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 2 page online application form, pay a $275 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 Worksheet.”
Question: If my nonprofit corporation files its IRS Form 1023 today, how long will it take before the IRS issues a letter approving the corporation as a tax-exempt Section 501(c) charitable organization?
Answer: See the the IRS’ web page called “Where Is My Exemption Application?” to determine how far behind the IRS is in reviewing applications for tax-exemption. We know of organizations that have received favorable IRS determination letters as quickly as six weeks and as long as two years after submitting applications for tax exemption.
Before September 13, 2013, Arizona law required that all Arizona charities register with the Arizona Secretary of State before soliciting charitable donations in the State of Arizona. The Arizona legislature passed and Arizona Governor Jane Hull signed House Bill 2457, which repealed Arizona’s charitable organization solicitation registration laws and eliminated the requirement that Arizona charities must file annual charitable organization renewal forms with the Arizona Secretary of State.
HB 2457 repealed the following Arizona statutes:
- ARS Section 44-6552 Charitable organizations; registration; violation; classification
- ARS Section 44-6553 Exemptions
- ARS Section 44-6554 Contracted fund raisers; registration, reregistration, contract and disclosure requirements
- ARS Section 44-6555 Solicitation disclosure requirements; written confirmation
- ARS Section 44-6556 Public records
- ARS Section 44-6557 Fiscal records; inspection; retention
- ARS Section 44-6558 Exchange of information with other states
- ARS Section 44-6559 Rules
- ARS Section 44-6560
Since October 1, 2009, when the Arizona Corporation Commission stopped mailing reminders to Arizona corporations that the corporation’s annual report was due to be filed ten percent of the corporations formed in Arizona have been administratively dissolved because the corporation did not file its annual report. Dissolution means the corporation ceases to exist, which is almost always a bad thing. Fortunately the problem and the dissolution can be corrected if the corporation files all past due annual reports within six years of the date of the dissolution.”
Our corporate friendly Arizona Corporation Commission adopted a new feature that will help to reduce the number of corporations that are dissolved each year due to failure to file the annual report. Beginning September 5, 2013, anybody can do a look up for the corporation commission on the ACC’s website and enter an email address to which the ACC will send four email reminders (90, 60, 30 & 15 days) of the upcoming due date of the corporation’s annual report. Multiple email addresses can be entered for a corporation. Tell your computer to accept email from CorpScheduler@azcc.gov.
Question: Our nonprofit corporation filed its IRS Form 1023 many months ago and has not yet been approved as a tax-exempt charity by the IRS. Does the corporation have to file its tax return on IRS Form 990?
Yes: A nonprofit corporation that seeks to become a 501(c)3) tax-exempt charity must file an IRS form 990 for the period beginning the day the corporation is formed even if the IRS has not yet approved the corporation’s application for tax exemption. The tax return must be filed EVEN IF THE CORPORATION DID NOT HAVE ANY INCOME!
If the corporation ultimately gets its tax-exemption, but failed to file Form 990s for three consecutive years, the IRS will automatically revoke the corporation’s tax exemption.
The text below is taken from the Arizona Corporation Commission’s instructions for its form Articles of Incorporation for a nonprofit corporation. The ACC Warning is for All Nonprofit Organizations that Intent to be Tax-exempt Organization. If your to be formed nonprofit organization intends to be a charitable organization exempt from federal income tax DO NOT USE THE ARIZONA CORPORATION COMMISSION’S FORM ARTICLES OF INCORPORATION!!!
The following text is the warning the ACC gives to people on page 1 in the middle column of its Instructions for the Articles of Incorporation for a nonprofit corporation:
“The Internal Revenue Service requires that certain language be in the Articles of Incorporation before it will grant tax exempt status. The form provided by the Arizona Corporation Commission complies only with the minimal requirements of Arizona law and does not include any IRS language. If you intend to apply for tax exempt status after the corporation is formed, you should determine what language is required by the IRS and prepare your own Articles of Incorporation. It is advisable to seek the advice of your tax or legal professional and/or the IRS before you form your corporation. The Commission staff cannot give you legal or tax advice, and cannot tell you want language to include in your Articles.“
Translation: The Arizona Corporation Commission is telling people who want to form an Arizona charitable organization to hire an experienced nonprofit organization attorney. Of course I am prejudiced, but I recommend you hire me (a legal professional who has formed