Because Arizona modified its nonprofit corporation law effective January 1, 2017, to eliminate the newspaper publication requirement for corporations that have a place of business in Maricopa County or Pima County I reduced our fee to form an Arizona nonprofit corporation from $1,297 to $1,097, a reduction of $200.
Effective January 1, 2017, Arizona nonprofit corporation law was modified to eliminate the previous requirement that all new Arizona nonprofit corporations must publish their Articles of Incorporation in a newspaper approved by the Arizona Corporation Commission. That’s the good news. The bad news is that the publication requirement will continue for all Arizona nonprofit corporations that have a known place of business in a county other than Maricopa or Pima.
The Chronicle of Philanthropy: “Criminals are using poorly protected charity websites to test the validity of stolen credit-card numbers, cybersecurity experts said this week, costing some groups thousands of dollars. Simplified online donation pages make it easy for people to give — but also serve as prime testing ground for credit-card thieves. ‘There’s a giant target painted on the industry’s back that is very advantageous for credit-card thieves,’ said Kevin Conroy, chief product officer at GlobalGiving. Although not a new problem, it is now “near universal,” said Matt Holford, chief technology officer at DoSomething.org.”
Washington Post: “Today, the IRS’s requirements for any group seeking tax-free status are relatively simple. The organization must be set up and operated “exclusively for religious, educational, scientific, or other charitable purposes,” its earnings shouldn’t benefit private individuals, it shouldn’t attempt to influence legislation or intervene in political campaigns, and its purpose and activities may not be illegal or violate fundamental public policy. The current IRS tax guide states that churches automatically qualify for federal income tax exemption under rule 501(c)(3) without even needing to apply. . . . But recent developments may mean things are about to change.”
USA Today: “Emotions appeared to be sky high at the newly formed First Church of Cannabis after the Internal Revenue Service granted it nonprofit status. The designation means donors can deduct gifts to the church on their federal tax returns if they itemize and the church is eligible for a property-tax exemption in Indiana. The organization has raised $10,905 in a gofundme.com solicitation but has not found a home yet. “What a GLORIOUS DAY it is folks,” the founder and grand poohbah, Bill Levin, wrote May 26 in a Facebook post announcing the church’s IRS approval as 501 (c) (3) charitable organization.
New York Times: “The Internal Revenue Service could issue as early as next month new draft regulations governing political activity by tax-exempt organizations, according to a notice issued on Thursday. But it remains unlikely that the new rules would be in place before the 2016 election.”
Tucson News Now: “In Tucson a new organization has formed to serve women with HIV and AIDS. The nonprofit PowerSource Tucson, Inc. says it’s the only group of its kind in Arizona. . . . PowerSource Tucson says the stigma surrounding the disease means women tend to be more isolated, feeling alone and without support.”
New York Times: “There were subscriptions to dating websites, meals at Hooters and purchases at Victoria’s Secret — not to mention jet ski joy rides and couples’ cruises to the Caribbean. All of it was paid for with the nearly $200 million donated to cancer charities, and was enjoyed by the healthy friends and family members of those running the groups, in what government officials said Tuesday was one of the largest charity fraud cases ever. At the center of the operation was James T. Reynolds Sr., who opened the Cancer Fund of America in 1987. Over the decades, according to a complaint filed by the Federal Trade Commission and regulators from 50 states and the District of Columbia, he expanded the enterprise to four separate groups and was joined by his son, friends and members of his Mormon Church congregation in Knoxville, Tenn.”
Question: My group is considering forming a tax-exempt charitable organization. Can the organization be a limited liability company or must it be a nonprofit corporation?
Answer: It can be an LLC if the LLC is owned only by Section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof and the LLC satisfies the 12 conditions described in an IRS paper called “Limited Liability Companies as Exempt Organization Update.” The LLC cannot have individuals or nonexempt organizations as members, and its organizing documents must contain certain language required by the IRS. The 12 conditions are:
1. The organizational documents must include a specific statement limiting the LLC’s activities to one or more exempt purposes.
2. The organizational language must specify that the LLC is operated exclusively to further the charitable purposes of its members.
3. The organizational language must require that the LLC’s members be section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof (“governmental units or instrumentalities”).
4. The organizational language must prohibit any direct or indirect transfer of any membership interest in the LLC to a transferee other than a section 501(c)(3) organization or governmental unit or instrumentality.
5. The organizational language must state that the LLC, interests in the LLC (other than a membership interest), or its assets may only be availed of or transferred to (whether directly or indirectly) any nonmember other than a section 501(c)(3) organization or governmental unit or instrumentality in exchange for fair market value.
6. The organizational language must guarantee that upon dissolution of the LLC, the assets devoted to the LLC’s charitable purposes will continue to be devoted to charitable purposes.
7. The organizational language must require that any amendments to the LLC’s articles of organization and operating agreement be consistent with section 501(c)(3).
8. The organizational language must prohibit the LLC from merging with, or converting into, a for -profit entity.
9. The organizational language must require that the LLC not distribute any assets to members who cease to be organizations described in section 501(c)(3) or governmental units or instrumentalities.
10. The organizational language must contain an acceptable contingency plan in the event one or more members ceases at any time to be an organization described in section 501(c)(3) or a governmental unit or instrumentality.
11. The organizational language must state that the LLC’s exempt members will expeditiously and vigorously enforce all of their rights in the LLC and will pursue all legal and equitable remedies to protect their interests in the LLC.
12. The LLC must represent that all its organizing document provisions are consistent with state LLC laws, and are enforceable at law and in equity.
Effective July 1, 2014, the IRS adopted Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. For organizations that are eligible to use the new Form 1023-EZ can complete a 3 page online application form, pay a $400 filing fee and obtain an IRS determination letter that the organization is a tax-exempt 501(c)(3) organization within two to four weeks. To learn more about this new application process, the Form 1023EZ, the eligibility requirements and potential negative consequences of using the streamlined form instead of the lengthy and more complex IRS Form 1023, read my article called “IRS Form 1023-EZ.” For the complete list of disqualifications see the “IRS Form 1023-EZ Eligibility Test.”