,000 in each of the preceding three years
Total assets less than $250,000
See instructions and eligibility worksheet for other restrictions
Keys to a successful filing
Give yourself lots of time to complete the form
Read the instructions – see accompanying instruction forms
Only answer what is asked; provide detail, but not too much (most questions: one paragraph is enough; Section IV narrative should be two to three pages)
Label any attachments with EIN, name, and question being answered
Type it! Download forms from www.irs.gov
Complete Form 1023-EZ Eligibility Worksheet
Read the instructions - see accompanying instruction forms
Prepare a Narrative (even though this will not need to be submitted)
Keep all documentation in a file that is easily accessible
IRS Form 990
Due 15th day of 5th month of fiscal year
Form 990: long form for orgs with gross receipts of $200k or assets of $500k
Form 990-EZ: 2 pgs, for orgs with gross receipts of <$200k and assets <$500k
Form 990-N (ePostcard): 8 question electronic form, for orgs with gross receipts <$50k
Keep minutes of meetings
Any format (not a transcript of the meeting)
Include: what happened at the meeting, what decisions were made, the vote on the matter, who was present, and if requested by someone opposing the decision, the name of anyone opposed
Signed and dated by the secretary, approved at the next meeting
Keep all meeting minutes together
Especially keep minutes when:
Decisions are made that affect third parties (e.g. hiring employees, signing contracts)
Decisions are made that affect the rights and responsibilities of people in the organization
(for example: a community association)
(for example: a neighborhood tutoring program)
Keep meeting minutes, corporate records, policies
Register annually to receive charitable solicitations:
Sales tax, property tax exemption (Combined Registration – Comptroller): http://forms.marylandtaxes.com/12_forms/cra.pdf
Ongoing Compliance (continued)
Helpful Resources (cont.)
Enoch Pratt Library, Grants Collection Center: www.prattlibrary.org/locations/grants
; Contact: 410-396-5320 or email firstname.lastname@example.org
Classes on finding grants, writing grant proposals, etc.
Foundation Center: foundationcenter.org/find-funding
Maryland Nonprofits: www.marylandnonprofits.org
Association of Baltimore Area Grantmakers (ABAG): www.abagrantmakers.org
Federated Charities in Frederick: www.federatedcharities.org
College of Southern Maryland Nonprofit Institute: www.csmd.edu/community/institutes/nonprofit-institute/index.html
Community Foundation of the Eastern Shore: cfes.org/learn/events
Governor's Grants Office: grants.maryland.gov/Pages/Training.aspx
How Community Law Center can help
How to Start a Nonprofit Organization in Maryland handbook
Training for Board of Directors on fiduciary duties and Director responsibilities
: Budgeting for Nonprofits
Apply for legal services to work with a volunteer attorney
Contact us! 410-366-0922 or email@example.com
What is a nonprofit?
Organization created for a purpose other than generating profit (charitable mission)
Can make a profit! (but that profit must go back into programming)
Does not have owners, and does not distribute income to members, Directors, or Officers.
501(c)(3) tax exempt organization
A type of nonprofit organization
Recognized by the IRS as operating exclusively for charitable, religious, scientific, educational, or certain other purposes
Charitable donations to a 501(c)(3) can be deducted from the donor's taxes
A type of nonprofit organization
Generally donates funds to other organizations, or has its own funds to do charitable work, rather than seeking grants for other orgs
Required by Maryland law: President, Secretary, and Treasurer
President & Vice President can't be the same person. President & Treasurer should not be the same person.
All Officers are Board members/Directors
, but your Board may include additional Directors who do not have an Officer position.
Shady Acres Community Association
Vicki Vice President
All the Officers: Paul, Vicki, Sandy & Tim
All Board and Officers
And many others