The 501(c)3 Organization

Taxation

I have had many clients come to me to ask how they could start a non-profit organization. The main purpose of starting a nonprofit is to gain the contribution advantage the Internal Revenue Service (IRS) provides. Why do you need the IRS to authorize this? What is the difference between tax exempt and a charitable organization? How does the church fit into all of this? What does this all mean?

There are several issues you need to understand before proceeding. They include the following:

  •       Nonprofit Status
  •       Tax Exempt Status
  •       Charitable Organizations
  •       Other Non-Profits

Nonprofit status is a state issue.  In my state they use the term, non-stock status. This means that the organization or entity is being formed as a legal entity to separate it from an individual(s). This grants the entity the right to conduct business operations and act no differently than an individual in the courts in the state. This entity may or may not have tax preferential treatment and that depends on its application with the Department of Taxation. At the federal level, the entity must have a nonprofit/nonstock/incorporated association status from the state in order to apply for some form of tax exempt status.

Some examples of tax exempt entities include:

  •       Religious Groups
  •       Churches
  •       Local Governments
  •       Regional Government and Authorities
  •       Some Bond Funds related to State and/or Federal Programs
  •       Smaller Social Groups and/or Community Groups, such as:
    1.    Homeowner Associations
    2.    Social Purpose Groups
    3.    Political Groups

For other organizations to receive tax exempt status, you must submit Form 1024. Just because these groups receive tax exempt status doesn’t mean they are tax exempt completely and it does not mean they can receive contributions from individuals as a tax deductible contribution. 

 As a side note, if you don’t know if your affiliation belongs in this group, then you should talk to the head of your local church/synagogue/mosque and ask for the status letter from the IRS. For other organizations that you make contributions to, check Publication 78A. See the Resources page for the link to the Pub.

Any tax exempt organization must continue to comply with the regulations in order to maintain tax exempt status. This includes notification to members of the status of the organization, proper documentation and filing of annual returns to the IRS and the state. In order to receive tax deductible charitable contributions, you must possess the 501(c )3 status.  In order to receive the coveted 501(c )3 status, it takes a special type of application and compliance to the code.

It doesn’t get any easier, you see the application process can take upwards of two years to be granted this status. You may receive a temporary determination letter of this status to begin operations until the IRS sends the final determination letter to you.

To receive this status the IRS looks at the organization’s primary purpose and they confirm that there is no individual receiving excessive compensation or benefits or inuring value from the existence of the entity. In addition as the entity files its annual tax return, Form 990, the IRS confirms that the entity is spending a minimum ratio of its proceeds for the mission. If the entity is disqualified it will receive a tax levy and some associated penalties for failure to stay in compliance. You can see it is an extremely responsible act when someone says they want to start a nonprofit organization.

Even with all these barriers, roadblocks, and issues to overcome, there is no other nobler goal than to help others. If this is what you want to do, then I suggest that you keep reading my other articles and I’ll explain:

  1.     How you get started;
  2.     How to find the right folks for your board of trustees/directors;
  3.     How to gain a partner or mentor organization to assist you;
  4.     How to apply for the coveted 501(c )3 status;
  5.     How to set up and begin operations;
  6.     How to get funding;
  7.     How to interact with the government and the respective authorities to deliver service to the community;
  8.     How to set this up as a legacy and well recognized and respected charity.

You can do this if you so desire, I can’t bring the will or energy, but I can help you with the knowledge. Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

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