Hi Everyone,
As you may know I have spent significant time thinking over the various options for what form of legal entity our organization can/should take. This process was brought about by consulting with tax attorneys who reviewed of our original application for exempt status under IRS Section 501(c)(3) (Public Charity / Private Foundation). Simple, useful answers were not easy to come by. Every scenario included pros and cons that had to be teased out, thought over and weighed to find something that seemed to best fit our specific fact pattern.
For our simple neighborhood group, I believe the most potentially beneficial course of action with relatively low risk would be for the corporation that has already been formed to request tax exempt status under IRS Section 501(c)(4), as an organization not organized for profit but operated for the promotion of social welfare. Other descriptors for such an organization would be a “community organization” or “civic league”.
In summary, below are a handful of the key “Pros and Cons” between a 501(c)(3) and a 501(c)(4) organization:
Personally, I think the most attractive feature of a 501(c)(4) is the greater degree of freedom to lobby for change local ordinances. As recent supervisors meetings have demonstrated, the county ordinances in place today need to change and perhaps some new faces with fresh ideas could also help in protecting the natural majesty of the Napa Valley as well.
In any event, please let me know your thoughts on the above and how you would like to proceed.
Thanks for your patience while I ran the traps on this structural question. Best regards, Glenn
PS: Regarding CGL and D&O Insurance, the insurance carrier has requested a completed application for exemption with proof of payment to continue processing the request made for insurance coverage. (In other words, we need to finalize the organizational structure first). As noted above, the application for exemption can be made relatively quickly and therefore this item as well.
As you may know I have spent significant time thinking over the various options for what form of legal entity our organization can/should take. This process was brought about by consulting with tax attorneys who reviewed of our original application for exempt status under IRS Section 501(c)(3) (Public Charity / Private Foundation). Simple, useful answers were not easy to come by. Every scenario included pros and cons that had to be teased out, thought over and weighed to find something that seemed to best fit our specific fact pattern.
For our simple neighborhood group, I believe the most potentially beneficial course of action with relatively low risk would be for the corporation that has already been formed to request tax exempt status under IRS Section 501(c)(4), as an organization not organized for profit but operated for the promotion of social welfare. Other descriptors for such an organization would be a “community organization” or “civic league”.
In summary, below are a handful of the key “Pros and Cons” between a 501(c)(3) and a 501(c)(4) organization:
- · Both are types of “Tax-Exempt” organizations meaning no tax is due on any income generated.
· Contributions to 501(c)(3) organization are tax deductible by the donor (either in the case of a Public Charity or a Private Foundation).
· Contributions to 501(c)(4) organization are not tax deductible by the donor. In the absence of “tax-deductible” status comes some additional flexibility (below):
· 501(c)(4) organizations tend to have the following characteristics:
- · A lesser degree of overall compliance than a 501(c)(3) (fewer tests and potential risks to distract from our mission),
· Provides the ability to lobby for changes in county ordinances without some of the constraints imposed on 501(c)(3) organizations, and
· Provides a degree of flexibility to endorse or oppose candidates for local office (strictly prohibited for 501(c)(3) type organizations).
· Comparison of permitted activities: http://bolderadvocacy.org/wp-content/uploads/2012/10/The-Connection_p6_Chart_paywall.pdf
- · Amend and restate the existing Articles of Incorporation and Bylaws of the corporation (including dropping the word “Foundation”). (I’m told this is a relatively quick and easy process since not a lot needs to be done to our organizing documents)
· File the amended and restated Articles of Incorporation with the California Sec’y of State (pay ~$30 for one-day expedite)
· File IRS Application for Exemption Form 1024 (approximately one week to complete and mail)
· Change the language in any content we have to reflect that “contributions to the organization are non-tax deductible”
Personally, I think the most attractive feature of a 501(c)(4) is the greater degree of freedom to lobby for change local ordinances. As recent supervisors meetings have demonstrated, the county ordinances in place today need to change and perhaps some new faces with fresh ideas could also help in protecting the natural majesty of the Napa Valley as well.
In any event, please let me know your thoughts on the above and how you would like to proceed.
Thanks for your patience while I ran the traps on this structural question. Best regards, Glenn
PS: Regarding CGL and D&O Insurance, the insurance carrier has requested a completed application for exemption with proof of payment to continue processing the request made for insurance coverage. (In other words, we need to finalize the organizational structure first). As noted above, the application for exemption can be made relatively quickly and therefore this item as well.
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