Please consider donating a few cents to keep it alive and up-to-date for yourself and others. After all, you are about to run a nonprofit organization and out of all people, you know how it feels. I don’t ask you to pay my bills, all I ask is a meager donation to keep up with the server cost and maintenance.

I hope that this text helps you become more familiar with tax laws governing exempt organizations and understand how compliance with these laws will strengthen your organization.  The credits for the work go to the hard work of the following individuals and their staff:

Lois G. Lerner 
Director, Exempt Organizations
Internal Revenue Service

Roberta “Bobby” Zarin
Director, Customer Education and
Outreach, Exempt Organization
Internal Revenue Service

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Press releases are the best way to go about getting exposure, but knowing how to write an effective press release and where to send it is the key. Newspapers and TV stations receive piles of press releases every day ranging from a new product announcement to cat lovers annual summer walk. You can have a fascinating story to tell and not get the exposure, or have nothing news-worthy and get published. It’s all in the subject of your mail, the title of your press release and the first paragraph.

DOs

1. Do your homework to find out: the appropriate journalists’ names and titles; the correct name of the publication/show; the style/tone of the publication/show; what kind of images they need, in what format; the deadlines.

2. Give a contact name and number so journalists can contact someone for further information.

3. Tell an interesting story – the journalist is always asking: “WIIFM?” (What’s in it for me, and my audience?).

4. Answer the following questions in your publicity material: Who? What? When? Where? Why?

5. How Much? What language is the event in? How do I get a ticket/buy the product/offer to volunteer?

6. Put it in writing – typed rather than hand-written.

7. Talk to the person who can say YES.

8. Answer media inquiries promptly – if you’re the designated media contact person and you don’t know the answer to a question, promise to find out and call back rather than telling a journalist to call someone else.

9. Label all photographs clearly

10.Try to understand that there are hundreds of organizations out there that want free publicity at least as much as you do, and that a given media organization may not be able to give free publicity to all of them, every week.

11. Try to understand that journalists run stories as a service to their readers/viewers/ listeners, not as a favor to you.

12. Create and maintain your own media list that’s relevant to your organization.

13. Say “Thank you”.

DON’Ts

1. Don’t Tell the journalist how to do his/her job – let him/her decide where, when and how to run the story.

2. Don’t try to tell the whole story over the phone – put it in writing.

3. Don’t Beg for coverage or plead that you deserve/need it.

4. Don’t impose on an actual or imagined friendship by contacting a journalist you know personally at his/her home to lobby for coverage – that’s not appropriate.

5. Don’t ask when your story/event will be featured – things often change at the last minute, so journalists prefer not to make absolute promises.

6. Don’t ask for the right to approve an article about your organization before it is published – the media organization retains editorial privilege.

7. Don’t Attempt to apply pressure on a journalist by saying: “We’ve booked an ad so please list our event”, or “We’ve booked an ad so please make your article about us positive”, or “If you promise to run a positive story about us then we’ll book an ad.” It just doesn’t work like that. In reputable media organizations, the advertising and editorial departments are quite separate.

8. Don’t pin all your publicity hopes on just one journalist/interview/article – there are no guarantees, so send your information to every relevant journalist.

9. Don’t ask the journalist to send you a copy of the article – buy the paper/magazine!

10. Don’t expect journalists to check your organization’s website every week for your latest news (that’s “pull” marketing) – they don’t have time. If you want free publicity, it’s YOUR responsibility to send the information to the relevant people (that’s “push” marketing).

11. Don’t Complain if your story doesn’t get covered exactly when and how you wanted it – if you want your event/story to be covered exactly the way you prescribe, on the exact days you determine, that’s called advertising, and you have to pay for it.

12. Don’t Say “No comment” – it looks like you’re hiding something.

13. Don’t Send your press release to one journalist and expect him/her to copy it and distribute it for you to other journalists in the same organization.

Article by SA Manikandan.

As in the for-profit sector and specially the financial sector, the nonprofit laws had been wacked to pieces to insure that top players can enjoy their private jets and multi-million dollars homes in the Caribbean. The IRS has a laughable term describing the circumstance which gives the green light to this shameful money sacking: “Reasonable Compensation.” Reasonable compensation is defined as “the value that would ordinarily be paid for like services by like enterprises [for-profit] under like circumstances.”

Going by this vague standard, the 2.5 million dollar salary of William Barram of the American Cancer Society, or the 1 Million dollar salary of Gail McGovern of the American Red Cross is rightly justified, because the net income of their respective organizations is comparable with the for-profit enterprises of their class. And when watchdog groups disclose these numbers with public and a few souls raise their concerns, the kind of Miss Betsy Brill, publish defensive articles in nation’s economic papers like Forbes to tone down the criticisms. In her article for Forbes Magazine, titled “Nonprofit CEOs Are Worth Every Dime”, Miss Brill goes on and on to why these thieves are entitled to public donations that were intended for a different purpose than buying another Rolls-Royce:

“…critics may cause donors to question–or even to pull back–their charitable giving at a time when nonprofits are struggling to meet an increased demand for services in the face of government cutbacks and dwindling private support.”

What did she just say? “At a time when nonprofits are struggling?” Miss Brill never explains why the “struggling organization” is paying a man a seven figure salary if it is indeed struggling. But she is quick to add: “Keep in mind that the highest paid CEOs are overseeing complex multimillion-dollar ventures.” Does she have alternative motives? You bet.

For many years prior to the market collapse of 2008, over-fed, over-paid, white-color financial analysts told us the very same thing, “AIG is doing wonderful, Lehman Brothers is at the top of its game. Don’t fear, invest, buy this, give them your money…” And when the economy collapsed and 700 billion dollars came out of the taxpayers’ pockets to bail out these criminals, these very same analysts justified their deceptiveness by saying that what they said was “just an opinion”. They got paid to put AAA ratings on worthless Collateralized Debt Obligations (CDO) and investors bought these high risk worthless pieces of shits because credit rating agency’s like Moody’s and Fitch endorsed them and backed out later. Miss Brill doesn’t work for a Credit Rating Agency, she owns a counterpart of it in the nonprofit sector. She is the President of Strategic Philanthropy, Ltd., a philanthropic advisory firm in Chicago. Same shit, different name.

The nonprofit entities are not that different from for-profits either. Where there is money, there will be always greed. Where there is money, there will be also power, and mankind is prone to abuse both. In for-profit corporations, the share holders and investors question the executives on how their money is being played, but in nonprofit world, the faith of the donors are in hands of a few volunteers and more often than not, the organization’s CEO holds a dictatorial power over the governing body. It is irrelevant that the board has the power to hire and fire the CEO, the CEO in a nonprofit organization is nevertheless the dictator and the law maker of the organization with only the IRS to answer to. And the IRS position is already clear: “reasonable compensation.”

The only difference is that when a for-profit corporation goes bankrupt, shareholders and investors lose money and their outcry makes the evening news, but when a nonprofit organization goes under, there is no one to take the hit. Donors give less than a shit – hey, they gave the money away in the first place – and in most cases they don’t even want to know where their money goes as long as the organization has a picture of a skinny black baby or a woman with one breast cutoff on the header of their website. The real victims are the poor, the class that was supposed to be served, but they have no voice. Their voice, if any, gets lost in the roar of the private jet engines and sport cars of the thieves who stole their money in the name of making a difference.

We are being told on an alarmingly increasing rate, that being nonprofit doesn’t mean not making a profit. More and more nonprofits are running mafia-style businesses as they hire and compensate their own relatives inside the organization with many six figure incomes. Then the seven figure elite supporters come in and tell us that only those making these ungodly sums have the intellect and capability to pull off the operations in these large entities. But, long ago, before there were these salaries, people did just that and the poor received the majority. Imagine that.

It’s not the legality of these gruesome compensations that is the issue; it’s the morality of the whole business. I founded a nonprofit organization because I was compelled to help people and I surrounded myself with those who had the same inkling. Do I have the power to abuse them? Absolutely. But at the end of the day I know, what I take is what could have put a smile on a child’s face. To me that’s the drive not the salary. Maybe I’m radical but I do see the struggle of the poor first-handed on daily basis.

I leave you with one question: is the job of managing a charity really more “complex” than running a 300 million population country? If not, how do you justify salaries as large as six times of the US President? Don’t we have any talented people willing to manage charities in the same unselfish spirit as their donors? If not, we should outsource these jobs too China too, they sure as hell will do a better job of it for a much lower wage.

The Lobbying Election
The definition of activities considered to constitute “lobbying,” as well as the extent to which a 501(c)(3) organization may conduct such activities before incurring penalties, varies depending on whether the organization has chosen to make the “election” under Section 501(h) of the Code. Most informed 501(c)(3) organizations that lobby choose to make the election, and, consequently, are governed by a special “expenditures” test, rather than the “substantiality” test governing nonelectors.

In stark contrast to the very vague and sparse rules governing nonelectors, the expenditures test provides mathematical methods to concretely determine the extent to which an electing organization may engage in lobbying without incurring penalty taxes or losing 501(c)(3) status. Congress enacted the expenditures test and related rules (found in Sections 501(h) and 4911 of the Code) to relieve the uncertainty of the substantiality test.

Other key advantages of “electing” are the numerous exceptions provided for what is considered lobbying, the imposition of penalty taxes for excessive lobbying instead of the immediate loss of tax exemption, a safe harbor (margin for error) for organizations that exceed the lobbying limits in a given year, an exclusion for lobbying time “donated” by volunteers (including board members), and a lower Internal Revenue Service (“IRS”) audit risk.

The lobbying election is made by filing, at any time, the simple one-page Form 5768 with the IRS. Note that the lobbying election is not available to 501(c)(3) organizations that constitute “supporting organizations” (i.e., those public charities, such as many associations’ related foundations, that receive their public charity status through their support of a 501(c)(4), (c)(5), or (c)(6) organization that itself meets one of the public support tests). The following rules and definitions apply only to 501(c)(3) organizations that make the lobbying election.

Definition of Lobbying
To be considered lobbying, a communication must refer to and reflect a view on a specific legislative proposal or legislation that has been introduced before a legislative body (federal, state or local). Actions by executive, judicial or administrative bodies (e.g., regulations) are excluded from the definition of lobbying. Lobbying may either be direct or grassroots. Grassroots lobbying is more limited than direct lobbying. Direct lobbying is any attempt to influence legislation through a communication with any member or employee of a legislative body, or with any other governmental official who may participate in the formulation of legislation, if the principal purpose is to influence legislation. The communication must refer to specific pending or proposed legislation and reflect a view on the legislation. A communication made to the general public on the subject of a public referendum, ballot initiative, or similar election will be considered direct lobbying if the communication reflects a view on the subject of the vote. Direct lobbying also includes communications by an association to its members directly encouraging them to engage in direct lobbying. When directed solely to members, a communication is not lobbying if it only indirectly encourages members to engage in lobbying.

Grassroots lobbying is defined, except with regard to a limited category of mass media communications (for which special rules apply), to include only those communications to the general public that:

1. Refer to specific pending or proposed legislation.
2. Reflect a view on that legislation.
3. Encourage the recipient to take action with respect to such legislation (this third element is often referred to as a “call to action”).

It includes communications to members directly encouraging them to urge nonmembers to lobby. An organization generally engages in grassroots lobbying when, directly or through its members, it urges that the public contact legislators, or provides the public with the address, telephone number, electronic mail address, etc. of a legislator or a petition or tear-off postcard, or even merely identifies legislators who will vote on the item referred to.

For both direct and grassroots lobbying, all costs of researching, preparing, planning, drafting, reviewing, copying, publishing, and mailing a direct or grassroots lobbying communication – including amounts paid as current or deferred compensation for employees’ services attributable to these activities – must be counted as lobbying expenditures. In addition, the allocable portion of administrative, overhead and other general expenses attributable to these activities also must be treated as lobbying expenditures. However, if the primary purpose for incurring an expenditure is a non-lobbying purpose (and if the “fruits” of the expenditure are, in fact, used for such a non-lobbying purpose), then no portion of the expenditure needs to be allocated to lobbying. See below for a discussion of cost allocation between lobbying and non-lobbying purposes. Also see below for a discussion of the use of non-lobbying material in connection with a subsequent lobbying communication.

Exclusions from Definition of Lobbying
Certain activities are excluded from the definition of lobbying:

1. Lobbying does not include providing technical assistance or advice to a governmental body or committee in response to its unsolicited written request (note two caveats: (a) cannot be a request from merely an individual member of that body or committee, and (b) the response must be made available to every member of the requesting body or committee).
2. Lobbying does not include self-defense activities – communications with legislators concerning decisions which may affect the organization’s existence, powers and duties, 501(c)(3) status, or tax deductibility of contributions.
3. Lobbying does not include making available the results of nonpartisan analysis, study or research, defined as a full and fair exposition of a particular subject that may advocate a view so long as the presentation of the relevant facts is sufficient to enable readers to reach independent conclusions (e.g., presenting information on both sides of a legislative controversy in a balanced and objective manner) (note two caveats: (a) grassroots lobbying communications which directly encourage action do not qualify under this exception, and (b) in order to take advantage of this exception, distribution of studies, reports, etc. may not be limited to, or directed toward, persons interested solely in one side of a particular issue).
4. Lobbying does not include examining and discussing broad social, economic, and similar policy issues whose resolution would require legislation – even if such legislation is pending – so long as the organization’s discussion does not address the merits of the specific legislation.
5. Lobbying does not include communicating with a government official or employee other than (a) a communication with a member or employee of a legislative body that would otherwise constitute lobbying, or (b) a communication with the principal purpose of influencing legislation.
6. Lobbying does not include communications between an organization and its members (broadly defined) about pending or proposed legislation, unless the communications directly encourage the members to attempt to influence legislation (or directly encourage the members to urge nonmembers to attempt to influence legislation). Note that this exclusion will apply so long as a majority of the communication’s recipients are members.

Communications which fall into one of these six categories will not constitute “lobbying” even if they advocate a view on proposed or pending legislation.

Subsequent Use Rule
In certain narrowly defined circumstances, the subsequent grassroots lobbying use of “advocacy communications or research materials” (those materials that refer to and reflect a view on specific legislation, do not directly encourage grassroots lobbying, but do not otherwise satisfy the exception for nonpartisan analysis, study, or research) that originally contained no lobbying communications may cause the original expense incurred in developing the materials to be treated as a lobbying expenditure. This could occur most frequently with respect to certain nonpartisan analysis, study, or research reports that are initially created without any accompanying lobbying messages, but are later used in connection with grassroots lobbying communications. In such event, the “subsequent use” rule may convert the original expense (in its entirety) into a grassroots lobbying expenditure. However, there are two broad safe harbors in which the subsequent use rule will not apply – one relates to the primary purpose of the original materials and the other relates to the timing of the subsequent use.

Under the primary purpose safe harbor, the subsequent use rule will not apply if the organization can demonstrate that the primary purpose of the original materials (i.e., the primary purpose for incurring the original expense) was a non-lobbying purpose. Where the organization makes a substantial distribution of the materials in their non-lobbying form either prior to or contemporaneous with the grassroots lobbying distribution, the IRS will presume a non-lobbying primary purpose. In the case of “nonpartisan analysis, study, or research,” whether the distribution is substantial will depend upon the particular facts and circumstances, including normal distribution patterns of similar materials. In the case of other “advocacy communications or research materials,” the non-lobbying distribution must be at least as extensive as the grassroots lobbying distribution.

Under the timing of subsequent use safe harbor, the determinative factor is the amount of time between when the organization paid the original expenses and when the subsequent use occurred. All expenses paid more than six months before the subsequent use are protected from the application of the subsequent use rule.

The subsequent use rule will not cause any communications or research materials to be considered direct lobbying communications.

Limitations on Permissible Lobbying
Under the expenditures test, an organization can quantify exactly how much lobbying it may engage in each year. A sliding scale specifies the amount an organization may expend on all lobbying activities in relation to the amount it spends on most of its other activities (i.e., expenditures in furtherance of the organization’s tax-exempt purposes). Under Section 4911(c)(2) of the Code, the maximum allowable annual lobbying is the sum of:

1. 20% of the first $500,000 of an organization’s exempt purpose expenditures, plus
2. 15% of the second $500,000 of such expenditures, plus
3. 10% of the third $500,000 of such expenditures, plus
4. 5% of the remainder of such expenditures,

with a cap of $1 million in annual lobbying expenses.

On top of this cap, there is a further restriction that an organization may not spend more than 25% of its permitted lobbying total on grassroots lobbying.

It is important to note that lobbying expenditures include, among other things, the value of the allocable portion of staff time attributable to lobbying; such salary allocations must be substantiated through the use of time records (see below).

If annual limits are exceeded, a 25% excise tax is imposed on the amount of “excess” lobbying expenditures (i.e., 25% times the greater of the amount by which lobbying expenditures exceeded the allowable total limit or by which grassroots lobbying expenditures exceeded the allowable grassroots limit).

An organization’s 501(c)(3) status will be revoked only if the sum of total lobbying expenditures or total grassroots lobbying expenditures over a four-year period exceeds 150% of the four-year sum of the maximum permissible amounts – a considerable safe harbor. Note that a 501(c)(3) organization that loses its tax exemption because of excessive lobbying or prohibited political campaign activities cannot then convert to a 501(c)(4) organization.

Because the extent of an organization’s lobbying is measured only by expenditures (and not, for example, by time expended), lobbying efforts by members (volunteers) – including unpaid officers and directors – on behalf of an association that do not incur expense by the association are not subject to any limitation and are not counted toward the association’s lobbying totals. If the association incurs expenses (e.g., travel expenses) in connection with its members’ lobbying efforts, only those expenses (and nothing more) will be counted toward its lobbying totals.

Affiliated organizations
The expenditures test contains methods of aggregating the lobbying expenditures of related organizations in order to prevent the creation of numerous entities to avoid the lobbying limitations. Where two or more 501(c)(3) organizations are members of an “affiliated” group and at least one of the members has made the 501(h) election, the calculations of lobbying and exempt purpose expenditures must be made by taking into account the expenditures of the entire group. If these expenditures exceed the permitted limits, each of the electing member organizations must pay a proportionate share of the penalty excise tax, with the nonelecting members (if any) treated under the substantiality test. Generally, two organizations are deemed to be “affiliated” where (1) one organization is bound by decisions of the other on legislative issues pursuant to its governing instruments (e.g., Articles of Incorporation, Bylaws), or (2) the governing board of one organization includes enough representatives of the other (an “interlocking governing board”) to cause or prevent action on legislative issues by the first organization. Where a number of organizations are “affiliated” (such as in the case of certain association-chapter structures), all of them are treated as one group of affiliated organizations. However, if a group of autonomous organizations controls an organization but no single organization in the controlling group alone can control that organization, the organizations are not considered an affiliated group by reason of the interlocking directorates rule.

Lobbying Records and Cost Allocation
Under Code Section 501(h), detailed disclosure as part of the annual Form 990 filing and thorough recordkeeping are required. It is the responsibility of the association to maintain documentation of its direct and grassroots lobbying expenditures. If an activity has mixed (direct and grassroots) lobbying or both lobbying and nonlobbying aspects, the association will be expected to allocate the expenditures, pursuant to the rules set forth below. (See also the discussion of the primary purpose test above.) Employee time records, financial reports, invoices from outside suppliers (e.g., printing bills), postage receipts, and other documentation of expenditures should identify those spent on direct and grassroots lobbying, and should allocate expenditures for mixed lobbying (direct and grassroots) and mixed purpose (lobbying and nonlobbying) activities.

As stated above, all amounts paid or incurred for, or in connection with, direct and grassroots lobbying communications – including amounts paid or incurred as current or deferred compensation for employees’ services attributable to lobbying, as well as the allocable share of overhead expenses attributable to lobbying – are included within the organization’s total “lobbying expenditures.”

A mixed grassroots and direct lobbying communication must be treated as a grassroots communication except to the extent that the organization demonstrates that the expenditure was incurred “primarily” for direct lobbying purposes, in which case a reasonable allocation must be made between the direct and grassroots lobbying purposes served by the communication.

For lobbying communications that also serve bona fide non-lobbying purposes, there are two alternate allocation rules. Which rule is used depends upon whether the communication is sent primarily to members or non-members. The rules are generally more favorable for member communications.

For communications that are sent primarily to bona fide members (i.e., communications sent to more members than non-members), the organization must make a reasonable allocation between the amount expended for the lobbying purpose and the amount expended for the non-lobbying purpose. Including as a lobbying expenditure only the amount expended for the specific sentence or sentences that encourage the recipient to action is not considered a reasonable allocation.

For communications that are not sent primarily to bona fide members, all costs attributable to the lobbying portion and to those parts of the communication that are on the same specific subject as the lobbying message must be included as lobbying expenditures. Whether or not a portion of a communication is on the same specific subject as the lobbying message will depend upon the surrounding facts and circumstances. In general, a portion of a communication will be on the same specific subject as the lobbying message if that portion discusses an activity that would be directly affected by the legislation that is the subject of the lobbying message. Moreover, discussion of the background or consequences of either the legislation or of an activity directly affected by the legislation also will be considered to be on the same specific subject as the lobbying communication.

Transfers Treated as Lobbying
A transfer of money or property by a 501(c)(3) organization to an individual or entity will be treated as a lobbying expenditure if it is earmarked for that purpose. A transfer of money or property by a 501(c)(3) organization for less than fair market value to a non-501(c)(3) organization that lobbies will be treated as a lobbying expenditure unless it is a “controlled grant” or unless certain other exceptions apply. Also see below for a discussion of transfers by private foundations to 501(c)(3) public charities that lobby.

Private Foundations
501(c)(3) organizations that are private foundations are subject to excise tax on any amounts paid or incurred (i) in an attempt to influence legislation, or (ii) in an attempt to influence the outcome of any public election or to carry on certain voter registration drives. The definition of lobbying, and the exceptions thereto, are similar to the definitions and exceptions described above. As long as a private foundation does not earmark a grant for lobbying, it may make a general purpose grant to a 501(c)(3) public charity that lobbies without incurring penalty tax liability. A private foundation also may make a grant to support a specific public charity project that includes lobbying, so long as the grant is not earmarked for lobbying and so long as it is not larger than the amount budgeted by the grantee for the nonlobbying portion of the project.

Conclusion
Associations exempt from tax under Section 501(c)(3) must keep lobbying activities within specified limits. Grassroots lobbying is limited more than direct lobbying. To avoid incurring liability for excise taxes or loss of tax-exempt status, care should be taken to ensure compliance with the expenditures test under Section 501(h) and to enable such associations to take advantage of the opportunities provided by these rules.

Due to the numerous exceptions to the definition of lobbying for 501(c)(3) organizations, properly planned and structured, it is frequently possible for 501(c)(3) organizations to conduct all desired government affairs activities within the confines of the 501(c)(3) structure. This option should be thoroughly explored before any structural organizational changes are made, such as the establishment of an affiliated entity (e.g., as a 501(c)(4) organization) to conduct lobbying activities.

By: Jeffrey S. Tenenbaum Esq. , Venable LLP
jstenenbaum@venable.com

Are there any other organizations doing the same thing that you want to do?

There are over a million charitable organizations in the United States alone promoting and fighting one cause or another so chances are that your cause is already covered by 100 other likewise organizations. You need to be honest with yourself. Are you really going to do a better job? Do you have the funding? Do you have the drive? Do you have the patience? Do you have the knowledge? Or you just want to do something. Nine out of ten cases, you should just support an existing organizations because in reality, the more diverted the efforts get the result also suffer respectively.

The next question is how you are going to do it.

Running a nonprofit organization and going on a blind-date is not all that different – in both you never know where you are going to end up; home with a bottle of cheap whisky alone, or in bed with a good-looking blond. It’s a hard work and if you do it “right”, you will be poor financially and if you cheat it, you’ll live comfortably but you give up the cause. The nonprofit business is just a business like any other; the only difference is that you make profit for others rather than yourself. Knowing all that, a nonprofit organization is thousand times harder to run than a for-profit entity, because your hands will be tied on what you can or can’t do by the IRS. Sometimes it’s better to pay taxes, and be free in your programs than holding a nonprofit status and not being able to do what you wanted in the first place. A profitable nonprofit organization is a rare sight, but not impossible.

Another thing that you need to know is that internal Revenue Code has many sections. Section 501 is only one section, and the 501(c)(3) refers to a single article under this section. Just because you are a nonprofit entity, that doesn’t mean that you do qualify under this section, and at the same time you might qualify for tax exemption under another section but not 501(c)(3). There are 27 other chapters that will grant you tax-exemption but are not charitable. Before going any further, here’s the complete Revenue Code from the IRS. Read it and find out where you stand. If you settle down on section 501 (c)(3), the next step is to take the public charity test and see if you do actually possess the qualifications to even apply under this section. If you do pass, the rest of your work is cut out for you.

Assuming that you’re still interested, your hard work start from here:

Preparing the Articles of Incorporation for the State

This is different than the complete Articles of Incorporation document required by the IRS. What you are doing here is incorporating your entity to be effectively recognized as a person under laws of your State. For-profit and nonprofit entities receive some benefits from incorporation such as protection of personal assets of directors and members in case of bankruptcy, but incorporating a nonprofit organization is not for receiving benefits, it is mandatory by the Department of Revenue. You can NOT apply for tax exemption if you are not a legal entity, hence the need for incorporation.

Start by going to the office or website of your Secretary of State. They should provide all the information you need regarding registering and incorporating your business. The process goes like choosing a name, registering that name and filling the forms. Once you do all that, the Secretary of  State will either approve or deny your business. If you do get approved, you will receive a letter like the one below. You can also see the sample of the State articles of incorporation  here. By incorporating your entity, you are giving the minimal information needed to the State to form the entity, but the IRS doesn’t care about your State. You need to draft a complete Articles of Incorporation with specific legal languages, and that’s what the IRS accepts. Go here to start drafting your complete Articles of Incorporation.

Assembling your board of directors

Selecting the initial directors is a non-democratic process, but there is no way around it. Each State has a minimum requirement for the board size, but as a rule of thumb, a nonprofit board should not be less than four and not greater than twelve. The IRS is not one bit shy about asking you to increase your board size, because smaller boards are more prone to corruption. At the same time, a very large board is a nightmare to manage and your meetings become next to impossible to call.

Refrain from electing relatives on your board, keep your family members out of the board business, this is not a Mafia. A nonprofit organization should not be a dynasty-run business; elect qualified non-related individuals who care about your mission. Place an ad in the local newspaper or your web site, and you’ll attract local talents who will contribute to the success of your organization.

Preparing the bylaws

Bylaws are the rules and methods that your organization follows to insure legality and productivity. Bylaws by themselves are more of an internal document than required in United States, but a well planned and clear structure will take out the guess work and corruption out of your organization, especially in time of disagreement between board members. This is the document that specifies the election process of directors, your meeting manners, the role of the employees, and many more roles. Take your time when it comes to drafting your bylaws, it’s the make or break it document. Hop on here to get your nonprofit bylaws started.

Preparing the Conflict of Interest Policy

In my opinion, the Conflict of Interest policy is the most important organizational document that a nonprofit can possess and is crucial in maintaining organizational integrity and reputation. Many people have only a vague idea of what Conflict of Interest is, or how to deal with it. Draft this document carefully and make sure that it serves the needs of the organization not its board. Go here to draft your Conflict of Interest policy and see a sample of this document.

Applying for the Employee Identification Number

Whether you are going to have employees or not, you need to apply for the Employee Identification Number from the IRS. The EIN is like the Social Security Number for your entity, the IRS will identify your organization with this number from now on. The good news is that it’s a super simple process, and has one of the quickest turnaround times. Go here to read more and apply for your Employee Identification Number or EIN.

Whether you are going to have employees or not, you need to apply for the Employee Identification Number from the IRS. The EIN is like a social security number for your entity, the IRS will identify your organization with this number from now on. The good news is that it’s a super simple process, and has one of the quickest turnaround times. You can apply for the EIN from here.

You will receive a letter from the IRS informing you of your EIN which will look like this one:

Assemble the application and materials in this order:

• Form 1023 Checklist
• Form 2848, Power of Attorney and Declaration of Representative (if filing)
• Form 8821, Tax Information Authorization (if filing)
• Expedite request (if requesting)
• Application (Form 1023 and Schedules A through H, as required)
• Articles of organization
• Amendments to articles of organization in chronological order
•  Bylaws or other rules of operation and amendments
• Documentation of nondiscriminatory policy for schools, as required by Schedule B
•  Form 5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To Make Expenditures To Influence Legislation (if filing)
• All other attachments, including explanations, financial data, and printed materials or publications. Label each page with name and EIN.
• User fee payment placed in envelope on top of checklist. DO NOT STAPLE or otherwise attach your check or money order to your application. Instead, just place it in the envelope.

As of right now, the user fees form the form 1023 are dived into two brackets. The first bracket is for nonprofit organizations claiming not to exceed the 10,000 revenue for the first year and the second bracket is for all the other organization. The ongoing rates are 400 USD and 850 USD respectively.

Now pack up all your hard work and send them out to the address provided on your form 1023. If you have done everything right, you’ll receive a letter like this and you can finally open the champagne bottle. If you need to expedite your application, proceed to the next section.

FAQ……………………………………………………………………………….

What provisions must be included in organizing documents to qualify for exemption?

May an authorized representative sign Form 1023?

Is there such a thing as an advance ruling?

Why does Form 1023 ask for information about successor organizations?

Why am I asked for information about payments to third parties?

Why can’t we apply if it has been 27 months since our organization was formed?

Does it matter if an organization is formed in a country other than the United States?

What happens if we don’t have the required organizational structure?

How much detail should be provided in the narrative description of activities?

What if purposes or programs change after an application is submitted?

Where do I send my exemption application?

How can I Contact the IRS regarding my application?

Advance Ruling

A written determination of an organization’s public charity status that was issued  by the IRS prior to issuance of new regulations September, 2008, that treated an organization as “publicly supported” during a five-year period beginning, generally, on the date of its formation.

Under the new regulations an organization will be treated as public charity for its first five tax years if it can show that it can reasonably expect to be publicly supported regardless of its actual receipts.  If an advance ruling letter has been issued to an organization and the advance ruling period ends after the effective date of the regulations it is no longer required to complete form 8734 at the end of the advance ruling period and the advance ruling letter will be considered to be a final determination.  Beginning with the organization’s sixth year the IRS will monitor the organization’s public charity status based on the information reported in Schedule A of Form 990.

Backup Withholding

Deduction of tax that applies to payments to employees or non-employees when the recipient does not provide a Taxpayer Identification Number (TIN).  Backup withholding also occurs when the recipient of a reportable prize awarded in a gaming activity does not provide a TIN.  The regular withholding rate for gaming prizes is 25 percent. The backup withholding rate is 28 percent.

Bingo

A game of chance played with cards that are generally printed with five rows of five squares each, on which participants place markers to form a preselected pattern to win the game. Bingo is a type of gambling.

The Internal Revenue Code excepts income from certain bingo games from unrelated business taxable income.  The exception applies to a bingo game that is legal under state and local law and not ordinarily carried out on a commercial basis.  In addition, the game must be one in which wagers are placed, winners are determined, and prizes are distributed in the presence of all persons placing wagers in that game.

Pull-tabs, scratch-offs, “instant” bingo, and other similar games are not within this exception.

Central Organization

An organization with one or more subordinate organizations under its supervision or control.

Certification of Filing

Evidence that on a specific date, articles of incorporation for an organization were filed with and approved by an appropriate state authority.

Compensation

All forms of income from working including salary or wages; deferred compensation; retirement benefits, whether from a qualified or nonqualified employee plan (e.g., pensions or annuities); fringe benefits (e.g., personal vehicle, meals, lodging, personal and family educational benefits, low-interest loans, payment of personal travel, entertainment or other expenses, athletic or country club membership, and personal use of one’s property); and bonuses.

Definitive Ruling

A written determination by the IRS on a 501(c)(3)’s public charity status that classifies the 501(c)(3) as a publicly supported organization if it has completed its first tax year, consisting of at least eight full months, and it meets one of the public support tests. A definitive ruling may also be issued at the end of the five-year advance ruling period if the 501(c)(3) was issued an advance ruling and it meets one of the public support tests.

Director

Member of the board of directors of a corporation.  As classified by statute, a director of a corporation working in his or her capacity as director is a non-employee of the corporation.

Disqualified Person

In general, a person in a position to exercise substantial influence over the affairs of a 501(c)(3) or 501(c)(4), such as an officer, director, trustee, or any other individual who has similar powers or responsibilities.  The Instructions for Form 1023 describe in detail what entities are “disqualified persons.”

Earned Income Credit (EIC) Advance Payment

A tax credit that is paid to employees whose income falls below a certain level.

Employee

Under common law rules, a worker who performs services for an organization is an employee if the organization can control what the worker does and how he or she does it. This is so even if the organization gives the worker freedom of action.  What matters is that the organization has the right to control how the services are performed.

To determine whether an individual is an employee or independent contractor under common law, examine the relationship between the worker and the business, considering all evidence of control and independence. Facts that indicate the degree of control and independence fall into three categories:  behavioral control, financial control, and the relationship of the parties.

Employer Identification Number (EIN)

A nine-digit number in the following format: xx-xxxxxxx that the IRS assigns. The IRS uses this number to identify taxpayers who must file various returns. EINs are used by employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates of decedents, government agencies, certain individuals, and other business entities.

Excess Benefit Transaction

An excess benefit transaction is a transaction in which a 501(c)(3) or 501(c)(4) provides an economic benefit, directly or indirectly, to or for the use of a disqualified person, and the value of the economic benefit that the organization provides exceeds the value of the consideration received.

Excise Tax

A tax imposed on the manufacture, sale, or use of goods, or on an occupation or activity.

Exempt Purpose

To qualify as exempt under section 501(c)(3), an organization must be organized and operated for one or more of the following purposes:  religious, charitable, scientific, literary, educational, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.

Expenses

Financial burdens or outlays, costs of doing business, or business outlays chargeable against revenues.

Fair Market Value

The price at which property or the right to use property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts.

FICA

The Federal Insurance Contributions Act. FICA taxes go toward Social Security and Medicare.

For-Profit Organization

A business entity whose activities are conducted or maintained to make a profit (i.e., whose revenues are greater than its expenses).

Foreign Country

A country other than the United States, its territories and possessions, and the District of Columbia.

Fundraising

The organized activity of raising funds, whether by volunteers, employees, or paid independent contractors.

FUTA

The Federal Unemployment Tax Act.  Taxes collected under this Act fund unemployment benefits.  Organizations exempt under Code section 501(c)(3) do not have to pay this tax.

Gaming

Activities such as bingo, beano, lotteries, pull-tabs, pari-mutuel betting, Calcutta wagering, pickle jars, punch boards, tip boards, tip jars, certain video games, 21, raffles, keno, split-the-pot, and other games of chance.

Gross Receipts

The gross amount an organization receives from all sources without reduction for any costs or expenses. An organization should keep supporting documents that show the amounts and sources of its gross receipts.

Group Ruling

A determination letter to a central organization recognizing, as a group, the exemption of the central organization and its subordinate organizations.

Independent Contractor

A worker whose employer has the right to control or direct only the result of the work done, not the means or methods of accomplishing the result. Independent contractors are treated as non-employees for employment tax purposes.

Insider

A person having a personal and private interest in the activities of an organization.

Intangible Religious Benefits

Benefits that are for religious purposes only and are not usually sold commercially.

Inurement

A type of private benefit that occurs when any part of an organization’s income or assets unduly benefit a person who has a close relationship to the organization (i.e., an insider). All tax-exempt organizations are prohibited from engaging in activities that allow inurement to occur.

Keno

A game similar to lottery or bingo. Players choose up to 20 numbers and mark them on a keno ticket of 80 numbers (1 to 80). Twenty numbers are drawn at random. Players are paid out against their original wager based on how many numbers match the ones they marked on their ticket.

Legislation

Legislation includes action by Congress, any state legislature, any local council, or similar governing body with respect to all acts, bills, resolutions, or similar items, or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure.

Lobbying

The attempt to influence legislation for the purpose of proposing or advocating for or against the adoption of legislation. A 501(c)(3) can engage in some lobbying, as long as it is not a substantial part of the organization’s activities.

Lottery

Any method of distributing prizes among persons who have paid (or who have been promised consideration) for a chance to win prizes, usually determined by the numbers or symbols on tickets drawn from a lottery wheel or other receptacle, or by the outcome of an event. Instant bingo, mini bingo, pull-tabs, and raffles are common forms of lotteries.

Membership Benefits

Annually recurring rights or privileges (benefits) that result from an annual membership payment of $75 or less.

Net Operating Loss

Any loss or negative income generated by the operation of an income-producing activity.

Officer

A person having administrative or managerial authority in a corporation. As classified by statute, an officer of a corporation is an employee unless he or she performs no services or only minor services, and neither receives nor is entitled to receive any remuneration, directly or indirectly. The president, vice president, secretary, and treasurer of a corporation are corporate officers.

Organizing Document

The document that creates the organization. The organizing document depends on the form of the organization. For a corporation, the organizing document is the articles of incorporation. For a limited liability company (LLC), the organizing document is the articles of organization. For an unincorporated association, the organizing document is the articles of association or constitution. The organizing document of a trust is the trust agreement.

Pickle Jar

A form of pull-tab gaming that gets its name from the empty pickle jars in which the cards are placed.

Political Campaign Activity

Directly or indirectly participating or intervening in any political campaign on behalf of or in opposition to any candidate for elective public office. A 501(c)(3) organization is absolutely prohibited from engaging in political activity. Debates and nonpartisan voter education activities are not considered political activity.

Private Benefit

A 501(c)(3) exempt organization must be organized and operated so that no part of its net earnings inures to the benefit of any private shareholder or individual.  Thus, the “private benefit” doctrine prohibits causing the income or assets of a tax-exempt organization from flowing away from the organization and to one or more persons.

When an organization’s insiders receive inappropriate private benefit, it is called “inurement.”  Any amount of inurement, no matter how small, is grounds for revocation of exempt status.  Private benefit to non-insiders is also prohibited, but the IRS must show that the prohibited benefit to non-insiders is substantial in order to sustain revocation.

Private Foundation

Organizations exempt under 501(c)(3) are private foundations unless they are churches, schools, hospitals, governmental units, entities that undertake testing for public safety, organizations that have broad financial support from the general public, or organizations that support one or more other organizations that are themselves classified as public charities.

Generally, a private foundation is a charitable organization funded by one or a small number of sources.  Its ongoing funding generally comes from investment income, which it uses to make grants for charitable purposes to other persons or organizations.

Public Charity

Organizations that are exempt under section 501(c)(3) and are not private foundations. Public charity status is generally considered a more favorable tax status than private foundation status.

Pull-Tabs

Games in which an individual places a wager by purchasing preprinted cards that are covered with pull-tabs. Winners are revealed when the individual pulls back the sealed tabs on the front of the card and compares the patterns under the tabs with the winning patterns preprinted on the back of the card. Instant bingo, mini bingo, and similar scratch-off cards are all types of pull-tabs.  None of these games qualifies for the “bingo exception” to UBI because none meets the definition of traditional bingo.

Quid Pro Quo Contribution

A contribution made by a donor in exchange for goods or services.

Revenue Ruling

An official interpretation by the Internal Revenue Service of the Internal Revenue laws and related statutes, treaties, and regulations that has been published in the Cumulative Bulletin. Revenue rulings are published for the information and guidance of taxpayers, IRS officials, and other concerned parties.

Statute of Limitations

The period of time in which an organization can amend its tax returns to claim a credit or refund without the IRS assessing additional tax.

Subordinate Organization

A chapter, local, post, or unit of a central organization. A central organization may be a subordinate organization itself, such as a state organization that has subordinate units and is affiliated with a national (central) organization.

Supporting Organization

A public charity that carries out its exempt purposes by supporting one or more other exempt organizations, usually other public charities.

Tax Code (or “Code”)

Shorthand names for the Internal Revenue Code, Title 26 of the United States Code.  Title 26 contains the tax law of the United States.

Tax-Exempt Organization

A trust, association, or nonprofit corporation described in the Internal Revenue Code as exempt from Federal income tax.

Taxable Income

The portion of an individual’s or organization’s earnings that is subject to income tax.

Taxable Organization

Any organization that is required to pay income tax on its earnings.

Taxpayer Identification Number (TIN)

An Employer’s Identification Number required of corporations, nonprofit organizations, associations, and partnerships. An individual’s Social Security number is his or her TIN.

Tokens

Insubstantial goods or services that an organization provides in exchange for contributions.

Wager

The amount risked by a person placing a bet (not the prize amount).

Withholding

The regular deduction by an employer of income tax from an employee’s pay. Employers use Form W-4, Employee’s Withholding Allowance Certificate, to determine how much Federal income tax to withhold from an employee’s pay; the amount depends on the employee’s marital status, the number of withholding allowances the employee claims, any additional amount the employee wants to withhold, and any exemptions from withholding that the employee claims.

Withholding also occurs when an organization deducts an amount for income tax from prizes awarded in a gaming activity. The regular withholding rate for gaming prizes is 25 percent.

There are other types of withholding, such as backup withholding and nonresident alien withholding.

In general, form 1023 applications are processed in the order received by the IRS. Sometimes, however, the IRS will work a case outside the regular order. For expedited processing to be granted, however, there must be a compelling reason to process the case ahead of others.Compelling reasons include the following:

• A pending grant, where failure to secure the grant will have an adverse impact on the organization’s ability to continue operating.
• A newly created organization providing disaster relief to victims of emergencies.
• IRS errors have caused undue delays in issuing a determination letter.

For a pending grant, the following specific information would help support a request for expedited processing:

• The name of the person or organization committed to giving the grant or asset,
• The amount of the grant or the value of the asset,
• The date the grant will be forfeited or permanently redirected to another organization,
• The impact on the organization’s operations if it does not receive the grant/asset, and
• The signature of a principal officer or authorized representative.

A request for expedited processing must be made in writing and must fully explain the compelling reason.  Granting expedited processing is at the discretion of the IRS.

Those who qualify for expedited service:

Disaster Relief – Example #1
Applicant was formed to help victims of an earthquake find temporary housing. Applicant applies for tax-exempt status within a few weeks or months from the date the disaster occurred.  The applicant plans to hold a major fund raiser and a popular rock band volunteered its services for the concert.  Income from this event is expected to be a significant source of the organization’s annual revenues and plans are to disburse the majority of these funds to find temporary housing for victims of the earthquake.  Therefore, the request is approved.

Pending Grant – Example #2
Applicant anticipates gross receipts totaling $100,000 in its first year to carry out its purpose of feeding the homeless in a community.  Shortly after the organization applies for tax-exempt status, it is promised a one-time $50,000 grant from the ABC Foundation.  The grant is contingent on the applicant organization being recognized as exempt under section 501(c)(3) by a specified date.  The expedite request is approved because a significant portion of the organization’s annual income is contingent on the pending grant, and the funds will be lost if exemption is not granted by the specified date.

Pending Grant - Example #3
Organization submits an application for exemption and indicates it plans to operate a drug and alcohol treatment center for teens.  The previous center closed years earlier and there is no other substance abuse center within the area.  A named member of the community promises to donate a specific amount that will cover the cost of building the center, if the applicant organization can provide proof of exemption under section 501(c)(3) by a specified date.  Because the organization cannot open the treatment center without funding for the building, the expedite request is approved.

Those who do NOT qualify for expedited service:

Disaster Relief – Example #1
Applicant was formed to secure housing for the homeless and educate individuals regarding the dangers of hurricanes. Its operations are conducted in several states in the South.  The organization’s application is pending review when a major hurricane, affecting states other than those in which the applicant operates, hits.  The organization requests expedite treatment and indicates it is providing disaster relief.  Because it conducts no activity in states impacted by the hurricane, the expedite request is not approved.

Pending Grant – Example # 2
An organization whose purpose is to provide housing for low-income individuals submits an application for exemption .  The organization must provide proof of 501(c)(3) exemption to the Department of Housing and Urban Development before it can receive funds.  The applicant does not qualify for expedited treatment because it does not have a commitment for grant funds by a specified date.

Pending Grant – Example # 3
An organization plans to raise $50,0000 annually and make distributions to fire victims in a community.  When it applies for exemption, it has a commitment from a specific business to donate $500 to get the organization started if the organization can provide proof of its 501(c)(3) status by a specific date.  The request to expedite processing is not approved because the grant is insignificant compared to the organization’s annual revenue, and will not have a major impact on the organization’s ability to operate.

When everything is said and done:

Incomplete Application
If an exemption application does not contain the required information, the IRS may return it with a letter of explanation, and will not consider the application on its merits. If you resubmit a completed application within the time period indicated in the letter from the IRS, it will be considered received on the original submission date. In that case, if the original submission was timely, the application will be considered timely filed.

Different Application Form Needed
If a different application form is required for your organization, the IRS will so advise your organization and will provide the appropriate application form for your convenience in reapplying under that paragraph, if you wish to do so. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application. If your reply is not received within a limited time, your application will be processed only for the paragraph under which you originally applied.

When a specific application form is needed for the paragraph under which your organization qualifies, that form is required before a letter recognizing exemption can be issued. This includes cases in which an exemption letter is modified to recognize an organization’s exempt status under a paragraph other than the paragraph under which it originally established exemption.

IRS Responses
Organizations that submit a complete application will receive an acknowledgment from the IRS. Others will receive a letter requesting more information or returning an incomplete application. Applicants also will be notified if the application is forwarded to the Headquarters of the IRS for consideration. These letters will be sent out as soon as possible after receipt of the organization’s application.

So whatever you call your group doesn’t matter, you MUST be a corporation (including a limited liability company), an unincorporated association, or a trust to be able to file the form 1023 and  be tax exempt.

DO NOT file this form unless you can check “Yes” on lines 1, 2, 3, or 4.

On section 5 of this article, you have to answer YES. You need to adopt bylaws to show how you run your entity. IRS might accept a written explanation, but this explanation is your bylaws (well sort of). If you don’t adopt bylaws, you can be almost sure that you will never receive a favorable answer on your application. So do it right the first time. See here on how to write your bylaws.

Charitable organizations are frequently subject to intense public scrutiny, especially where they appear to have inappropriately benefited their officers, directors, or trustees.  The IRS also has an oversight role with respect to charitable organizations.  An important part of this oversight is providing organizations with strategies that will help avoid the appearance or actuality of private benefit to individuals who are in a position of substantial authority.  The recommended conflict of interest policy is a strategy we encourage organizations to adopt as a means to establish procedures that will offer protection against charges of impropriety involving officers, directors, or trustees.

A conflict of interest occurs where individuals’ obligation to further the organization’s charitable purposes is at odds with their own financial interests.  For example, a conflict of interest would occur where an officer, director, or trustee votes on a contract between the organization and a business that is owned by the officer, director or trustee.  Conflicts of interest frequently arise when setting compensation or benefits for officers, directors, or trustees.  A conflict of interest policy is intended to help ensure that when actual or potential conflicts of interest arise, the organization has a process in place under which the affected individual will advise the governing body about all the relevant facts concerning the situation.  A conflict of interest policy is also intended to establish procedures under which individuals who have a conflict of interest will be excused from voting on such matters.

Apart from any appearance of impropriety, organizations will lose their tax-exempt status unless they operate in a manner consistent with their charitable purposes. Serving private interests more than insubstantially is inconsistent with accomplishing charitable purposes.  For example, paying an individual who is in a position of substantial authority excessive compensation serves a private interest.  Providing facilities, goods, or services to an individual who is in a position of substantial authority also serves a private interest unless the benefits are part of a reasonable compensation arrangement or they are available to the public on equal terms and conditions.

Here’s a sample Conflict of Interest Policy I wrote for Transcontinental Humanitarian Corp. Do not just copy and paste this policy. Read it carefully, and draft yours based on the information given here.

CONFLICT OF INTEREST POLICY AND AGREEMENT

ARTICLE I

PURPOSES

It is important for Transcontinental Humanitarian Corp. directors, officers, and staff to be aware that both real and apparent conflicts of interest or dualities of interest sometimes occur in the course of conducting the affairs of the corporation and that the appearance of conflict can be troublesome even if there is in fact no conflict whatsoever.  Conflicts occur because the many persons associated with the corporation should be expected to have, and do in fact generally have multiple interests and affiliations and various positions of responsibility within the community.  In these situations a person will sometimes owe identical duties of loyalty to two or more corporations.  The purpose of the conflict of interest policy is to protect the corporation’s tax-exempt interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of the corporation or might result in a possible excess benefit transaction.  The policy is intended to supplement but not replace any applicable state and federal laws governing conflict of interest applicable to nonprofit and charitable organizations.

Conflicts are undesirable because they potentially or eventually place the interests of others ahead of the corporation’s obligations to its charitable purposes and to the public interest.  Conflicts are also undesirable because they often reflect adversely upon the person involved and upon the institutions with which they are affiliated, regardless of the actual facts or motivations of the parties. However, the long-range best interests of the corporation do not require the termination of all association with persons who may have real or apparent conflicts that are harmless to all individuals or entities involved.

Each member of the board of directors and the staff of the corporation has a duty of loyalty to the corporation.  The duty of loyalty generally requires a director or staff member to prefer the interests of the corporation over the director’s/staff’s interest or the interests of others.  In addition, directors and staff of the corporation shall avoid acts of self-dealing which may adversely affect the tax-exempt status of the corporation or cause there to arise any sanction or penalty by a governmental authority.

In connection with any actual or possible conflict of interest, an interested person must disclose the existence of the financial interest and be given the opportunity to disclose all material facts to the directors and members of committees with governing board delegated powers considering the proposed transaction or arrangement.

ARTICLE II

DEFINITIONS

2.1   Interested Person 

Any director, principal officer, or member of a committee with governing board delegated powers, who has a direct or indirect financial interest, as defined below, is an interested person.

2.2   Financial Interest 

A person has a financial interest if the person has, directly or indirectly, thorough business, investment, or family:

(a)  An ownership or investment interest in any entity with which the corporation has a transaction or arrangement,

(b)  A compensation arrangement with the corporation or with any entity or individual with which the corporation has a transaction or arrangement, or

(c)  A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the corporation is negotiating a transaction or arrangement.

Compensation includes direct and indirect remuneration as well as gifts or favors that are not insubstantial.  A financial interest is not necessarily a conflict of interest.  Under Article III, Section 2, a person who has a financial interest may have a conflict of interest only if the appropriate governing board or committee decides that a conflict of interest exists.

ARTICLE III

PROCEDURES

3.1   Duty to Disclose

In connection with any actual or possible conflict of interest, an interested person must disclose the existence of the financial interest and be given the opportunity to disclose all material facts to the directors and members of committees with governing board delegated powers considering the proposed transaction or arrangement

3.2  Determining Whether a Conflict of Interest Exists 

After disclosure of the financial interest and all material facts, and after any discussion with the interested person, he/she shall leave the governing board or committee meeting while the determination of a conflict of interest is discussed and voted upon.  The remaining board or committee members shall decide if a conflict of interest exists.

3.3   Procedures for Addressing the Conflict of Interest

(a)   An interested person may make a presentation at the governing board or committee meeting, but after the presentation, he/she shall leave the meeting during the discussion of, and the vote on, the transaction or arrangement involving the possible conflict of interest.

(b)  The chairperson of the governing board or committee shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement.

(c)   After exercising due diligence, the governing board or committee shall determine whether the corporation can obtain with reasonable efforts a more advantageous transaction or arrangement from a person or entity that would not give rise to a conflict of interest.

(d)  If a more advantageous transaction or arrangement is not reasonably possible under circumstances not producing a conflict of interest, the governing board or committee shall determine by a majority vote of the disinterested directors whether the transaction or arrangement is in the corporation’s best interest, for its own benefit, and whether it is fair and reasonable. In conformity with the above determination it shall make its decision as to whether to enter into the transaction or arrangement.

3.4  Violations of the Conflicts of Interest Policy

(a)  If the governing board or committee has reasonable cause to believe a member has failed to disclose actual or possible conflicts of interest, it shall inform the member of the basis for such belief and afford the member an opportunity to explain the alleged failure to disclose.

(b)  If, after hearing the member’s response and after making further investigation as warranted by the circumstances, the governing board or committee determines the member has failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action.

ARTICLE IV

RECORDS OF PROCEEDINGS

4.1   Minutes

The minutes of the governing board and all committees with board delegated powers shall contain:

(a)  The names of the persons who disclosed or otherwise were found to have a financial interest in connection with an actual or possible conflict of interest, the nature of the financial interest, any action taken to determine whether a conflict of interest was present, and the governing board’s or committee’s decision as to whether a conflict of interest in fact existed.

(b)  The names of the persons who were present for discussions and votes relating to the transaction or arrangement, the content of the discussion, including any alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection with the proceedings.

ARTICLE V

COMPENSATION

5.1   A voting member of the governing board who receives compensation, directly or indirectly, from the corporation for services is precluded from voting on matters pertaining to that member’s compensation.

5.2   A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the corporation for services is precluded from voting on matters pertaining to that member’s compensation.

5.3.  No voting member of the governing board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the corporation, either individually or collectively, is prohibited from providing information to any committee regarding compensation.

ARTICLE VI

ANNUAL STATEMENTS

Each director, principal officer and member of a committee with governing board delegated powers shall annually sign a statement which affirms such person:

(a)   Has received a copy of the conflicts of interest policy,

(b)   Has read and understands the policy,

(c)   Has agreed to comply with the policy, and

(e)   Understands that the corporation is charitable and in order to maintain its federal tax exemption it must engage primarily in activities which accomplish one or more of its tax-exempt purposes.

ARTICLE VII

PERIODIC REVIEWS

To ensure the corporation operates in a manner consistent with charitable purposes and does not engage in activities that could jeopardize its tax-exempt status, periodic reviews shall be conducted.  The periodic reviews shall, at a minimum, include the following subjects:

(a)  Whether compensation arrangements and benefits are reasonable, based on competent survey information and the result of arm’s length bargaining.

(b)  Whether partnerships, joint ventures, and arrangements with management corporations conform to the corporation’s written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further charitable purposes and do not result in inurnment, impermissible private benefit or in an excess benefit transaction.

ARTICLE VIII

USE OF OUTSIDE EXPERTS

When conducting the periodic reviews as provided for in Article VII, the corporation may, but need not, use outside advisors.  If outside experts are used, their use shall not relieve the governing board of its responsibility for ensuring periodic reviews are conducted.

CERTIFICATE OF ADOPTION OF CONFLICT OF INTEREST

POLICY AND AGREEMENT

I do hereby certify that the above stated Conflict of Interest Policy and Agreement for Transcontinental Humanitarian Corp. were approved and adopted by the board of directors on Saturday, December 21, 2009 and constitute a complete copy of the Conflict of Interest Policy of the corporation.

Secretary_______________

Date: ________________

Form 1023, Part I,  Question 1. Full name of organization (exactly as it appears in your organizing document)

Kind of a no-brainer but apparently not. You have to use the full name of your organization. If your organization is called “Bread For Dummies Corp.” don’t write “Bread For Dummies Corporation.” Use the correct name all the time in every reference.

Form 1023, Part V,  Question 2. c/o Name (if applicable)

In this section list the name of your representative officer so all communications are done through one person. This way you don’t have to chase down your board members to find out who got mail.

Form 1023, Part I,  Question 3. Mailing address (Number and street)

A post office box is the best option as it will be less likely for your dog to chew your determination letter. Also PO BOX is a good idea because you can direct all your mails to a single address. Unless you already have an office and you do get your mails there, consider using a mail box to be safe.

Form 1023, Part I,  Question 4. Employer Identification Number (EIN)

You should already have your EIN, see this section if you don’t.

Form 1023, Part I,  Question 5. Month the annual accounting period ends (01 – 12)

It’s entirely up to your board to set your fiscal year. It can be January, March, or middle of September. It’s a good idea to set your fiscal year to December 31^st so every accounting period ends with the actual year.

Form 1023, Part I,  Question 6. Primary contact (officer, director, trustee, or authorized representative)

Use the agent you listed in the section 2 on this page. Keep that person the same throughout the application.

Form 1023, Part I,  Question 7. Are you represented by an authorized representative, such as an attorney or accountant? If “Yes,” provide the authorized representative’s name, and the name and address of the authorized representative’s firm. Include a completed Form 2848, Power of Attorney and Declaration of Representative, with your application if you would like us to communicate with your representative.

Since you are using this website, the answer should be NO.

Form 1023, Part I,  Question 8. Was a person who is not one of your officers, directors, trustees, employees, or an authorized representative listed in line 7, paid, or promised payment, to help plan, manage, or advise you about the structure or activities of your organization, or about your financial or tax matters? If “Yes,” provide the person’s name, the name and address of the person’s firm, the amounts paid or promised to be paid, and describe that person’s role.

List the names and addresses if such person(s) exist. Do NOT list me or this website as your help. You are not paying me for my advice, nor am I giving you any one-on-one advice. This site contains public information based on my goodwill.

Form 1023, Part I,  Question 9. Organization’s website:

If you are starting your organization out of your home or actually care about succeeding with your mission, you need a website. There’s no way around it.  Not later, not tomorrow, but now. You need to have it up and running before you submit your application. Your organization’s website is your image for the IRS, where they can find more information and see if you actually mean business. Your website is your real office. You can run an organization out of a garage with a well built website, but you can’t reach out to potential audience and donors without it. Think of it this way; how many of you have ever been to Google headquarter, and how many of you have been to Google website? It also serves as your medium for transparency, which I will talk about in other pages.

Form 1023, Part I,  Question 10. Certain organizations are not required to file an information return (Form 990 or Form 990-EZ). If you are granted tax-exemption, are you claiming to be excused from filing Form 990 or Form 990-EZ? If “Yes,” explain. See the instructions for a description of organizations not required to file Form 990 or Form 990-EZ.

The answer is a big fat NO. The reason is that if you answer yes, you’ll most likely be questioned on why you said yes. The safe answer is no, whether you think you’ll file or not. It’s simple, if you make more than $25,000 you file, if not you file 990 E-card. This question is idiotic, but as we progress you’ll get used to these loaded questions.

Form 1023, Part I,  Question 11. Date incorporated if a corporation, or formed, if other than a corporation.

Enter the date of your incorporation or formation as an organization. If you have not incorporated yet, STOP. Read the Starting a nonprofit organization first steps before going any further.

Form 1023, Part I,  Question 12. Were you formed under the laws of a foreign country?

The answer should be no, unless you were organized outside of the United States. If you are answering yes, seek professional assistance.

ARTICLES OF INCORPORATION

ARTICLE I

NAME

1.01 Name

The name of this corporation shall be (Nam of the corporation) The business of the corporation may be conducted as (Nam of the corporation or other names) or (Nam of the corporation).

ARTICLE II

DURATION

2.01 Duration

The period of duration of the corporation is perpetual.

ARTICLE III

PURPOSE

3.01 Purpose

(Nam of the corporation) is a non-profit corporation and shall operate exclusively for educational and charitable purposes within the meaning of Section 501 (c)(3) of the Internal Revenue Code, or the corresponding section of any future Federal tax code. (Nam of the corporation)’s purpose is to (the purpose).

Sample purpose in detail: We provide education by giving free lectures and slideshows titled “The World Hunger Exhibition,” in schools, libraries, and other public venues as well as utilizing social media channels and the corporation’s website to provide facts, statistics, and other related data on causes, current efforts and solutions to eradicating chronic malnutrition and hunger.

Our programs include sending out ambassadors to raise social consciousness about the cause on a local and global level, and to hold fundraising events in order to provide immediate relief and assistance to those suffering from chronic malnutrition and hunger regardless of their race, ethnicity, or religion.

To maximize our impact on current efforts, we may seek to collaborate with other non-profit organizations which fall under the 501(c) (3) section of the internal revenue code and are operated exclusively for educational and charitable purposes.

At times, per the discretion of the board of directors, we may provide internships or volunteer opportunities which will provide opportunities for involvement in said activities and programs in order to have a greater impact for change.

3.02 Public Benefit

(Nam of the corporation) is designated as a public benefit corporation.

ARTICLE IV

NON-PROFIT NATURE

4.01 Non-profit Nature

(Nam of the corporation) is organized exclusively for charitable and educational purposes including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501 (c) (3) of the Internal Revenue Code, or corresponding section of any future federal tax code. No part of the net earnings of (Nam of the corporation) shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in the purpose clause hereof.

No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of any candidate for public office.

Notwithstanding any other provision of this document, the corporation shall not carry on any other activities not permitted to be carried on (a) by any organization exempt from federal income tax under section 501 (c) (3) of the Internal Revenue Code, corresponding section of any future federal tax code, or (b) by an organization, contributions to which are deductible under section 170 (c) (2) of the Internal Revenue Code, or corresponding section of any future federal tax code.

(Nam of the corporation) is not organized and shall not be operated for the private gain of any person. The property of the corporation is irrevocably dedicated to its educational and charitable purposes. No part of the directors, receipts, or net earnings of the corporation shall inure to the benefit of, or be distributed to any individual. The corporation may, however, pay reasonable compensation for services rendered, and make other payments and distributions consistent with these Articles.

4.02 Personal Liability

No officer or director of this corporation shall be personally liable for the debts or obligations of (Nam of the corporation) of any nature whatsoever, nor shall any of the property or assets of the officers or directors be subject to the payment of the debts or obligations of this corporation.

4.03 Dissolution

Upon termination or dissolution of the (Nam of the corporation), any assets lawfully available for distribution shall be distributed to one (1) or more qualifying organizations described in Section 501(c)(3) of the Internal Revenue Code of 1986 (or described in any corresponding provision of any successor statute) which organization or organizations have a charitable purpose which, at least generally, includes a purpose similar to the terminating or dissolving corporation.

The organization to receive the assets of the (Nam of the corporation) hereunder shall be selected by the discretion of a majority of the managing body of the (Nam of the corporation)and if its members cannot so agree, then the recipient organization shall be selected pursuant to a verified petition in equity filed in a court of proper jurisdiction against the (Nam of the corporation) by one (1) or more of its managing body which verified petition shall contain such statements as reasonably indicate the applicability of this section. The court upon a finding that this section is applicable shall select the qualifying organization or organizations to receive the assets to be distributed, giving preference if practicable to organizations located within the State of Montana.

In the event that the court shall find that this section is applicable but that there is no qualifying organization known to it which has a charitable purpose, which, at least generally, includes a purpose similar to this corporation, then the court shall direct the distribution of its assets lawfully available for distribution to the Treasurer of the State of Montana to be added to the general fund.

4.03 Prohibited Distributions

No part of the net earnings, properties of the directors of this corporation, on dissolution or otherwise, shall inure to the benefit of, or be distributable to, its members, directors, officers or other private person or individual, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article III, Section 3.01.

4.04 Restricted Activities

No substantial part of the corporation’s activities shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene (including the publishing or distribution of statements) in any political campaign on behalf of or in opposition to any candidate for public office.

4.05 Prohibited Activities

Notwithstanding any other provision of these Articles, the corporation shall not carry on any activities not permitted to be carried on (I) by a corporation exempt from federal income tax as an organization described by Section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (II) by a corporation, contributions to which are deductible under Section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

ARTICLE V

BOARD OF DIRECTORS

5.01 Governance

(Nam of the corporation) shall be governed by its board of directors.

5.02 Initial Directors

The initial directors of the corporation shall be (Name of directors here)

ARTICLE VI

MEMBERSHIP

6.01 Membership

(Nam of the corporation) shall have no members.  The management of the affairs of the corporation shall be vested in a board of directors, as defined in the corporation’s bylaws.  

ARTICLE VII

AMENDMENTS

7.01   Amendments

Any amendment to the Articles of Incorporation may be adopted by approval of two-thirds (2/3) of the board of directors.

ARTICLE VIII

ADDRESSES OF THE CORPORATION

8.01 Corporate Address

The physical address of the corporation is:
(Corporate Address Here)
The mailing address of the corporation is:
(Mailing Address Here)

ARTICLE IX

Appointment of registered agent 

9.01 Registered Agent

The registered agent of the corporation shall be:
(Name of the registered agent with address)>

ARTICLE X

INCORPORATOR

The incorporators of the corporation are as follow:

(Name of incorporator(s) with address)

Certificate of Adoption of Articles of Incorporation

We, the undersigned, do hereby certify that the above stated Articles of Incorporation of (Nam of the corporation) were approved by the board of directors on (Date and day) and constitute a complete copy of Articles of Incorporation of the (Nam of the corporation).

Names, addresses and signatures of all directors and incorporators.

Acknowledgment of consent to appointment as registered agent

I, (name), agree to be the registered agent for (Nam of the corporation) as appointed herein.

Registered Agent ____________________

Date: _______________________

The following  is an exact draft from one of the organizations I founded, Transcontinental Humanitarian Corp. Although this organization is formed to combat extreme poverty and malnutrition, this document can be easily adapted to any form of organization.

NON-PROFIT CORPORATE BYLAWS 

ARTICLE I 

NAME

1.01   Name

The name of this corporation shall be Transcontinental Humanitarian Corp. The business of the corporation may be conducted as Transcontinental Humanitarian Corp. or Transcontinental Humanitarian Expedition.

ARTICLE II

PURPOSES AND POWERS

2.01 Purpose

Transcontinental Humanitarian Corp. is a non-profit corporation and shall be operated exclusively for educational and charitable purposes within the meaning of Section 501 (c)(3) of the Internal Revenue Code of 1986, or the corresponding section of any future Federal tax code.

Transcontinental Humanitarian Corporation’s purpose is to address, educate, coordinate, and provide aid and relief to eradicate chronic malnutrition and hunger on a local and global level.

We provide education by giving free lectures and slideshows titled “The World Hunger Exhibition,” in schools, libraries, and other public venues as well as utilizing social media channels and the corporation’s website to provide facts, statistics, and other related data on causes, current efforts and solutions to eradicating chronic malnutrition and hunger.

Our programs include sending out ambassadors to raise social consciousness about the cause on a local and global level, and to hold fundraising events in order to provide immediate relief and assistance to those suffering from chronic malnutrition and hunger regardless of their race, ethnicity, or religion.

To maximize our impact on current efforts, we may seek to collaborate with other non-profit organizations which fall under the 501(c) (3) section of the internal revenue code and are operated exclusively for educational and charitable purposes.

At times, per the discretion of the board of directors, we may provide internships or volunteer opportunities which shall provide opportunities for involvement in said activities and programs in order to have a greater impact for change.

2.02 Powers  

The corporation shall have the power, directly or indirectly, alone or in conjunction or cooperation with others, to do any and all lawful acts which may be necessary or convenient to affect the charitable purposes, for which the corporation is organized, and to aid or assist other organizations or persons whose activities further accomplish, foster, or attain such purposes.  The powers of the corporation may include, but not be limited to, the acceptance of contributions from the public and private sectors, whether financial or in-kind contributions.

2.03 Nonprofit Status and Exempt Activities Limitation.

(a) Nonprofit Legal Status.  Transcontinental Humanitarian Corp. is a Montana non-profit public benefit corporation, recognized as tax exempt under Section 501(c)(3) of the United States Internal Revenue Code.

(b) Exempt Activities Limitation.  Not withstanding any other provision of these Bylaws, no director, officer, employee, member, or representative of this corporation shall take any action or carry on any activity by or on behalf of the corporation not permitted to be taken or carried on by an organization exempt under Section 501(c)(3) of the Internal Revenue Code as it now exists or may be amended, or by any organization contributions to which are deductible under Section 170(c)(2) of such Code and Regulations as it now exists or may be amended.  No part of the net earnings of the corporation shall inure to the benefit or be distributable to any director, officer, member, or other private person, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in the Articles of Incorporation and these Bylaws.

(c) Distribution Upon Dissolution.  Upon termination or dissolution of the Transcontinental Humanitarian Corp., any assets lawfully available for distribution shall be distributed to one (1) or more qualifying organizations described in Section 501(c)(3) of the 1986 Internal Revenue Code (or described in any corresponding provision of any successor statute) which organization or organizations have a charitable purpose which, at least generally, includes a purpose similar to the terminating or dissolving corporation.

The organization to receive the assets of the Transcontinental Humanitarian Corp. hereunder shall be selected in the discretion of a majority of the managing body of the corporation, and if its members cannot so agree, then the recipient organization shall be selected pursuant to a verified petition in equity filed in a court of proper jurisdiction against the Transcontinental Humanitarian Corp., by one (1) or more of its managing body which verified petition shall contain such statements as reasonably indicate the applicability of this section. The court upon a finding that this section is applicable shall select the qualifying organization or organizations to receive the assets to be distributed, giving preference if practicable to organizations located within the State of Montana.

In the event that the court shall find that this section is applicable but that there is no qualifying organization known to it which has a charitable purpose, which, at least generally, includes a purpose similar to the Transcontinental Humanitarian Corp., then the court shall direct the distribution of its assets lawfully available for distribution to the Treasurer of the State of Montana to be added to the general fund.

ARTICLE III

MEMBERSHIP

3.01 No Membership Classes

The corporation shall have no members who have any right to vote or title or interest in or to the corporation, its properties and franchises.

3.02 Non-Voting Affiliates

The board of directors may approve classes of non-voting affiliates with rights, privileges, and obligations established by the board.  Affiliates may be individuals, businesses, and other organizations that seek to support the mission of the corporation.  The board, a designated committee of the board, or any duly elected officer in accordance with board policy, shall have authority to admit any individual or organization as an affiliate, to recognize representatives of affiliates, and to make determinations as to affiliates’ rights, privileges, and obligations.   At no time shall affiliate information be shared with or sold to other organizations or groups without the affiliate’s consent.  At the discretion of the board of directors, affiliates may be given endorsement, recognition and media coverage at fundraising activities, clinics, other events or at the corporation website. Affiliates have no voting rights, and are not members of the corporation.

3.03 Dues

Any dues for affiliates shall be determined by the board of directors.

ARTICLE IV

BOARD OF DIRECTORS

4.01 Number of Directors

Transcontinental Humanitarian Corp. shall have a board of directors consisting of at least 4 and no more than 15 directors.  Within these limits, the board may increase or decrease the number of directors serving on the board, including for the purpose of staggering the terms of directors.

4.02 Powers

All corporate powers shall be exercised by or under the authority of the board and the affairs of the Transcontinental Humanitarian Corp. Shall be managed under the direction of the board, except as otherwise provided by law.

4.03 Terms

(a)  All directors shall be elected to serve a one-year term, however the term may be extended until a successor has been elected.

(b)  Director terms shall be staggered so that approximately half the number of directors will end their terms in any given year.

(c)   Directors may serve terms in succession.

(d)  The term of office shall be considered to begin January 1 and end December 31 of the second year in office, unless the term is extended until such time as a successor has been elected.

4.04 Qualifications and Election of Directors

In order to be eligible to serve as a director on the board of directors, the individual must be 18 years of age and an affiliate within affiliate classifications created by the board of directors.  Directors may be elected at any board meeting by the majority vote of the existing board of directors.  The election of directors to replace those who have fulfilled their term of office shall take place in January of each year.

4.05 Vacancies

The board of directors may fill vacancies due to the expiration of a director’s term of office, resignation, death, or removal of a director or may appoint new directors to fill a previously unfilled board position, subject to the maximum number of directors under these Bylaws.

(a) Unexpected Vacancies.  Vacancies in the board of directors due to resignation, death, or removal shall be filled by the board for the balance of the term of the director being replaced.

4.06 Removal of Directors

A director may be removed by two-thirds (?) vote of the board of directors then in office, if:

(a)   the director is absent and unexcused from two or more meetings of the board of directors in a twelve month period.  The board president is empowered to excuse directors from attendance for a reason deemed adequate by the board president. The president shall not have the power to excuse him/herself from the board meeting attendance and in that case, the board vice president shall excuse the president. Or:

(b)   for cause or no cause, if before any meeting of the board at which a vote on removal will be made the director in question is given electronic or written notification of the board’s intention to discuss her/his case and is given the opportunity to be heard at a meeting of the board.

4.07 Board of Directors Meetings.

(a)   Regular Meetings.  The board of directors shall have a minimum of four (4) regular meetings each calendar year at times and places fixed by the board. Board meetings shall be held upon four (4) days notice by first-class mail, electronic mail, or facsimile transmission or forty-eight (48) hours notice delivered personally or by telephone.  If sent by mail, facsimile transmission, or electronic mail, the notice shall be deemed to be delivered upon its deposit in the mail or transmission system.  Notice of meetings shall specify the place, day, and hour of meeting.  The purpose of the meeting need not be specified.

(b)   Special Meetings.  Special meetings of the board may be called by the president, vice president, secretary, treasurer, or any two (2) other directors of the board of directors.  A special meeting must be preceded by at least 2 days notice to each director of the date, time, and place, but not the purpose, of the meeting.

(c)   Waiver of Notice.  Any director may waive notice of any meeting, in accordance with Montana law.

4.08 Manner of Acting.

(a) Quorum.  A majority of the directors in office immediately before a meeting shall constitute a quorum for the transaction of business at that meeting of the board. No business shall be considered by the board at any meeting at which a quorum is not present.

(b) Majority Vote.  Except as otherwise required by law or by the articles of incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board.

(C) Hung Board Decisions. On the occasion that directors of the board are unable to make a decision based on a tied number of votes, the president or treasurer in the order of presence shall have the power to swing the vote based on his/her discretion.

(d) Participation.  Except as required otherwise by law, the Articles of Incorporation, or these Bylaws, directors may participate in a regular or special meeting through the use of any means of communication by which all directors participating may simultaneously hear each other during the meeting, including in person, internet video meeting or by telephonic conference call.

4.09 Compensation for Board Service

Directors shall receive no compensation for carrying out their duties as directors.  The board may adopt policies providing for reasonable reimbursement of directors for expenses incurred in conjunction with carrying out board responsibilities, such as travel expenses to attend board meetings.

4.10 Compensation for Professional Services by Directors

Directors are not restricted from being remunerated for professional services provided to the corporation.  Such remuneration shall be reasonable and fair to the corporation and must be reviewed and approved in accordance with the board Conflict of Interest policy and state law.

ARTICLE V

COMMITTEES

5.01 Committees

The board of directors may, by the resolution adopted by a majority of the directors then in office, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board.  Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except that no committee, regardless of board resolution, may:

(a)   take any final action on matters which also requires board members’ approval or approval of a majority of all members;

(b)   fill vacancies on the board of directors of in any committee which has the authority of the board;

(c)   amend or repeal Bylaws or adopt new Bylaws;

(d)   amend or repeal any resolution of the board of directors which by its express terms is not so amendable or repealable;

(e)   appoint any other committees of the board of directors or the members of these committees;

(f)   expend corporate funds to support a nominee for director; or

(g)   approve any transaction;

(i)    to which the corporation is a party and one or more directors have a material financial interest; or

(ii)    between the corporation and one or more of its directors or between the corporation or any person in which one or more of its directors have a material financial interest.

5.2  Meetings and Action of Committees

Meetings and action of the committees shall be governed by and held and taken in accordance with, the provisions of Article IV of these Bylaws concerning meetings of the directors, with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time for regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee.  Special meetings of the committee may also be called by resolution of the board of directors.  Notice of special meetings of committees shall also be given to any and all alternate members, who shall have the right to attend all meetings of the committee.  Minutes shall be kept of each meeting of any committee and shall be filed with the corporate records.  The board of directors may adopt rules for the governing of the committee not inconsistent with the provision of these Bylaws.

5.3 Informal Action By The Board of Directors

Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if consent in writing, setting forth the action so taken, shall be agreed by the consensus of a quorum.  For purposes of this section an e-mail transmission from an e-mail address on record constitutes a valid writing.  The intent of this provision is to allow the board of directors to use email to approve actions, as long as a quorum of board members gives consent.

ARTICLE VI

OFFICERS

6.01 Board Officers

The officers of the corporation shall be a board president, vice-president, secretary, and treasurer, all of whom shall be chosen by, and serve at the pleasure of, the board of directors.  Each board officer shall have the authority and shall perform the duties set forth in these Bylaws or by resolution of the board or by direction of an officer authorized by the board to prescribe the duties and authority of other officers. The board may also appoint additional vice-presidents and such other officers as it deems expedient for the proper conduct of the business of the corporation, each of whom shall have such authority and shall perform such duties as the board of directors may determine.  One person may hold two or more board offices, but no board officer may act in more than one capacity where action of two or more officers is required.

6.02 Term of Office

Each officer shall serve a one-year term of office and may not serve more than three (3) consecutive terms of office. Unless unanimously elected by the board at the end of his/her three (3) year terms or to fill a vacancy in an officer position, each board officer’s term of office shall begin upon the adjournment of the board meeting at which elected and shall end upon the adjournment of the board meeting during which a successor is elected.

6.03 Removal and Resignation

The board of directors may remove an officer at any time, with or without cause.  Any officer may resign at any time by giving written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.  Any resignation shall take effect at the date of the receipt of the notice or at any later time specified in the notice, unless otherwise specified in the notice.  The acceptance of the resignation shall not be necessary to make it effective.

6.04 Board President

The board president shall be the chief volunteer officer of the corporation. The board president shall lead the board of directors in performing its duties and responsibilities, including, if present, presiding at all meetings of the board of directors, and shall perform all other duties incident to the office or properly required by the board of directors.

6.05 Vice President

In the absence or disability of the board president, the ranking vice-president or vice-president designated by the board of directors shall perform the duties of the board president. When so acting, the vice-president shall have all the powers of and be subject to all the restrictions upon the board president.  The vice-president shall have such other powers and perform such other duties prescribed for them by the board of directors or the board president.  The vice-president shall normally accede to the office of board president upon the completion of the board president’s term of office.

6.06 Secretary

The secretary shall keep or cause to be kept a book of minutes of all meetings and actions of directors and committees of directors.  The minutes of each meeting shall state the time and place that it was held and such other information as shall be necessary to determine the actions taken and whether the meeting was held in accordance with the law and these Bylaws.  The secretary shall cause notice to be given of all meetings of directors and committees as required by the Bylaws. The secretary shall have such other powers and perform such other duties as may be prescribed by the board of directors or the board president.  The secretary may appoint, with approval of the board, a director to assist in performance of all or part of the duties of the secretary.

6.07 Treasurer

The treasurer shall be the lead director for oversight of the financial condition and affairs of the corporation.  The treasurer shall oversee and keep the board informed of the financial condition of the corporation and of audit or financial review results.  In conjunction with other directors or officers, the treasurer shall oversee budget preparation and shall ensure that appropriate financial reports, including an account of major transactions and the financial condition of the corporation, are made available to the board of directors on a timely basis or as may be required by the board of directors.  The treasurer shall perform all duties properly required by the board of directors or the board president.  The treasurer may appoint, with approval of the board a qualified fiscal agent or member of the staff to assist in performance of all or part of the duties of the treasurer.

6.08 Non-Director Officers

The board of directors may designate additional officer positions of the corporation and may appoint and assign duties to other non-director officers of the corporation.

 ARTICLE VII

CONTRACTS, CHECKS, LOANS, INDEMNIFICATION AND RELATED MATTERS

7.01 Contracts and other Writings

Except as otherwise provided by resolution of the board or board policy, all contracts, deeds, leases, mortgages, grants, and other agreements of the corporation shall be executed on its behalf by the treasurer or other persons to whom the corporation has delegated authority to execute such documents in accordance with policies approved by the board.

7.02 Checks, Drafts

All checks, drafts, or other orders for payment of money, notes, or other evidence of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents, of the corporation and in such manner as shall from time to time be determined by resolution of the board.

7.03 Deposits

All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depository as the board or a designated committee of the board may select.

7.04 Loans

No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by resolution of the board. Such authority may be general or confined to specific instances.

7.05 Indemnification

(a) Mandatory Indemnification.  The corporation shall indemnify a director or former director, who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she is or was a director of the corporation against reasonable expenses incurred by him or her in connection with the proceedings.

(b) Permissible Indemnification.  The corporation shall indemnify a director or former director made a party to a proceeding because he or she is or was a director of the corporation, against liability incurred in the proceeding, if the determination to indemnify him or her has been made in the manner prescribed by the law and payment has been authorized in the manner prescribed by law.

(c) Advance for Expenses.  Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the board of directors in the specific case, upon receipt of (I) a written affirmation from the director, officer, employee or agent of his or her good faith belief that he or she is entitled to indemnification as authorized in this article, and (II) an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation in these Bylaws.

(d) Indemnification of Officers, Agents and Employees.  An officer of the corporation who is not a director is entitled to mandatory indemnification under this article to the same extent as a director.  The corporation may also indemnify and advance expenses to an employee or agent of the corporation who is not a director, consistent with Montana Law and public policy, provided that such indemnification, and the scope of such indemnification, is set forth by the general or specific action of the board or by contract.

ARTICLE VIII

MISCELLANEOUS

8.01 Books and Records

The corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of all meetings of its board of directors, a record of all actions taken by board of directors without a meeting, and a record of all actions taken by committees of the board.  In addition, the corporation shall keep a copy of the corporation’s Articles of Incorporation and Bylaws as amended to date.

8.02 Fiscal Year

The fiscal year of the corporation shall be from January 1 to December 31 of each year.

8.03 Conflict of Interest

The board shall adopt and periodically review a conflict of interest policy to protect the corporation’s interest when it is contemplating any transaction or arrangement which may benefit any director, officer, employee, affiliate, or member of a committee with board-delegated powers.

8.04 Nondiscrimination Policy

The officers, directors, committee members, employees, and persons served by this corporation shall be selected entirely on a nondiscriminatory basis with respect to age, sex, race, religion, national origin, and sexual orientation.  It is the policy of Transcontinental Humanitarian Corp. not to discriminate on the basis of race, creed, ancestry, marital status, gender, sexual orientation, age, physical disability, veteran’s status, political service or affiliation, color, religion, or national origin.

8.05 Bylaw Amendment

These Bylaws may be amended, altered, repealed, or restated by a vote of the majority of the board of directors then in office at a meeting of the Board, provided, however,

(a)   that no amendment shall be made to these Bylaws which would cause the corporation to cease to qualify as an exempt corporation under Section 501 (c)(3) of the Internal Revenue Code of 1986, or the corresponding section of any future Federal tax code;  and,

(b)  that an amendment does not affect the voting rights of directors. An amendment that does affect the voting rights of directors further requires ratification by a two-thirds (?) vote of a quorum of directors at a Board meeting.

(c)   that all amendments be consistent with the Articles of Incorporation.

ARTICLE IX

COUNTERTERRORISM AND DUE DILIGENCE POLICY

In furtherance of its exemption by contributions to other organizations, domestic or foreign, Transcontinental Humanitarian Corp. shall stipulate how the funds will be used and shall require the recipient to provide the corporation with detailed records and financial proof of how the funds were utilized.

Although adherence and compliance with the US Department of the Treasury’s publication the “Voluntary Best Practice for US. Based Charities” is not mandatory, Transcontinental Humanitarian Corp. willfully and voluntarily recognizes and puts to practice these guidelines and suggestions to reduce, develop, re-evaluate and strengthen a risk-based approach to guard against the threat of diversion of charitable funds or exploitation of charitable activity by terrorist organizations and their support networks.

Transcontinental Humanitarian Corp. shall also comply and put into practice the federal guidelines, suggestion, laws and limitation set forth by pre-existing U.S. legal requirements related to combating terrorist financing, which include, but are not limited to, various sanctions programs administered by the Office of Foreign Assets Control (OFAC) in regard to its foreign activities.

ARTICLE X

DOCUMENT RETENTION POLICY

10.01 Purpose

The purpose of this document retention policy is establishing standards for document integrity, retention, and destruction and to promote the proper treatment of Transcontinental Humanitarian Corp. records.

10.02 Policy

Section 1. General Guidelines. Records should not be kept if they are no longer needed for the operation of the business or required by law. Unnecessary records should be eliminated from the files. The cost of maintaining records is an expense which can grow unreasonably if good housekeeping is not performed. A mass of records also makes it more difficult to find pertinent records.

From time to time, Transcontinental Humanitarian Corp. may establish retention or destruction policies or schedules for specific categories of records in order to ensure legal compliance, and also to accomplish other objectives, such as preserving intellectual property and cost management. Several categories of documents that warrant special consideration are identified below. While minimum retention periods are established, the retention of the documents identified below and of documents not included in the identified categories should be determined primarily by the application of the general guidelines affecting document retention, as well as the exception for litigation relevant documents and any other pertinent factors.

Section 2. Exception for Litigation Relevant Documents. Transcontinental Humanitarian Corp. expects all officers, directors, and employees to comply fully with any published records retention or destruction policies and schedules, provided that all officers, directors, and employees should note the following general exception to any stated destruction schedule: If you believe, or the Transcontinental Humanitarian Corp. informs you, that corporate records are relevant to litigation, or potential litigation (i.e. a dispute that could result in litigation), then you must preserve those records until it is determined that the records are no longer needed. That exception supersedes any previously or subsequently established destruction schedule for those records.

Section 3. Minimum Retention Periods for Specific Categories

(a) Corporate Documents. Corporate records include the corporation’s Articles of Incorporation, By-Laws and IRS Form 1023 and Application for Exemption. Corporate records should be retained permanently. IRS regulations require that the Form 1023 be available for public inspection upon request.

(b) Tax Records. Tax records include, but may not be limited to, documents concerning payroll, expenses, proof of contributions made by donors, accounting procedures, and other documents concerning the corporation’s revenues. Tax records should be retained for at least seven years from the date of filing the applicable return.

(c) Employment Records/Personnel Records. State and federal statutes require the corporation to keep certain recruitment, employment and personnel information. The corporation should also keep personnel files that reflect performance reviews and any complaints brought against the corporation or individual employees under applicable state and federal statutes. The corporation should also keep in the employee’s personnel file all final memoranda and correspondence reflecting performance reviews and actions taken by or against personnel. Employment applications should be retained for three years. Retirement and pension records should be kept permanently. Other employment and personnel records should be retained for seven years.

(d) Board and Board Committee Materials. Meeting minutes should be retained in perpetuity in the corporation’s minute book. A clean copy of all other Board and Board Committee materials should be kept for no less than three years by the corporation.

(e) Press Releases/Public Filings. The corporation should retain permanent copies of all press releases and publicly filed documents under the theory that the corporation should have its own copy to test the accuracy of any document a member of the public can theoretically produce against the corporation.

(f) Legal Files. Legal counsel should be consulted to determine the retention period of particular documents, but legal documents should generally be maintained for a period of ten years.

(g) Marketing and Sales Documents. The corporation should keep final copies of marketing and sales documents for the same period of time it keeps other corporate files, generally three years. An exception to the three-year policy may be sales invoices, contracts, leases, licenses, and other legal documentation. These documents should be kept for at least three years beyond the life of the agreement.

(h) Development/Intellectual Property and Trade Secrets. Development documents are often subject to intellectual property protection in their final form (e.g., patents and copyrights). The documents detailing the development process are often also of value to the corporation and are protected as a trade secret where the corporation:

(i) derives independent economic value from the secrecy of the information; and

(ii) has taken affirmative steps to keep the information confidential.

The corporation should keep all documents designated as containing trade secret information for at least the life of the trade secret.

(i) Contracts. Final, execution copies of all contracts entered into by the corporation should be retained. The corporation should retain copies of the final contracts for at least three years beyond the life of the agreement, and longer in the case of publicly filed contracts.

(j) Correspondence. Unless correspondence falls under another category listed elsewhere in this policy, correspondence should generally be saved for two years.

(k) Banking and Accounting. Accounts payable ledgers and schedules should be kept for seven years. Bank reconciliations, bank statements, deposit slips and checks (unless for important payments and purchases) should be kept for three years. Any inventories of products, materials, and supplies and any invoices should be kept for seven years.

(l) Insurance. Expired insurance policies, insurance records, accident reports, claims, etc. should be kept permanently.

(m) Audit Records. External audit reports should be kept permanently. Internal audit reports should be kept for three years.

Section 4. Electronic Mail. E-mail that needs to be saved should be either:

(i) printed in hard copy and kept in the appropriate file; or

(ii) downloaded to a computer file and kept electronically or on disk as a separate file. The retention period depends upon the subject matter of the e-mail, as covered elsewhere in this policy.

ARTICLE XI

Transparency and Accountability

Disclosure of Financial Information With The General Public

11.01 Purpose

By making full and accurate information about its mission, activities, finances, and governance publicly available, Transcontinental Humanitarian Corp. practices and encourages transparency and accountability to the general public. This policy will:

(a)    indicate which documents and materials produced by the corporation are presumptively open to staff and/or the public

(b)   indicate which documents and materials produced by the corporation are presumptively closed to staff and/or the public

(c)    specify the procedures whereby the open/closed status of documents and materials can be altered.

The details of this policy are as follow:

11.02   Financial and IRS documents (The form 1023 and the form 990)

Transcontinental Humanitarian Corp. shall provide its Internal Revenue forms 990, 990-T, 1023 and 5227, bylaws, conflict of interest policy, and financial statements to the general public for inspection free of charge.

11.03   Means and Conditions of Disclosure

Transcontinental Humanitarian Corp. shall make “Widely Available” the aforementioned documents on its internet website: www.motorcyclememoir.com to be viewed and inspected by the general public.

(a)    The documents shall be posted in a format that allows an individual using the Internet to access, download, view and print them in a manner that exactly reproduces the image of the original document filed with the IRS (except information exempt from public disclosure requirements, such as contributor lists).

(b)   The website shall clearly inform readers that the document is available and provide instructions for downloading it.

(c)    Transcontinental Humanitarian Corp. shall not charge a fee for downloading the information. Documents shall not be posted in a format that would require special computer hardware or software (other than software readily available to the public free of charge).

(d)   Transcontinental Humanitarian Corp. shall inform anyone requesting the information where this information can be found, including the web address. This information must be provided immediately for in-person requests and within 7 days for mailed requests.

11.04 IRS Annual Information Returns (Form 990)

Transcontinental Humanitarian Corp. shall submit the Form 990 to its board of directors prior to the filing of the Form 990. While neither the approval of the Form 990 or a review of the 990 is required under Federal law, the corporation’s Form 990 shall be submitted to each member of the board of director’s via (hard copy or email) at least 10 days before the Form 990 is filed with the IRS.

11.05 Board

(a)    All board deliberations shall be open to the public except where the board passes a motion to make any specific portion confidential.

(b)   All board minutes shall be open to the public once accepted by the board, except where the board passes a motion to make any specific portion confidential.

(c)    All papers and materials considered by the board shall be open to the public following the meeting at which they are considered, except where the board passes a motion to make any specific paper or material confidential.

11.06 Staff Records

(a)    All staff records shall be available for consultation by the staff member concerned or by their legal representatives.

(b)   No staff records shall be made available to any person outside the corporation except the authorized governmental agencies.

(c)    Within the corporation, staff records shall be made available only to those persons with managerial or personnel responsibilities for that staff member, except that

(d)   Staff records shall be made available to the board when requested.

11.07 Donor Records

(a)    All donor records shall be available for consultation by the members and donors concerned or by their legal representatives.

(b)   No donor records shall be made available to any other person outside the corporation except the authorized governmental agencies.

(c)    Within the corporation, donor records shall be made available only to those persons with managerial or personnel responsibilities for dealing with those donors, except that ;

(d)   donor records shall be made available to the board when requested.

ARTICLE XII

CODES OF ETHICS AND WHISTLEBLOWER POLICY

12.01 Purpose

Transcontinental Humanitarian Corp. requires and encourages directors, officers and employees to observe and practice high standards of business and personal ethics in the conduct of their duties and responsibilities. The employees and representatives of the corporation must practice honesty and integrity in fulfilling their responsibilities and comply with all applicable laws and regulations. It is the intent of Transcontinental Humanitarian Corp. to adhere to all laws and regulations that apply to the corporation and the underlying purpose of this policy is to support the corporation’s goal of legal compliance. The support of all corporate staff is necessary to achieving compliance with various laws and regulations.

12.02 Reporting Violations

If any director, officer, staff or employee reasonably believes that some policy, practice, or activity of Transcontinental Humanitarian Corp. is in violation of law, a written complaint must be filed by that person with the vice president or the board president.

12.03 Acting in Good Faith

Anyone filing a complaint concerning a violation or suspected violation of the Code must be acting in good faith and have reasonable grounds for believing the information disclosed indicates a violation of the Code. Any allegations that prove not to be substantiated and which prove to have been made maliciously or knowingly to be false shall be viewed as a serious disciplinary offense.

12.04 Retaliation

Said person is protected from retaliation only if she/he brings the alleged unlawful activity, policy, or practice to the attention of Transcontinental Humanitarian Corp. and provides the Transcontinental Humanitarian Corp. with a reasonable opportunity to investigate and correct the alleged unlawful activity. The protection described below is only available to individuals that comply with this requirement.

Transcontinental Humanitarian Corp. shall not retaliate against any director, officer, staff or employee who in good faith, has made a protest or raised a complaint against some practice of Transcontinental Humanitarian Corp. or of another individual or entity with whom Transcontinental Humanitarian Corp. has a business relationship, on the basis of a reasonable belief that the practice is in violation of law, or a clear mandate of public policy.

Transcontinental Humanitarian Corp. shall not retaliate against any director, officer, staff or employee who disclose or threaten to disclose to a supervisor or a public body, any activity, policy, or practice of Transcontinental Humanitarian Corp. that the individual reasonably believes is in violation of a law, or a rule, or regulation mandated pursuant to law or is in violation of a clear mandate of public policy concerning the health, safety, welfare, or protection of the environment.

12.05 Confidentiality

Violations or suspected violations may be submitted on a confidential basis by the complainant or may be submitted anonymously. Reports of violations or suspected violations shall be kept confidential to the extent possible, consistent with the need to conduct an adequate investigation.

12.06 Handling of Reported Violations

The board president or vice president shall notify the sender and acknowledge receipt of the reported violation or suspected violation within five business days. All reports shall be promptly investigated by the board and its appointed committee and appropriate corrective action shall be taken if warranted by the investigation.

This policy shall be made available to all directors, officers, staffs or employees and they shall have the opportunity to ask questions about the policy.

ARTICLE XIII

AMENDMENT OF Articles of Incorporation

13.01 Amendment

Any amendment to the Articles of Incorporation may be adopted by approval of two-thirds (2/3) of the board of directors.

CERTIFICATE OF ADOPTION OF BYLAWS

I do hereby certify that the above stated Bylaws of Transcontinental Humanitarian Corp. were approved by the Transcontinental Humanitarian Corp’s board of directors on Saturday, December 21, 2009 and constitute a complete copy of the Bylaws of the corporation.

Secretary __________________________

Date: ________________________

Private Foundations and Operating Private Foundations (we are not dealing with this)
Public Charities

Private foundations are generally treated less favorably than public charities.  Why?  The key to being a public charity is the support from the general public.  Congress thought that the need to keep raising money from the general public would keep public charities honest.  By contrast, Congress though that private foundations, living off the income from a large fund, controlled by a select few, with no need to demonstrate their good works to the public, would not keep honest without regulation. And they were right. public foundations are amongst the most corrupt of all nonprofit organizations.

Private foundations pay 1%-2% tax on net investment income and are subject to various prohibitions on transactions between themselves, and those who control them, including their directors.  They are prohibited from lobbying, and pay taxes on any lobbying expenses, which, along with other prohibited expenditures, are known as taxable expenditures.  Foundations are also subject to other regulations not applicable to public charities. The deductibility of gifts to private foundations is somewhat more limited than to other than private foundations.  Their donors’ identities are subject to public disclosure and, in general, foundations have more extensive reporting obligations.  (Operating foundations that carry on charitable activity other than grant making are slightly less heavily regulated.) If you are organized as a foundation of any sort, this site is not for you, as I have mentioned that from the very start. Get professional help as you will certainly have complications down the road.

To qualify as a public charity under the Internal Revenue Code, your organization must meet the public charity test of 1/3 or 10%.

Example of 10% test:Each of 11 directors gives Small Charity, Inc. $100.
Major Donor buys Small Charity, Inc. office furniture of $10,000.
Total support:  $11,100.
2% of $11,100 = $220.
Major Donor’s contribution counts for only $220 of the numerator.
Equation:  $1,100 (directors) + $220 (Major Donor)  = 11.89% “public support”
$11,100
Result:  Small Charity, Inc. would fail the “1/3″ test and have to argue it met the “10% + facts and circumstances” test in order to remain under 509(a)(1).

Example of 1/3 test:          Each of the 11 directors gives Small Charity, Inc. $100 for a total of $1,100.
The Community Foundation for Greater New Haven (a publicly supported organization) gives Small Charity, Inc. $2,000.
Total support:  $3,100.
2% of $3,100 = $62
The equation is $62 x 11 directors + $2,000  = 86.5%
$3,100
Result:  Small Charity, Inc. passes the 1/3 support test with flying colors.

Of course refer to your form 1023 instruction published by the IRS for the complete definition.

So how do you know if you are not a private foundation? The organization is not a private foundation because it is: (excluding, governmental churches, schools and hospitals)

509(a)(3)—an organization supporting either one or more organizations described in line 5a through c, f, g, or h or a publicly supported section 501(c)(4), (5), or (6) organization. Complete and attach Schedule D.

509(a)(4)—an organization organized and operated exclusively for testing for public safety.

509(a)(1) and 170(b)(1)(A)(vi)—an organization that receives a substantial part of its financial support in the form of contributions from publicly supported organizations, from a governmental unit, or from the general public.

509(a)(2)—an organization that normally receives not more than one-third of its financial support from gross investment income and receives more than one-third of its financial support from contributions, membership fees, and gross receipts from activities related to its exempt functions (subject to certain exceptions).

Important Note

Every year the IRS adds changes and small instructions to the form 1023. Make sure you read these instructions on what sections you need to skip, while they revise the form.

Even though you have no financial records, you should provide your past (even if it consist of buying lunch for the board), your present, and at least two or three complete years into future. This is where you and your CFO has to get creative and make up numbers. I say make up numbers because there is no other way of putting it. For lack of better word, you have to speculate on what you will earn, what your expenses will be, and what will remain at the end of each year.

Part IX of the IRS form 1023 has to be done with utmost professionalism. No government office temp is going to give you any heed if you hand draw your tables or list your data in an incoherent way. Get organized and act like a pro. If you have a financial person as your treasurer which you should, put him to work. He needs to project your expenses, from A to Z, and put them down in tables. Do not use the actual 1023 form for this; this section should go in your attachment sheet. Following is an example of how your financial data should be presented. Note that every table is clearly marked, and every section relates to questions asked on the form.

The following are sample attachment sheets for various organizations. The more in-dept explanation follows:

Part IX Form 1023 Financial Data

A) Statement of Revenues and Expenses and Projected Data for 2010, 2011, and 2012 Tax Years

Line 9.  Gross receipts from admissions, merchandise sold or services performed… in any activity that is related to your exempt purposes (attach itemized list.)

The following table consists of the projected gross income from monetary donations, grants and gifts to the corporation. This includes the promotional merchandise sales as well as services rendered. The table is sorted alphabetically.

Form 1023, Part VIII, Line 23. Any expense not otherwise classified (attach itemized list.)

The following table consists of the corporation expenses, expenditures and spending for the shown years. Please refer to the second worksheet for further itemizations. The table is sorted alphabetically.
Please note: For our 2009 expense and income report, please refer to section B: Balance Sheet for our most recently completed tax year on page 17 of this document.

Form 1023, Part VIII, Line 23. Any expense not otherwise classified (attach itemized list.)

The following table consists of the corporation expenses, expenditures and spending for the shown years. Please refer to the second worksheet for further itemizations. The table is sorted alphabetically.
Please note: For our 2009 expense and income report, please refer to section B: Balance Sheet for our most recently completed tax year on page 17 of this document.

Further Breakdown of Expenses

Please note that the inflation rate for the years of 2011 and 2012 has been calculated based on a 5% increase annually. Daily figures are based on 30-day months. (Please see table on next page.) The table is sorted alphabetically.

B) Balance Sheet (for your most recently completed tax year)

Please note:  The table below is an itemized list of the expenses and income of Transcontinental Humanitarian Corp. since its incorporation on December 7,2009 to December 31, 2009. The table is sorted alphabetically.

The last part is you asset sheet. You need to list anything and everything that your organization owns from chairs to automobiles.

Form 1023, Part VIII, Line 1a) Do you support or oppose candidates in political campaigns in any way?

Answer NO to support and opposition of candidates. You cannot do that. The term “political” used by the IRS means only opposing and supporting candidate for public offices. It means participating or intervening in any political campaign on behalf of or in opposition to candidates for public office. This doesn’t mean that you cannot criticize the existing governor, president or the Joint Chiefs of Staff. That’s your freedom of speech and expression so don’t be scared to exercise it.

Form 1023, Part VIII, Line 2a and 2b. Do you attempt to influence legislation?

Influencing legislation and lobbying are not illegal, but you have to keep it whitin permissible limits. In fact, a non-profit organization is nothing without political power to further its agenda, so don’t shoot yourself in the foot by answering no.  You can either choose to make the “election”, by filing the simple one-page Form 5768 with the IRS (if you are formed to support another charity, this option is no available to you), or you can opt for “substantiality” test. If you opt for substantiality test,  1 to 5 percent of your total revenue should keep you on the safe side. You can answer like this:

We have not yet spent any volunteer time or any part of our budget to influence legislation. Our legislative activities will always be “insubstantial” and less than 2% of our volunteer time and expenses, if we decide to do so. Currently we have no plans or program in place to undertake such activities.

Here’s an Excellent article by Jeffrey S. Tenenbaum on lobbying which can guide you to make the right choice.

Form 1023, Part VIII, Line 3a. Do you or will you operate Bingo or gaming activities?

Be specific when describing your gaming activities. A non-profit organization is entitled to hold gambling events, but  most likely the income will be an unrelated business income (Bingo excluded). Don’t say no to gambling, it’s a great way of fundraising. If you are not sure what to say, here is an example. If you are conducting raffles and such on your site, you need to make that clear now:

We will not operate Bingo but will utilize raffle games in our annual banquet fundraisers or at times on the corporation’s website.

An example of this activity would be offering 50/50 raffle games at our fundraising banquets and auctions. The participants will buy tickets of low value (e.g. $1) and with each ticket; they would have one chance of winning half of the pot at the end of the event. The other half of the pot will go towards the fundraising goal. Participants will generally donate their winnings back to the pot to be used toward the event’s goal.

Another example of games would be holding contests on our website to raise awareness for our mission. One type of contest would require the participants to write an essay regarding Malnutrition and Hunger to be considered and with that, would have the chance of winning a prize (e.g. $25 gift card to a sponsoring restaurant) at the end of the contest.

There will be no compensation of any sort for volunteers who carry on or help with these activities and all income and expenses will be documented as they occur.

Form 1023, Part VIII, Line 3c. List the states and local jurisdictions, including Indian Reservations, in which you conduct or will conduct gaming or bingo.

Here’s an example answer:

In general, we anticipate holding our banquets in State of Montana and so the gaming activities related to such events. Our web contests will be conducted on our website which resides on a server in Montana. If the event would be held outside of the state of Montana, we will observe and comply with all applicable Federal and State laws in carrying on such activities and that holds true for all 50 states of the United States.

Form 1023, Part VIII, Line 4a.  Do you or will you undertake fundraising?  If “Yes,” check all the fundraising programs you do or will conduct.  Attach a description of each fundraising program.

Of course you will be fundraising. List everything that come to mind and be specific for each item. see the example below:

“Yes” to the following:

Mail solicitations, email solicitation, personal solicitation, foundation grant solicitations, vehicles, accept donations on your website and other.

Mail Solicitations

We will be sending fundraising letters to businesses and individuals at least annually to request that they donate funds to support Transcontinental Humanitarian Corp. or to be cordially invited to attend our annual fundraising banquet and auction.

Email Solicitation

We will be utilizing internet solicitation methods, including but not limited to email, social media contacts and other mediums.

Personal Solicitation

We will be fundraising by approaching a broad spectrum of entities and individuals in person to share the mission of Transcontinental Humanitarian Corp. and seek public support.

Foundation Grant Solicitations

We will be applying for private or public foundation grants. We have no current arrangement for this method at this time.

Vehicle, Boat, Plane, or Similar Donations

We will solicit and accept in-kind donations with the intent of using the vehicles for the corporation’s mission such as our ambassador program.

Accept Donations on Your Website

We do accept donations on our website. This function will be accessible through “donate” tab on the website of the corporation. The payments are processed by PayPal, Inc. and are directed to the corporation’s bank account.

Other

Slideshows and Lectures. We will be accepting donations during our lectures and slideshow program and expeditions. (Please see the Narrative of our Activities for further information regarding this activity.)

Small Scale Fundraising Events. At times we will be holding road-side small-scale fundraising events. The work performed for such events shall be “Volunteer Labor” and without compensation. The material used for such events shall only come from the gifts or contributed products. Volunteer charity lemonade or cookie sale would be an example.

Banquet and Auctions. We will also be holding at least one fundraising banquet and auction annually. All auction items will be from the gifts or contributed merchandise and all the work performed for such events shall be volunteer labor and without compensation.

Web-related Donations. We may make arrangements with commercial organizations for donations based on sales referrals. For example, some web sites (such as Amazon.com) allow nonprofit organizations to receive donations for sales which were referred from their web site. Some local businesses in our area might also make such offers to non-profit organizations. We would only consider this for items and services related to our organization’s activities and topics (e.g. books on Malnutrition and Hunger). We currently have no specific plans or contracts, but it’s prudent to mention the possibility.

Sale of Merchandise. We will have shirts, hats, mugs and similar items available through our website which will bear our logo and mission statement. We are only considering the sale of donated and contributed products at this time. The revenue from this activity is anticipated to be insubstantial and we have no current arrangement or contract for this.

Form 1023, Part VIII, Line 4c. Do you or will you engage in fundraising activities for other organizations?

No. We do not fundraise for any specific organization and Transcontinental Humanitarian Corp. is not organized solely to contribute or fund-raise for any specific entity. However, at the discretion of the board of directors we may at times, choose to contribute to other 501 (c)(3) organizations which share a similar mission and only if the contributions further our exempt status. (Please see the Narrative of our Activities for more information regarding how we contribute to other organizations.)

Form 1023, Part VIII, Line 4e. Do you or will you maintain separate accounts for any contributor under which the contributor has the right to advise on the use or distribution of funds?

We do not anticipate soliciting contributions where the donor has the right to advise how to use or distribute the funds. However, we will comply with and recognize special requests, notes, terms and conditions which are specified by contributors and will maintain a separate account for that specific donation. An example of this rule is foundation grants. There may be situations whereby we solicit a foundation grant for a specific purpose; (e.g. education) and in those cases the grant, if awarded, will probably have restrictions on the activities it can support. Honoring those terms is inherent in the grant application process.

Form 1023, Part VIII, Line 4d. List all states and local jurisdictions in which you conduct fundraising. For each state or local jurisdiction listed, specify whether you fundraise for your own organization, you fundraise for another organization, or another organization fundraises for you.

Transcontinental Humanitarian Corp. is primarily based in the state of Montana, however, we will engage in fundraising in all 50 states of the United States whether via internet solicitation, mail-outs, banquets or activities such as our ambassador program or slide-shows and presentations. For more information about these activities please refer to the Narrative of Our Activities.

We will not raise funds for other organizations; No other organization will raise funds for us and we will only fundraise for ourselves. This rule holds true for all 50 States of the United States.

Form 1023, Part VIII, Line 11. Do you or will you accept contributions of: real property; conservation easements; closely held securities; intellectual property such as patents, trademarks, and copyrights; works of music or art; licenses; royalties; automobiles, boats, planes, or other vehicles; or collectibles of any type?

We may accept contributions of: real property, closely held securities, intellectual property such as patents, trademarks, and copyrights, works of music or art, licenses, royalties, automobiles, boats, planes, or other vehicles, or collectibles of any type if said contributions further the purposes of this corporation. We will not accept donations if any conditions imposed by the donor on the contribution limit the corporation’s ability to achieve its purposes or force this corporation to conduct activities that are not in furtherance of 501(c)(3) purposes. We will ensure that donations are accepted in accordance with 501(c)(3) regulations and we will properly determine fair market value according to IRS Publication 561. We currently have no specific plans, but it’s prudent to mention the possibility.

Form 1023, Part VIII, Line 12a. Do you or will you operate in a foreign country or countries?

This section is for those who will be operating in foreign countries. Since the 9/11, the IRS has gone crazy over distribution of funds outside the United States.  If your organization is formed to support a foreign charity, you are 99% doomed. Also for operating outside of the United States, you should show exactly what you mean by “operation” and when it comes to clarification of this section, the more is always more. This section should be carefully answered.

Answers to Form 1023, Part VIII, Line 12 a, b, c and d are as follow:

It is the mission, duty and purpose of Transcontinental Humanitarian Corp. to address, educate, coordinate and provide aid and relief to eradicate chronic malnutrition and hunger regardless of its geographical position. Therefore Transcontinental Humanitarian Corp. may operate in any country and any region in any country around the world where we may fulfill our mission and further our exempt status. Transcontinental Humanitarian Corp. will obtain any required permits or permissions from the respective governments of any country we may operate in as required by law. This includes complying with the sanctions, embargoes, and other restrictions imposed by the United Sates government to such countries. For detailed information regarding our foreign activities please refer to the section of our Narrative of our Activities titled: Foreign activities. We may work closely^[1] with other non-profit and non-governmental organizations who are active participants in the same field. This will allow us to further our exempt status by providing the services and aid in a timely and effective manner.

Note the rulings; this is how you make your case:

(^[1]Note: Working closely with other organizations does not constitute a “Close Connection” as it is defined on page 11, line 15 of the IRS publication of instruction for form 1023. It merely refers to exchange of information, non-financial data, suggestions and advices on locations and ways to address and direct the focus based on up-to-date information.)

Please Note: Rev. Rul. 71-460, 1971-2 C.B. 231

• “A domestic corporation that conducts a part or all of its charitable activities in a foreign country is not precluded from exemption under section 501(c)(3) of the Code. A domestic corporation that is otherwise exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954 carries on part of its charitable activities in foreign countries. Held, since its activities are charitable within the meaning of section 501(c)(3) of the Code when carried on within the United States, the conduct of such activities elsewhere does not preclude the organization from qualifying as an exempt organization under that section.
• The same conclusion applies if all of its charitable activities are carried on in foreign countries. With respect to deductibility of contributions to the organization under section 170 of the Code, see Revenue Ruling 63-252, C.B. 1963-2, 101 and Revenue Ruling 66-79, C.B. 1966-1, 48.”

Form 1023, Part VIII, Line 13a. Do you or will you make grants, loans, or other distributions to organization(s)?

We do not offer or provide grants or loans to other organizations. Distributions to other organizations will be documented with copies of receipts, letters or other relevant documents. According to our bylaws, any distribution would have to be approved by the board of directors. The method of approval would be documented. Distributions to organizations have not yet occurred since the incorporation.

Please Note: Rev. Rul. 68-489, 1968-2 C.B. 210 (More rulings)

• An organization will not jeopardize its exemption under section 501(c)(3) of the Code, even though it distributes funds to nonexempt organizations, provided it retains control and discretion over use of the funds for section 501(c)(3) purposes.
• An organization exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954 distributed part of its funds to organizations not themselves exempt under that provision. The exempt organization ensured use of the funds for section 501(c)(3) purposes by limiting distributions to specific projects that are in furtherance of its own exempt purposes. It retains control and discretion as to the use of the funds and maintains records establishing that the funds were used for section 501(c)(3) purposes. Held, the distributions did not jeopardize the organization’s exemption under section 501(c)(3) of the Code.

Form 1023, Part VIII, Line 13b. Describe how your grants, loans, or other distributions to organizations further your exempt purposes.

We do not offer or provide loans or grants to other organizations. Our contributions to other organizations will only include funds necessary to carry on our mission as it has been described in the Narrative of our Activities. These contributions would be funds donated to other organizations which are active in the field and are capable of addressing the issues of chronic malnutrition, hunger, or disaster relief aid in a more timely and effective way than Transcontinental Humanitarian Corp. would be able to at that given time. The board of directors will conduct due diligence and maintain control of any funds contributed to any organizations regardless of their exempt status and will comply with all applicable laws and guidelines to further our exempt status.

Form 1023, Part VIII, Line 14a. Do you or will you make grants, loans, or other distributions to foreign organizations?

We do not offer or provide grants or loans to any foreign or domestic organizations. If we decide that a contribution or distribution is necessary to fulfill our mission and our duty to further our exempt status, we will contribute at the discretion of the board of directors to foreign organizations. An example would be contributing to a health institution that is providing treatment for chronic malnutrition. If we decide to contribute to such an institution, we will stipulate how the funds shall be used and will require the recipient to provide us with detailed records and financial proof of how the funds were utilized.

Although adherence and compliance with the US Department of the Treasury’s publication the “Voluntary Best Practice for US. Based Charities” is not mandatory, we the directors of Transcontinental Humanitarian Corp. willfully and voluntarily recognize and put to practice these guidelines and suggestions to reduce, develop, re-evaluate and strengthen a risk-based approach to guard against the threat of diversion of charitable funds or exploitation of charitable activity by terrorist organizations and their support networks.

We also comply and put to practice the federal guidelines, suggestion, laws and limitation set forth by pre-existing U.S. legal requirements related to combating terrorist financing, which include, but are not limited to, various sanctions programs administered by the Office of Foreign Assets Control (OFAC) in regard to our foreign activities.

Form 1023, Part VIII, Line 14b. Provide the name of each foreign organization, the country and regions within a country in which each foreign organization operates, and describe any relationship you have with each foreign organization.

At this time Transcontinental Humanitarian Corp. has no relationship with any foreign organizations nor are there any current plans in progress to establish such relationships. Therefore, we cannot list any countries or regions at this time. That is not to say that it is not our intent to possibly establish a relationship with a foreign organization in the future but specific organizations and countries have not been identified at this time. Should there be any attempts to establish relationships in the future, Transcontinental Humanitarian Corp. will act with due diligence and in full accordance of any laws and requirements governing this corporation.

Form 1023, Part VIII, Line 14c. Does any foreign organization listed in line 14b accept contributions earmarked for a specific country or specific organization?

As mentioned above, we have no relationship with any foreign organizations, hence there are no organizations to list from line 14b. Furthermore, if we were to contribute to any foreign organizations in the future, we would not contribute to any organizations that specify, earmark or require that any part of our contributions be out of our control or in any way to be directed to any other organization other than the recipient(s) or organization(s) originally selected by Transcontinental Humanitarian Corp. We will maintain full control of the contributed funds at all times with records and receipts, and if available, with supervision of our ambassadors in the field.

Form 1023, Part VIII,  Line 14d. Do your contributors know that you have ultimate authority to use contributions made to you at your discretion for purposes consistent with your exempt purposes?

It is very clear to our contributors and especially the public how we operate, direct funds and the nature of programs. The donation page of our website lists where the donations go and for what purpose. For contributions other than credit cards, we have a donation form available which every contributor is required to fill and it specifically points out our mission, goals and functions. A copy of this form is included in with this attachment for your consideration.

Form 1023, Part VIII, Line 14e. Do you or will you make pre-grant inquiries about the recipient organization?

We do not offer or provide grants to any individuals or organizations. But for any contributions made by Transcontinental Humanitarian Corp. to any organization, we take into consideration the tax-exempt status, overall financial standing of the recipient and we inquire about:

• The recipient’s name in English, in the language of origin, and any acronym or other names used to identify the recipient

• The jurisdictions in which the recipient maintains a physical presence;

• Any reasonably available historical information about the recipient that assures us of the recipient’s identity and integrity;

• The available postal, email and website addresses and phone number of each place of business of the recipient;

• A statement of the principal purpose of the recipient, including a detailed report of the recipient’s projects and goals;

• Copies of any public filings or releases made by the recipient, including the most recent official registry documents, annual reports, and annual filings with the pertinent government, as applicable; and

• The recipient’s sources of income, such as official grants, private endowments, and commercial activities.

Form 1023, Part VIII, Line 14f. Do you or will you use any additional procedures to ensure that your distributions to foreign organizations are used in furtherance of your exempt purposes?

We generally will not contribute to any organization unless we have an ambassador in that country overseeing the distribution of the funds regardless of their location, domestic or foreign. The board of directors will conduct due diligence and maintain control of any funds contributed to any organizations and will comply with all applicable laws and guidelines. We will also, at our discretion, conduct the following to verify and ensure that funds are used appropriately and safely:

• conducting a reasonable search of publicly available information to determine whether the recipient is suspected of activity relating to terrorism, including terrorist financing or other support;

• assuring that  recipients do not appear on OFAC’s master list of Specially Designated Nationals (the “SDN List”), maintained on OFAC’s website at www.treas.gov and are not otherwise subject to OFAC sanctions;

• with respect to key employees, members of the governing board, or other senior management at the recipient’s principal place of business, and for key employees at the recipient’s other business locations, we will, to the extent reasonable, obtain the full name in English, in the language of origin, and any acronym or other names used; nationality; citizenship; current country of residence; and place and date of birth;

• As a pre-condition to the issuance of a charitable contribution, we will require the recipient to certify that they are in compliance with all laws, statutes, and regulations restricting U.S. persons from dealing with any individuals, entities, or groups subject to OFAC sanctions.

Please note that since the events of 9/11, the deprtment of treasury published a controversial article called “Anti-Terrorist Financing Guidelines”. It’s in your best interest to refer to this article if you want a smooth ruling.

At the start of these articles, I made it very clear that this website does not deal with those who have dipped their toes in the for-profit sector before going nonprofit. I will not provide advice to this class based on personal preference.

In general, an organization has 27 months after its formation to apply for tax exemption status. If you have missed a giant 2 and ¼ years window, you should have a damn good explanation, and you should seek professional help.

If you are a nonprofit (not a successor to a for-profit entity) which is unlikely, and not claiming exemption for prior periods, you can just apply normally and all is good.

For example, you are running a breast cancer organization. Your mission should be saving all the breast cancer patients you can. You cannot have an organization to fundraise and save Sally who has cancer. Sally is an individual not a class. Your organization should work with a class of people, animals, issues… put it simply, you can not start an organization for an individual or two or three and expect to be exempt from paying taxes.

Example answer:

Line 1a. In carrying out your exempt purposes, do you provide goods, services, or funds to individuals?

At the discretion of the board of directors, we may provide goods, services, or funds to individuals affected by chronic malnutrition or hunger. That will include our disaster relief aid (i.e. food and water) or educational materials (e.g. our educational publications and pamphlets).  In order to do so, we identify these individuals based on our research and referrals in the field. These individuals will be selected regardless of their religion, race, ethnicity, and age. These individuals are not known ahead of time, and specifically at the time of preparing this application.

You are about to start a nonprofit organization and the nature of it comes with the name. Contrary to the nonprofit criminals who like to say that compensations equivalent to for-profit sector is normal or justified, I advise you to not listen to this garbage. You are about to start something meaningful, to help others, to do good – not to enrich yourself. Those who take out large sums out of trusting donor contributions are nothing but criminal and abusers of the system, and if you are looking for your American Dream in the nonprofit sector, you should be hanged too. You don’t like my attitude towards this subject? Get the hell out and stop using this site. Here’s an article I wrote on nonprofit executive compensations which you should read before deciding on how much to pay yourself. Knowing that, let’s get to work:

Form 1023, Part V, line 1a) List the names, titles, and mailing addresses of all of your officers, directors, and trustees. For each person listed, state their total annual compensation, or proposed compensation, for all services to the organization, whether as an officer, employee, or other position. Use actual figures, if available. Enter “none” if no compensation is or will be paid. If additional space is needed, attach a separate sheet. Refer to the instructions for information on what to include as compensation.

There is no minimum number for directors in a nonprofit organization, but the IRS wants to see that the organization is managed by a qualified and diverse board of directors. A good nonprofit board of directors should at least have four directors and preferably from both sexes. The more caring your board is, the better the outcome of your organization will be. Distribution of power is what the IRS has in mind, and a two-member board does not guarantee that. Directors of a nonprofit organization CANNOT be compensated for their board duties.

Form 1023, Part V, line 1b and c) List the names, titles, and mailing addresses of each of your five highest compensated employees who receive or will receive compensation of more than $50,000 per year. Use the actual figure, if available. Refer to the instructions for information on what to include as compensation. Do not include officers, directors, or trustees listed in line 1a.

Now the IRS is asking you the question again in another way hoping that you list some of your board members on the form 1023. Besides, if you are compensating your officers and employees more than 50 grand a year, you should certainly seek professional advice. In my experience, organizations that don’t compensate their officers and employees have 90% more chance of getting accepted than others. Compensation is not a bad thing; everyone should eat, but there’s eating and then there is indulging.

Form 1023, Part V, line 2a) Are any of your officers, directors, or trustees related to each other through family or business relationships?

Many nonprofit organizations start as mom and pop organizations, and while there’s nothing wrong with the idea itself, there’s something fundamentally wrong about this practice. If your nonprofit board of directors is consisting of your family members, don’t be surprised when the IRS gives you a hard smack down. You are about to run a (hopefully) charitable organization, and dynasty-style of the government body has no place in this business. Elect your board members from qualified, non-related individuals who share the same passion for the mission. If you must include your spouse or ant on the board (which you shouldn’t), the voting power should be cut to half to insure proper distribution of power. Lines 2a through 3b go back and forth to make sure you’re giving honest answers and you understand that running a nonprofit entity is more than saving snails.

On line 4, you should answer YES to all of them and actually practice them. These practices are not mandatory but they should be.

Form 1023, Part V, line 5a) Have you adopted a conflict of interest policy consistent with the sample policy in Appendix A? 

Your answer should be Yes.  Then refer to the attached policy. And clarify it like “This was adopted by resolution of the board of directors on such and such date.” Click here to see a sample conflict of interest policy.

Form 1023, Part V, line 6a and b) Do you or will you compensate any of your officers, directors, trustees, highest compensated employees, and highest compensated independent contractors listed in lines 1a, 1b, or 1c through non-fixed payments, such as discretionary bonuses or revenue-based payments?

The answer to both is a big HELL NO. You can NOT compensate your employees on a commission basis. The compensation should be a fixed payment ,and clear to public. I repeat this again. If your employee John Doe is earning $35,000 a year, his compensation is $35,000 a year period, and it should not depends on how much revenue the organization had in that year. That includes discretionary bonuses. Answer yes to these questions and hell will break loose.

Form 1023, Part V, line 7a and b) Do you or will you purchase any goods, services, or assets from any of your officers, directors, trustees, highest compensated employees, or highest compensated independent contractors listed in lines 1a, 1b, or 1c?

The answer is no again. Remember, you are doing this to help others, not your officers and employees. Insider nonprofit transactions are sure ways of corruption, and the IRS has sharp eyes for these kinds of transactions. Doing so is opening yourself to a world of pain.

Form 1023, Part V, line  8 and 9 brush on the same subject again hoping that you understand that doing business with your directors, officers, and employees are frowned upon, and in most cases illegal. A nonprofit organization is formed to benefit the public, not its members -where a for-profit entity is formed to benefit its members. Please understand these best practices and put them to good use.

Using an attachment, describe your past, present, and planned activities in a narrative. If you believe that you have already provided some of this information in response to other parts of this application, you may summarize that information here and refer to the specific parts of the application for supporting details. You may also attach representative copies of newsletters, brochures, or similar documents for supporting details to this narrative. Remember that if this application is approved, it will be open for public inspection. Therefore, your narrative description of activities should be thorough and accurate.

You need to answer the following questions with the smallest detail:

•  What is the activity?
•  Who conducts the activity?
•  When is the activity conducted?
•  Where is the activity conducted?
•  How does the activity further the organization’s exempt purposes?
•  What percentage of the organization’s total time is allocated to the activity?
•  How is the activity funded?

As an IRS agent, I would look at this section in your form 1023 and would want to know anything and everything about this entity. So be specific. If you are running a Save a Snail Foundation, say how many snails you are hoping to save, the method of saving, where you put them after you save them, and why even bother saving the damn snails in the first place. Then you need to say what happens after the snail is saved. Every story needs a happy ending.

Then you support your narrative by newspaper articles, TV interviews, website interviews, link to your website, brochures, business cards, and any kind of positive publicity you had received. So before writing your narrative, get in newspapers, have interviews, get yourself out there.

But you are not done yet. Your narrative description is where you make your case. You don’t rely on the goodwill of the tax people; you tell them just like in the court room why they should grant you the exemption based on their own previous rulings. These rulings are legal precedents. For example, John Doe sued IRS on a ground that his organization was denied exemption because of “X” reason, and the Supreme Court ruled on his behalf favorably. This ruling becomes a precedent which you can use to present your own case. Read this section 100 times if you have to, because it is very important.

When you are done writing your narrative, you make your case by referring to the Internal revenue Code and these rulings. See the narrative example bellow and note the references to the Internal Revenue Code. I made my case by telling the agent that I know and understand the law. Here I’m not using any rulings but I do in the part VIII of the form 1023 to argue the International activities. To find a ruling that matches your case, you can access the complete archive on IRS website by searching “Revenue Rulings Archive”.

Here are some form 1023 complete attachment samples from approved organizations. Before downloading these pdf files, read the below sample first.

IRS FORM 1023

ATTACHMENT

Part IV Narrative Description of Your Activities

Overview

 

It is the mission, duty and purpose of Transcontinental Humanitarian Corp. to address, educate, coordinate, and provide aid and relief to eradicate chronic malnutrition and hunger on a local and global level.

It is our duty to be available when we are capable to provide one of the most important yet basic human rights to ordinary people during times of extraordinary tribulation by trying to help them to secure their humanity through the provision of food.

The right to food is a human right derived from the International Covenant on Economic, Social and Cultural Rights (ICESCR). The United Nations Special Report in 2002 defined it as follow:

“Right to adequate food is a human right, inherent in all people, to have regular, permanent and unrestricted access, either directly or by means of financial purchases, to quantitatively and qualitatively adequate and sufficient food corresponding to the cultural traditions of people to which the consumer belongs, and which ensures a physical and mental, individual and collective fulfilling and dignified life free of fear.”

The right to adequate food is realized when every man, woman and child, alone or in community with others, have the physical and economic access at all times to adequate food or means for its procurement.

Education

Transcontinental Humanitarian Corp. provides education on chronic malnutrition and hunger through the dissemination of facts, charts, graphs, and statistics. We provide this information by presenting live media interviews, lectures and slideshows titled, “The World Hunger Exhibition,” at schools, libraries and other public venues.  These presentations focus on the causes, current efforts and solutions to chronic malnutrition and hunger. They also highlight the geographical, economical, and social aspects of chronic malnutrition.  Examples of said presentations that have been given are at the Lewis and Clark Public Library in Helena, Montana, the Klondike River Lodge located in Dawson City, Yukon Territory, Canada, and at the Barstow branch of the San Bernardino County Public Library in California.

We take advantage of various social media outlets such as discussion forums, blogs and social networking sites. Some of media outlets that have conducted interviews of or featured Transcontinental Humanitarian Corp. are:  NBC News, HCTV, and The Independent Record. All media interviews can be viewed on the corporation’s website: www.thcorp.org

We also chronicle our efforts and activities on the corporation’s website. One feature that will be incorporated into the website is an educational essay written by professionals such as public health administrators, dieticians, physicians, and activists in the same or related field(s).

By offering educational events as well as our publications and website, Transcontinental Humanitarian Corp. is educating the public on subjects useful to individuals and beneficial to the community and is advocating and defending human and civil rights secured by law.

Ambassador Program

Transcontinental Humanitarian Corp. seeks out opportunities for community outreach through our ambassador program which involves sending ambassador(s) to fulfill our mission of raising awareness and funds for chronic malnutrition and hunger by utilizing a variety of means such as charity mountaineering expeditions and clinics, charity motorcycle rides, photography, and writing. Through these means, the issue of chronic malnutrition and hunger will be highlighted and brought to the attention of diverse audiences. An example of this program is the Transcontinental Humanitarian Expedition, a global motorcycle ride to address the chronic malnutrition and hunger in a unique way which receives elaborate media and public attention. The expedition reports can be seen on our website at: www.motorcyclememoir.com.

The funds received through the entirety of the corporation’s activities will be used exclusively for the charitable purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code and will not be used for personal gains of any sort.

Disaster Relief

Transcontinental Humanitarian Corp. aims to provide disaster relief aid in the form of food and water to the severely disadvantaged who are affected by either a lack of existing community resources or a lack of funding and supplies to existing local infrastructures in the time of need. Transcontinental Humanitarian Corp. operates and focuses its resources locally and globally to communities who meet the aforementioned criteria regardless of their geographical location.

Examples of the severely disadvantaged populations would be those affected by natural disasters and the displaced victims of sectarian and ethnic violence such as the devastating results of Hurricane Katrina in the states of Louisiana and Mississippi and refugees of Rwanda civil war in Africa.

11.4 million refugees are under the care of the United Nations. It is estimated that the total number of those who have been displaced has surpassed 25 million world-wide as of 2009. The total for 2006 was 9.9 million (source: The Office of the United Nations High Commissioner for Refugees).

We provide disaster relief aid through organizing volunteers to serve in affected areas by coordinating and carrying out the distribution of food and water. The provisions will be derived from our general fund and public support.

Distribution to Other Organizations and Individuals

We do not fundraise for any specific organization and Transcontinental Humanitarian Corp. is not organized solely to contribute or fundraise for any specific entity. However, at the discretion of the board of directors we may at times, choose to contribute to other organizations who share a similar mission and only if the contributions further our exempt status, with the objective to eliminate and alleviate chronic malnutrition and hunger.

One example of an organization which we may contribute to is the “Friends of the World Food Programme” (EIN 13-3843435) which is a U.S.-based, nonprofit, nonpartisan 501 (c)(3) tax-exempt charitable organization that focuses on building support in the United States for the United Nations World Food Programme (WFP) and other hunger relief operations which shares a similar mission to Transcontinental Humanitarian Corporation. WFP is the world’s largest humanitarian organization, working to put hunger at the center of the international agenda and promoting policies, strategies and operations that directly benefit the poor and hungry.

Transcontinental Humanitarian Corp. may exercise its right under law to contribute to non 501 (c)(3) organizations only on the condition that Transcontinental Humanitarian Corp. retains control over the use of the funds and maintaining records showing that the funds are used for exclusively charitable purposes in accordance to our mission.

Programs for Volunteers

At times, per the discretion of the board of directors, we may provide internships or volunteer opportunities which will provide opportunities for involvement in outreach activities and programs in order to have a greater impact for change. One of the activities that volunteers may be involved in is basic education on topics such as nutrition, diet, agricultural techniques, livestock growing, and water treatment in order to promote sustainability. Such activities shall always be free of charge to participants and will not include compensation to the volunteers.

Multimedia

It is our goal to bring awareness from every medium possible and this does not exclude documentaries and photos of our activities, projects, programs and expeditions. By documenting and reporting our efforts we intend to broaden our outreach. These multimedia features will be recorded by our volunteers during the aforementioned activities and will be available to the public.

Charity Mountaineering Expeditions and Clinics

As part of our expeditionary activities, we will organize charity mountaineering expeditions in order to raise funds and awareness for the cause. These expeditions will be carried on by our volunteer guides to assist novice climbers to do a good deed by participating in a charity climb.  These expeditions and clinics will be open to the public. All proceeds from such expeditions will be added to our general fund and shall be used to further our exempt status.

Foreign Activities

In general, our foreign activities can be summed up into four categories: expeditions, contributions, disaster relief and aid, and educational programs.

• Foreign expeditions will include our expeditions such as mountaineering and motorcycle rides as has been detailed in the Narrative of our Activities: subtitled: Charity mountaineering expeditions and clinics and also Ambassador Program.

• Foreign contributions will include assistance given to individuals or organizations outside of the United States which have been selected by the board of directors after conducting due diligence and a thorough investigation. The process of selection is in accordance with all applicable laws and regulations concerning our exempt status such as collecting information (i.e. physical address, phone number, mailing address, website, relationships with other organizations, financial standing which includes past and present, and governance).

• Foreign disaster relief and aid will include our efforts to provide aid to victims of natural disasters and/or of sectarian and ethnic violence as has been detailed in our Narrative of our Activities subtitled: Disaster relief

• Foreign educational programs will include our efforts to provide educational based lectures, slideshows, and in-field training and instruction as has been detailed in our Narrative of our Activities subtitled: Education.

Please Note:

• Section 1.501(c)(3)-1(d)(2) of the regulations states that the term “charitable” is used in section 501(c)(3) of the Code in its generally accepted legal sense and includes the defense of human and civil rights secured by law.

• Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations states that the term “charitable” is used in section 501(c)(3) of the Code in its generally accepted legal sense and includes the advancement of education.

• Section 1.501(c)(3)-1(d)(3)(i)(a) of the regulations states that the term educational, as used in IRC 501(c)(3), relates to the instruction or training of the individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community.

• Example 2 in Section 1.501(c)(3)-1(d)(3)(ii) of the regulations, makes it clear that “An organization whose activities consist of presenting public discussion groups, forums, panels, lectures, or other similar programs,” is educational.

• Section 501(c)(3) of the Internal Revenue Code provides tax exemption for organizations organized and operated exclusively for charitable and/or educational purposes.

Financial Information

The sources of the corporation’s income derive from personal resources and public donations.  Additional income sources will include grants, sponsorship and fundraising. The corporation disposes its income through the decisions made by its board of directors or through the decisions of the duly elected treasurer, whose power to pay expenses is set out by the board or the corporation’s bylaws in accordance to the corporation’s purpose.  Expenses paid by the corporation include, but are not limited to: equipment purchases and rentals, ambassador’s salary and boarding, insurance premiums, internet web site fees, publications, advertising, and miscellaneous board expenses.

Form 1023, Part III,  Question 1. Section 501(c)(3) requires that your organizing document state your exempt purpose(s), such as charitable, religious, educational, and/or scientific purposes. Check the box to confirm that your organizing document meets this requirement. Describe specifically where your organizing document meets this requirement, such as a reference to a particular article or section in your organizing document. Refer to the instructions for exempt purpose language.

This is where you utter the following words like a sheep. Don’t change it, add to it or alter it. This is the language that IRS understand so write it like a parrot in your articles of incorporation. Besides just copying and pasting these sentences, you need to believe in them. This is the meat and bone of a charity, so take it to heart:

YOUR ENTITY’S NAME is organized exclusively (Pick one: for  religious,
charitable, scientific, literary or educational)  purposes including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code. No part of the net earnings of YOUR ENTITY’S NAME shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in the purpose clause hereof.

The followings are the answers to the second question on section 2b and 2c. These go inside your articles of incorporation as well. Skip 2c since you will not be relying on the state to dissolve your assets.

No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of any candidate for public office.

Notwithstanding any other provision of this document, the corporation shall not carry on any other activities not permitted to be carried on (a) by any organization exempt from federal income tax under section 501 (c) (3) of the Internal Revenue Code, corresponding section of any future federal tax code, or (b) by an organization, contributions to which are deductible under section 170 (c) (2) of the Internal Revenue Code, or corresponding section of any future federal tax code.

YOUR ENTITY’S NAME is not organized and shall not be operated for the private gain of any person. The property of the corporation is irrevocably dedicated to its (pick one: educational, religious, charitable) purposes. No part of the receipts, or net earnings of the corporation shall inure to the benefit of, or be distributed to any individual. The corporation may, however, pay reasonable compensation for services rendered, and make other payments and distributions consistent with these Articles.”

An organization described in subsection (c) or (d) or section 401 (a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503.

(b) Tax on unrelated business income and certain other activities

An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in parts II, III, and VI of this subchapter, but (notwithstanding parts II, III, and VI of this subchapter) shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes.

(c) List of exempt organizations

The following organizations are referred to in subsection (a):

(1) Any corporation organized under Act of Congress which is an instrumentality of the United States but only if such corporation—

(A) is exempt from Federal income taxes—

(i) under such Act as amended and supplemented before July 18, 1984, or

(ii) under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act, or

(B) is described in subsection (l).

(2) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt under this section. Rules similar to the rules of subparagraph (G) of paragraph (25) shall apply for purposes of this paragraph.

(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

(4)

(A) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.

(B) Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.

(5) Labor, agricultural, or horticultural organizations.

(6) Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

(7) Clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder.

(8) Fraternal beneficiary societies, orders, or associations—

(A) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and

(B) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents.

(9) Voluntary employees’ beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents or designated beneficiaries, if no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual. For purposes of providing for the payment of sick and accident benefits to members of such an association and their dependents, the term “dependent” shall include any individual who is a child (as defined in section 152(f)(1)) of a member who as of the end of the calendar year has not attained age 27.

(10) Domestic fraternal societies, orders, or associations, operating under the lodge system—

(A) the net earnings of which are devoted exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and

(B) which do not provide for the payment of life, sick, accident, or other benefits.

(11) Teachers’ retirement fund associations of a purely local character, if—

(A) no part of their net earnings inures (other than through payment of retirement benefits) to the benefit of any private shareholder or individual, and

(B) the income consists solely of amounts received from public taxation, amounts received from assessments on the teaching salaries of members, and income in respect of investments.

(12)

(A) Benevolent life insurance associations of a purely local character, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations; but only if 85 percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses.

(B) In the case of a mutual or cooperative telephone company, subparagraph (A) shall be applied without taking into account any income received or accrued—

(i) from a nonmember telephone company for the performance of communication services which involve members of the mutual or cooperative telephone company,

(ii) from qualified pole rentals,

(iii) from the sale of display listings in a directory furnished to the members of the mutual or cooperative telephone company, or

(iv) from the prepayment of a loan under section 306A, 306B, or 311 ^[1] of the Rural Electrification Act of 1936 (as in effect on January 1, 1987).

(C) In the case of a mutual or cooperative electric company, subparagraph (A) shall be applied without taking into account any income received or accrued—

(i) from qualified pole rentals, or

(ii) from any provision or sale of electric energy transmission services or ancillary services if such services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by FERC or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member),

(iii) from the provision or sale of electric energy distribution services or ancillary services if such services are provided on a nondiscriminatory open access basis to distribute electric energy not owned by the mutual or electric cooperative company—

(I) to end-users who are served by distribution facilities not owned by such company or any of its members (other than income received or accrued directly or indirectly from a member), or

(II) generated by a generation facility not owned or leased by such company or any of its members and which is directly connected to distribution facilities owned by such company or any of its members (other than income received or accrued directly or indirectly from a member),

(iv) from any nuclear decommissioning transaction, or

(v) from any asset exchange or conversion transaction.

(D) For purposes of this paragraph, the term “qualified pole rental” means any rental of a pole (or other structure used to support wires) if such pole (or other structure)—

(i) is used by the telephone or electric company to support one or more wires which are used by such company in providing telephone or electric services to its members, and

(ii) is used pursuant to the rental to support one or more wires (in addition to the wires described in clause (i)) for use in connection with the transmission by wire of electricity or of telephone or other communications.

For purposes of the preceding sentence, the term “rental” includes any sale of the right to use the pole (or other structure).

(E) For purposes of subparagraph (C)(ii), the term “FERC” means the Federal Energy Regulatory Commission and references to such term shall be treated as including the Public Utility Commission of Texas with respect to any ERCOT utility (as defined in section 212(k)(2)(B) of the Federal Power Act (16 U.S.C. 824k (k)(2)(B))).

(F) For purposes of subparagraph (C)(iv), the term “nuclear decommissioning transaction” means—

(i) any transfer into a trust, fund, or instrument established to pay any nuclear decommissioning costs if the transfer is in connection with the transfer of the mutual or cooperative electric company’s interest in a nuclear power plant or nuclear power plant unit,

(ii) any distribution from any trust, fund, or instrument established to pay any nuclear decommissioning costs, or

(iii) any earnings from any trust, fund, or instrument established to pay any nuclear decommissioning costs.

(G) For purposes of subparagraph (C)(v), the term “asset exchange or conversion transaction” means any voluntary exchange or involuntary conversion of any property related to generating, transmitting, distributing, or selling electric energy by a mutual or cooperative electric company, the gain from which qualifies for deferred recognition under section 1031 or 1033, but only if the replacement property acquired by such company pursuant to such section constitutes property which is used, or to be used, for—

(i) generating, transmitting, distributing, or selling electric energy, or

(ii) producing, transmitting, distributing, or selling natural gas.

(H)

(i) In the case of a mutual or cooperative electric company described in this paragraph or an organization described in section1381 (a)(2)(C), income received or accrued from a load loss transaction shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.

(ii) For purposes of clause (i), the term “load loss transaction” means any wholesale or retail sale of electric energy (other than to members) to the extent that the aggregate sales during the recovery period do not exceed the load loss mitigation sales limit for such period.

(iii) For purposes of clause (ii), the load loss mitigation sales limit for the recovery period is the sum of the annual load losses for each year of such period.

(iv) For purposes of clause (iii), a mutual or cooperative electric company’s annual load loss for each year of the recovery period is the amount (if any) by which—

(I) the megawatt hours of electric energy sold during such year to members of such electric company are less than

(II) the megawatt hours of electric energy sold during the base year to such members.

(v) For purposes of clause (iv)(II), the term “base year” means—

(I) the calendar year preceding the start-up year, or

(II) at the election of the mutual or cooperative electric company, the second or third calendar years preceding the start-up year.

(vi) For purposes of this subparagraph, the recovery period is the 7-year period beginning with the start-up year.

(vii) For purposes of this subparagraph, the start-up year is the first year that the mutual or cooperative electric company offers nondiscriminatory open access or the calendar year which includes the date of the enactment of this subparagraph, if later, at the election of such company.

(viii) A company shall not fail to be treated as a mutual or cooperative electric company for purposes of this paragraph or as a corporation operating on a cooperative basis for purposes of section 1381 (a)(2)(C) by reason of the treatment under clause (i).

(ix) For purposes of subparagraph (A), in the case of a mutual or cooperative electric company, income received, or accrued, indirectly from a member shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses.

(13) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for the purpose of the disposal of bodies by burial or cremation which is not permitted by its charter to engage in any business not necessarily incident to that purpose and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

(14)

(A) Credit unions without capital stock organized and operated for mutual purposes and without profit.

(B) Corporations or associations without capital stock organized before September 1, 1957, and operated for mutual purposes and without profit for the purpose of providing reserve funds for, and insurance of shares or deposits in—

(i) domestic building and loan associations,

(ii) cooperative banks without capital stock organized and operated for mutual purposes and without profit,

(iii) mutual savings banks not having capital stock represented by shares, or

(iv) mutual savings banks described in section 591 (b) ^[2]

(C) Corporations or associations organized before September 1, 1957, and operated for mutual purposes and without profit for the purpose of providing reserve funds for associations or banks described in clause (i), (ii), or (iii) of subparagraph (B); but only if 85 percent or more of the income is attributable to providing such reserve funds and to investments. This subparagraph shall not apply to any corporation or association entitled to exemption under subparagraph (B).

(15)

(A) Insurance companies (as defined in section 816 (a)) other than life (including interinsurers and reciprocal underwriters) if—

(i)

(I) the gross receipts for the taxable year do not exceed $600,000, and

(II) more than 50 percent of such gross receipts consist of premiums, or

(ii) in the case of a mutual insurance company—

(I) the gross receipts of which for the taxable year do not exceed $150,000, and

(II) more than 35 percent of such gross receipts consist of premiums.

Clause (ii) shall not apply to a company if any employee of the company, or a member of the employee’s family (as defined in section 2032A (e)(2)), is an employee of another company exempt from taxation by reason of this paragraph (or would be so exempt but for this sentence).

(B) For purposes of subparagraph (A), in determining whether any company or association is described in subparagraph (A), such company or association shall be treated as receiving during the taxable year amounts described in subparagraph (A) which are received during such year by all other companies or associations which are members of the same controlled group as the insurance company or association for which the determination is being made.

(C) For purposes of subparagraph (B), the term “controlled group” has the meaning given such term by section 831 (b)(2)(B)(ii), except that in applying section 831 (b)(2)(B)(ii) for purposes of this subparagraph, subparagraphs (B) and (C) of section 1563 (b)(2) shall be disregarded.

(16) Corporations organized by an association subject to part IV of this subchapter or members thereof, for the purpose of financing the ordinary crop operations of such members or other producers, and operated in conjunction with such association. Exemption shall not be denied any such corporation because it has capital stock, if the dividend rate of such stock is fixed at not to exceed the legal rate of interest in the State of incorporation or 8 percent per annum, whichever is greater, on the value of the consideration for which the stock was issued, and if substantially all such stock (other than nonvoting preferred stock, the owners of which are not entitled or permitted to participate, directly or indirectly, in the profits of the corporation, on dissolution or otherwise, beyond the fixed dividends) is owned by such association, or members thereof; nor shall exemption be denied any such corporation because there is accumulated and maintained by it a reserve required by State law or a reasonable reserve for any necessary purpose.

(17)

(A) A trust or trusts forming part of a plan providing for the payment of supplemental unemployment compensation benefits, if—

(i) under the plan, it is impossible, at any time prior to the satisfaction of all liabilities, with respect to employees under the plan, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of supplemental unemployment compensation benefits,

(ii) such benefits are payable to employees under a classification which is set forth in the plan and which is found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414 (q)), and

(iii) such benefits do not discriminate in favor of employees who are highly compensated employees (within the meaning of section414 (q)). A plan shall not be considered discriminatory within the meaning of this clause merely because the benefits received under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of the employees covered by the plan.

(B) In determining whether a plan meets the requirements of subparagraph (A), any benefits provided under any other plan shall not be taken into consideration, except that a plan shall not be considered discriminatory—

(i) merely because the benefits under the plan which are first determined in a nondiscriminatory manner within the meaning of subparagraph (A) are then reduced by any sick, accident, or unemployment compensation benefits received under State or Federal law (or reduced by a portion of such benefits if determined in a nondiscriminatory manner), or

(ii) merely because the plan provides only for employees who are not eligible to receive sick, accident, or unemployment compensation benefits under State or Federal law the same benefits (or a portion of such benefits if determined in a nondiscriminatory manner) which such employees would receive under such laws if such employees were eligible for such benefits, or

(iii) merely because the plan provides only for employees who are not eligible under another plan (which meets the requirements of subparagraph (A)) of supplemental unemployment compensation benefits provided wholly by the employer the same benefits (or a portion of such benefits if determined in a nondiscriminatory manner) which such employees would receive under such other plan if such employees were eligible under such other plan, but only if the employees eligible under both plans would make a classification which would be nondiscriminatory within the meaning of subparagraph (A).

(C) A plan shall be considered to meet the requirements of subparagraph (A) during the whole of any year of the plan if on one day in each quarter it satisfies such requirements.

(D) The term “supplemental unemployment compensation benefits” means only—

(i) benefits which are paid to an employee because of his involuntary separation from the employment of the employer (whether or not such separation is temporary) resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions, and

(ii) sick and accident benefits subordinate to the benefits described in clause (i).

(E) Exemption shall not be denied under subsection (a) to any organization entitled to such exemption as an association described in paragraph (9) of this subsection merely because such organization provides for the payment of supplemental unemployment benefits (as defined in subparagraph (D)(i)).

(18) A trust or trusts created before June 25, 1959, forming part of a plan providing for the payment of benefits under a pension plan funded only by contributions of employees, if—

(A) under the plan, it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the plan, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of benefits under the plan,

(B) such benefits are payable to employees under a classification which is set forth in the plan and which is found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414 (q)),

(C) such benefits do not discriminate in favor of employees who are highly compensated employees (within the meaning of section 414 (q)). A plan shall not be considered discriminatory within the meaning of this subparagraph merely because the benefits received under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of the employees covered by the plan, and

(D) in the case of a plan under which an employee may designate certain contributions as deductible—

(i) such contributions do not exceed the amount with respect to which a deduction is allowable under section 219 (b)(3),

(ii) requirements similar to the requirements of section 401 (k)(3)(A)(ii) are met with respect to such elective contributions,

(iii) such contributions are treated as elective deferrals for purposes of section 402 (g), and

(iv) the requirements of section 401 (a)(30) are met.

For purposes of subparagraph (D)(ii), rules similar to the rules of section401 (k)(8) shall apply. For purposes of section 4979, any excess contribution under clause (ii) shall be treated as an excess contribution under a cash or deferred arrangement.

(19) A post or organization of past or present members of the Armed Forces of the United States, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization—

(A) organized in the United States or any of its possessions,

(B) at least 75 percent of the members of which are past or present members of the Armed Forces of the United States and substantially all of the other members of which are individuals who are cadets or are spouses, widows,,^[3] widowers, ancestors, or lineal descendants of past or present members of the Armed Forces of the United States or of cadets, and

(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual.

(20) an ^[4] organization or trust created or organized in the United States, the exclusive function of which is to form part of a qualified group legal services plan or plans, within the meaning of section 120. An organization or trust which receives contributions because of section 120 (c)(5)(C) shall not be prevented from qualifying as an organization described in this paragraph merely because it provides legal services or indemnification against the cost of legal services unassociated with a qualified group legal services plan.

(21)

(A) A trust or trusts established in writing, created or organized in the United States, and contributed to by any person (except an insurance company) if—

(i) the purpose of such trust or trusts is exclusively—

(I) to satisfy, in whole or in part, the liability of such person for, or with respect to, claims for compensation for disability or death due to pneumoconiosis under Black Lung Acts,

(II) to pay premiums for insurance exclusively covering such liability,

(III) to pay administrative and other incidental expenses of such trust in connection with the operation of the trust and the processing of claims against such person under Black Lung Acts, and

(IV) to pay accident or health benefits for retired miners and their spouses and dependents (including administrative and other incidental expenses of such trust in connection therewith) or premiums for insurance exclusively covering such benefits; and

(ii) no part of the assets of the trust may be used for, or diverted to, any purpose other than—

(I) the purposes described in clause (i),

(II) investment (but only to the extent that the trustee determines that a portion of the assets is not currently needed for the purposes described in clause (i)) in qualified investments, or

(III) payment into the Black Lung Disability Trust Fund established under section 9501, or into the general fund of the United States Treasury (other than in satisfaction of any tax or other civil or criminal liability of the person who established or contributed to the trust).

(B) No deduction shall be allowed under this chapter for any payment described in subparagraph (A)(i)(IV) from such trust.

(C) Payments described in subparagraph (A)(i)(IV) may be made from such trust during a taxable year only to the extent that the aggregate amount of such payments during such taxable year does not exceed the excess (if any), as of the close of the preceding taxable year, of—

(i) the fair market value of the assets of the trust, over

(ii) 110 percent of the present value of the liability described in subparagraph (A)(i)(I) of such person.

The determinations under the preceding sentence shall be made by an independent actuary using actuarial methods and assumptions (not inconsistent with the regulations prescribed under section 192 (c)(1)(A)) each of which is reasonable and which are reasonable in the aggregate.

(D) For purposes of this paragraph:

(i) The term “Black Lung Acts” means part C of title IV of the Federal Mine Safety and Health Act of 1977, and any State law providing compensation for disability or death due to that pneumoconiosis.

(ii) The term “qualified investments” means—

(I) public debt securities of the United States,

(II) obligations of a State or local government which are not in default as to principal or interest, and

(III) time or demand deposits in a bank (as defined in section581) or an insured credit union (within the meaning of section 101(7) of the Federal Credit Union Act, 12 U.S.C. 1752 (7)) located in the United States.

(iii) The term “miner” has the same meaning as such term has when used in section 402(d) of the Black Lung Benefits Act (30 U.S.C. 902(d)).

(iv) The term “incidental expenses” includes legal, accounting, actuarial, and trustee expenses.

(22) A trust created or organized in the United States and established in writing by the plan sponsors of multiemployer plans if—

(A) the purpose of such trust is exclu­sively—

(i) to pay any amount described in section 4223(c) or (h) of the Employee Retirement Income Security Act of 1974, and

(ii) to pay reasonable and necessary administrative expenses in connection with the establishment and operation of the trust and the processing of claims against the trust,

(B) no part of the assets of the trust may be used for, or diverted to, any purpose other than—

(i) the purposes described in subparagraph (A), or

(ii) the investment in securities, obligations, or time or demand deposits described in clause (ii) of paragraph (21)(D),

(C) such trust meets the requirements of paragraphs (2), (3), and (4) of section 4223 (b), 4223 (h), or, if applicable, section 4223(c) of the Employee Retirement Income Security Act of 1974, and

(D) the trust instrument provides that, on dissolution of the trust, assets of the trust may not be paid other than to plans which have participated in the plan or, in the case of a trust established under section 4223(h) of such Act, to plans with respect to which employers have participated in the fund.

(23) Any association organized before 1880 more than 75 percent of the members of which are present or past members of the Armed Forces and a principal purpose of which is to provide insurance and other benefits to veterans or their dependents.

(24) A trust described in section 4049 of the Employee Retirement Income Security Act of 1974 (as in effect on the date of the enactment of the Single-Employer Pension Plan Amendments Act of 1986).

(25)

(A) Any corporation or trust which—

(i) has no more than 35 shareholders or beneficiaries,

(ii) has only 1 class of stock or beneficial interest, and

(iii) is organized for the exclusive purposes of—

(I) acquiring real property and holding title to, and collecting income from, such property, and

(II) remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust.

For purposes of clause (iii), the term “real property” shall not include any interest as a tenant in common (or similar interest) and shall not include any indirect interest.

(B) A corporation or trust shall be described in subparagraph (A) without regard to whether the corporation or trust is organized by 1 or more organizations described in subparagraph (C).

(C) An organization is described in this subparagraph if such organization is—

(i) a qualified pension, profit sharing, or stock bonus plan that meets the requirements of section 401 (a),

(ii) a governmental plan (within the meaning of section 414 (d)),

(iii) the United States, any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing, or

(iv) any organization described in paragraph (3).

(D) A corporation or trust shall in no event be treated as described in subparagraph (A) unless such corporation or trust permits its shareholders or beneficiaries—

(i) to dismiss the corporation’s or trust’s investment adviser, following reasonable notice, upon a vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust, and

(ii) to terminate their interest in the corporation or trust by either, or both, of the following alternatives, as determined by the corporation or trust:

(I) by selling or exchanging their stock in the corporation or interest in the trust (subject to any Federal or State securities law) to any organization described in subparagraph (C) so long as the sale or exchange does not increase the number of shareholders or beneficiaries in such corporation or trust above 35, or

(II) by having their stock or interest redeemed by the corporation or trust after the shareholder or beneficiary has provided 90 days notice to such corporation or trust.

(E)

(i) For purposes of this title—

(I) a corporation which is a qualified subsidiary shall not be treated as a separate corporation, and

(II) all assets, liabilities, and items of income, deduction, and credit of a qualified subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the corporation or trust described in subparagraph (A).

(ii) For purposes of this subparagraph, the term “qualified subsidiary” means any corporation if, at all times during the period such corporation was in existence, 100 percent of the stock of such corporation is held by the corporation or trust described in subparagraph (A).

(iii) For purposes of this subtitle, if any corporation which was a qualified subsidiary ceases to meet the requirements of clause (ii), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the corporation or trust described in subparagraph (A) in exchange for its stock.

(F) For purposes of subparagraph (A), the term “real property” includes any personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property (determined under the rules of section 856 (d)(1)) for the taxable year does not exceed 15 percent of the total rent for the taxable year attributable to both the real and personal property leased under, or in connection with, such lease.

(G)

(i) An organization shall not be treated as failing to be described in this paragraph merely by reason of the receipt of any otherwise disqualifying income which is incidentally derived from the holding of real property.

(ii) Clause (i) shall not apply if the amount of gross income described in such clause exceeds 10 percent of the organization’s gross income for the taxable year unless the organization establishes to the satisfaction of the Secretary that the receipt of gross income described in clause (i) in excess of such limitation was inadvertent and reasonable steps are being taken to correct the circumstances giving rise to such income.

(26) Any membership organization if—

(A) such organization is established by a State exclusively to provide coverage for medical care (as defined in section 213 (d)) on a not-for-profit basis to individuals described in subparagraph (B) through—

(i) insurance issued by the organization, or

(ii) a health maintenance organization under an arrangement with the organization,

(B) the only individuals receiving such coverage through the organization are individuals—

(i) who are residents of such State, and

(ii) who, by reason of the existence or history of a medical condition—

(I) are unable to acquire medical care coverage for such condition through insurance or from a health maintenance organization, or

(II) are able to acquire such coverage only at a rate which is substantially in excess of the rate for such coverage through the membership organization,

(C) the composition of the membership in such organization is specified by such State, and

(D) no part of the net earnings of the organization inures to the benefit of any private shareholder or individual.

A spouse and any qualifying child (as defined in section 24(c)) of an individual described in subparagraph (B) (without regard to this sentence) shall be treated as described in subparagraph (B).

(27)

(A) Any membership organization if—

(i) such organization is established before June 1, 1996, by a State exclusively to reimburse its members for losses arising under workmen’s compensation acts,

(ii) such State requires that the membership of such organization consist of—

(I) all persons who issue insurance covering workmen’s compensation losses in such State, and

(II) all persons and governmental entities who self-insure against such losses, and

(iii) such organization operates as a non-profit organization by—

(I) returning surplus income to its members or workmen’s compensation policyholders on a periodic basis, and

(II) reducing initial premiums in anticipation of investment income.

(B) Any organization (including a mutual insurance company) if—

(i) such organization is created by State law and is organized and operated under State law exclusively to—

(I) provide workmen’s compensation insurance which is required by State law or with respect to which State law provides significant disincentives if such insurance is not purchased by an employer, and

(II) provide related coverage which is incidental to workmen’s compensation insurance,

(ii) such organization must provide workmen’s compensation insurance to any employer in the State (for employees in the State or temporarily assigned out-of-State) which seeks such insurance and meets other reasonable requirements relating thereto,

(iii)

(I) the State makes a financial commitment with respect to such organization either by extending the full faith and credit of the State to the initial debt of such organization or by providing the initial operating capital of such organization, and

(II) in the case of periods after the date of enactment of this subparagraph, the assets of such organization revert to the State upon dissolution or State law does not permit the dissolution of such organization, and

(iv) the majority of the board of directors or oversight body of such organization are appointed by the chief executive officer or other executive branch official of the State, by the State legislature, or by both.

(28) The National Railroad Retirement Investment Trust established under section 15(j) of the Railroad Retirement Act of 1974.

(29) CO–OP health insurance issuers.—

(A) In general.— A qualified nonprofit health insurance issuer (within the meaning of section 1322 of the Patient Protection and Affordable Care Act) which has received a loan or grant under the CO–OP program under such section, but only with respect to periods for which the issuer is in compliance with the requirements of such section and any agreement with respect to the loan or grant.

(B) Conditions for exemption.— Subparagraph (A) shall apply to an organization only if—

(i) the organization has given notice to the Secretary, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of its status under this paragraph,

(ii) except as provided in section 1322(c)(4) of the Patient Protection and Affordable Care Act, no part of the net earnings of which inures to the benefit of any private shareholder or individual,

(iii) no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and

(iv) the organization does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

(d) Religious and apostolic organizations

The following organizations are referred to in subsection (a): Religious or apostolic associations or corporations, if such associations or corporations have a common treasury or community treasury, even if such associations or corporations engage in business for the common benefit of the members, but only if the members thereof include (at the time of filing their returns) in their gross income their entire pro rata shares, whether distributed or not, of the taxable income of the association or corporation for such year. Any amount so included in the gross income of a member shall be treated as a dividend received.

(e) Cooperative hospital service organizations

For purposes of this title, an organization shall be treated as an organization organized and operated exclusively for charitable purposes, if—

(1) such organization is organized and operated solely—

(A) to perform, on a centralized basis, one or more of the following services which, if performed on its own behalf by a hospital which is an organization described in subsection (c)(3) and exempt from taxation under subsection (a), would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption: data processing, purchasing (including the purchasing of insurance on a group basis), warehousing, billing and collection (including the purchase of patron accounts receivable on a recourse basis), food, clinical, industrial engineering, laboratory, printing, communications, record center, and personnel (including selection, testing, training, and education of personnel) services; and

(B) to perform such services solely for two or more hospitals each of which is—

(i) an organization described in subsection (c)(3) which is exempt from taxation under subsection (a),

(ii) a constituent part of an organization described in subsection (c)(3) which is exempt from taxation under subsection (a) and which, if organized and operated as a separate entity, would constitute an organization described in subsection (c)(3), or

(iii) owned and operated by the United States, a State, the District of Columbia, or a possession of the United States, or a political subdivision or an agency or instrumentality of any of the foregoing;

(2) such organization is organized and operated on a cooperative basis and allocates or pays, within 81/2 months after the close of its taxable year, all net earnings to patrons on the basis of services performed for them; and

(3) if such organization has capital stock, all of such stock outstanding is owned by its patrons.

For purposes of this title, any organization which, by reason of the preceding sentence, is an organization described in subsection (c)(3) and exempt from taxation under subsection (a), shall be treated as a hospital and as an organization referred to in section 170 (b)(1)(A)(iii).

(f) Cooperative service organizations of operating educational organizations

For purposes of this title, if an organization is—

(1) organized and operated solely to hold, commingle, and collectively invest and reinvest (including arranging for and supervising the performance by independent contractors of investment services related thereto) in stocks and securities, the moneys contributed thereto by each of the members of such organization, and to collect income therefrom and turn over the entire amount thereof, less expenses, to such members,

(2) organized and controlled by one or more such members, and

(3) comprised solely of members that are organizations described in clause (ii) or (iv) of section 170 (b)(1)(A)—

(A) which are exempt from taxation under subsection (a), or

(B) the income of which is excluded from taxation under section 115(a),

then such organization shall be treated as an organization organized and operated exclusively for charitable purposes.

(g) Definition of agricultural

For purposes of subsection (c)(5), the term “agricultural” includes the art or science of cultivating land, harvesting crops or aquatic resources, or raising livestock.

(h) Expenditures by public charities to influence legislation

(1) General rule

In the case of an organization to which this subsection applies, exemption from taxation under subsection (a) shall be denied because a substantial part of the activities of such organization consists of carrying on propaganda, or otherwise attempting, to influence legislation, but only if such organization normally—

(A) makes lobbying expenditures in excess of the lobbying ceiling amount for such organization for each taxable year, or

(B) makes grass roots expenditures in excess of the grass roots ceiling amount for such organization for each taxable year.

(2) Definitions

For purposes of this subsection—

(A) Lobbying expenditures

The term “lobbying expenditures” means expenditures for the purpose of influencing legislation (as defined in section 4911 (d)).

(B) Lobbying ceiling amount

The lobbying ceiling amount for any organization for any taxable year is 150 percent of the lobbying nontaxable amount for such organization for such taxable year, determined under section 4911.

(C) Grass roots expenditures

The term “grass roots expenditures” means expenditures for the purpose of influencing legislation (as defined in section 4911 (d)without regard to paragraph (1)(B) thereof).

(D) Grass roots ceiling amount

The grass roots ceiling amount for any organization for any taxable year is 150 percent of the grass roots nontaxable amount for such organization for such taxable year, determined under section 4911.

(3) Organizations to which this subsection applies

This subsection shall apply to any organization which has elected (in such manner and at such time as the Secretary may prescribe) to have the provisions of this subsection apply to such organization and which, for the taxable year which includes the date the election is made, is described in subsection (c)(3) and—

(A) is described in paragraph (4), and

(B) is not a disqualified organization under paragraph (5).

(4) Organizations permitted to elect to have this subsection apply

An organization is described in this paragraph if it is described in—

(A) section 170 (b)(1)(A)(ii) (relating to educational institutions),

(B) section 170 (b)(1)(A)(iii) (relating to hospitals and medical research organizations),

(C) section 170 (b)(1)(A)(iv) (relating to organizations supporting government schools),

(D) section 170 (b)(1)(A)(vi) (relating to organizations publicly supported by charitable contributions),

(E) section 509 (a)(2) (relating to organizations publicly supported by admissions, sales, etc.), or

(F) section 509 (a)(3) (relating to organizations supporting certain types of public charities) except that for purposes of this subparagraph, section 509 (a)(3) shall be applied without regard to the last sentence of section 509 (a).

(5) Disqualified organizations

For purposes of paragraph (3) an organization is a disqualified organization if it is—

(A) described in section 170 (b)(1)(A)(i) (relating to churches),

(B) an integrated auxiliary of a church or of a convention or association of churches, or

(C) a member of an affiliated group of organizations (within the meaning of section 4911 (f)(2)) if one or more members of such group is described in subparagraph (A) or (B).

(6) Years for which election is effective

An election by an organization under this subsection shall be effective for all taxable years of such organization which—

(A) end after the date the election is made, and

(B) begin before the date the election is revoked by such organization (under regulations prescribed by the Secretary).

(7) No effect on certain organizations

With respect to any organization for a taxable year for which—

(A) such organization is a disqualified organization (within the meaning of paragraph (5)), or

(B) an election under this subsection is not in effect for such organization,

nothing in this subsection or in section 4911 shall be construed to affect the interpretation of the phrase, “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation,” under subsection (c)(3).

(8) Affiliated organizations

For rules regarding affiliated organizations, see section 4911 (f).

(i) Prohibition of discrimination by certain social clubs

Notwithstanding subsection (a), an organization which is described in subsection (c)(7) shall not be exempt from taxation under subsection (a) for any taxable year if, at any time during such taxable year, the charter, bylaws, or other governing instrument, of such organization or any written policy statement of such organization contains a provision which provides for discrimination against any person on the basis of race, color, or religion. The preceding sentence to the extent it relates to discrimination on the basis of religion shall not apply to—

(1) an auxiliary of a fraternal beneficiary society if such society—

(A) is described in subsection (c)(8) and exempt from tax under subsection (a), and

(B) limits its membership to the members of a particular religion, or

(2) a club which in good faith limits its membership to the members of a particular religion in order to further the teachings or principles of that religion, and not to exclude individuals of a particular race or color.

(j) Special rules for certain amateur sports organizations

(1) In general

In the case of a qualified amateur sports organization—

(A) the requirement of subsection (c)(3) that no part of its activities involve the provision of athletic facilities or equipment shall not apply, and

(B) such organization shall not fail to meet the requirements of subsection (c)(3) merely because its membership is local or regional in nature.

(2) Qualified amateur sports organization defined

For purposes of this subsection, the term “qualified amateur sports organization” means any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports.

(k) Treatment of certain organizations providing child care

For purposes of subsection (c)(3) of this section and sections 170 (c)(2), 2055(a)(2), and 2522 (a)(2), the term “educational purposes” includes the providing of care of children away from their homes if—

(1) substantially all of the care provided by the organization is for purposes of enabling individuals to be gainfully employed, and

(2) the services provided by the organization are available to the general public.

(l) Government corporations exempt under subsection (c)(1)

For purposes of subsection (c)(1), the following organizations are described in this subsection:

(1) The Central Liquidity Facility established under title III of the Federal Credit Union Act (12 U.S.C. 1795 et seq.).

(2) The Resolution Trust Corporation established under section 21A of the Federal Home Loan Bank Act.

(3) The Resolution Funding Corporation established under section 21B of the Federal Home Loan Bank Act.

(4) The Patient-Centered Outcomes Research Institute established under section 1181(b) of the Social Security Act.

(m) Certain organizations providing commercial-type insurance not exempt from tax

(1) Denial of tax exemption where providing commercial-type insurance is substantial part of activities

An organization described in paragraph (3) or (4) of subsection (c) shall be exempt from tax under subsection (a) only if no substantial part of its activities consists of providing commercial-type insurance.

(2) Other organizations taxed as insurance companies on insurance business

In the case of an organization described in paragraph (3) or (4) of subsection (c) which is exempt from tax under subsection (a) after the application of paragraph (1) of this subsection—

(A) the activity of providing commercial-type insurance shall be treated as an unrelated trade or business (as defined in section 513), and

(B) in lieu of the tax imposed by section 511 with respect to such activity, such organization shall be treated as an insurance company for purposes of applying subchapter L with respect to such activity.

(3) Commercial-type insurance

For purposes of this subsection, the term “commercial-type insurance” shall not include—

(A) insurance provided at substantially below cost to a class of charitable recipients,

(B) incidental health insurance provided by a health maintenance organization of a kind customarily provided by such organizations,

(C) property or casualty insurance provided (directly or through an organization described in section 414 (e)(3)(B)(ii)) by a church or convention or association of churches for such church or convention or association of churches,

(D) providing retirement or welfare benefits (or both) by a church or a convention or association of churches (directly or through an organization described in section 414 (e)(3)(A) or 414 (e)(3)(B)(ii)) for the employees (including employees described in section 414(e)(3)(B)) of such church or convention or association of churches or the beneficiaries of such employees, and

(E) charitable gift annuities.

(4) Insurance includes annuities

For purposes of this subsection, the issuance of annuity contracts shall be treated as providing insurance.

(5) Charitable gift annuity

For purposes of paragraph (3)(E), the term “charitable gift annuity” means an annuity if—

(A) a portion of the amount paid in connection with the issuance of the annuity is allowable as a deduction under section 170 or 2055, and

(B) the annuity is described in section 514 (c)(5) (determined as if any amount paid in cash in connection with such issuance were property).

(n) Charitable risk pools

(1) In general

For purposes of this title—

(A) a qualified charitable risk pool shall be treated as an organization organized and operated exclusively for charitable purposes, and

(B) subsection (m) shall not apply to a qualified charitable risk pool.

(2) Qualified charitable risk pool

For purposes of this subsection, the term “qualified charitable risk pool” means any organization—

(A) which is organized and operated solely to pool insurable risks of its members (other than risks related to medical malpractice) and to provide information to its members with respect to loss control and risk management,

(B) which is comprised solely of members that are organizations described in subsection (c)(3) and exempt from tax under subsection (a), and

(C) which meets the organizational requirements of paragraph (3).

(3) Organizational requirements

An organization (hereinafter in this subsection referred to as the “risk pool”) meets the organizational requirements of this paragraph if—

(A) such risk pool is organized as a nonprofit organization under State law provisions authorizing risk pooling arrangements for charitable organizations,

(B) such risk pool is exempt from any income tax imposed by the State (or will be so exempt after such pool qualifies as an organization exempt from tax under this title),

(C) such risk pool has obtained at least $1,000,000 in startup capital from nonmember charitable organizations,

(D) such risk pool is controlled by a board of directors elected by its members, and

(E) the organizational documents of such risk pool require that—

(i) each member of such pool shall at all times be an organization described in subsection (c)(3) and exempt from tax under subsection (a),

(ii) any member which receives a final determination that it no longer qualifies as an organization described in subsection (c)(3) shall immediately notify the pool of such determination and the effective date of such determination, and

(iii) each policy of insurance issued by the risk pool shall provide that such policy will not cover the insured with respect to events occurring after the date such final determination was issued to the insured.

An organization shall not cease to qualify as a qualified charitable risk pool solely by reason of the failure of any of its members to continue to be an organization described in subsection (c)(3) if, within a reasonable period of time after such pool is notified as required under subparagraph (E)(ii), such pool takes such action as may be reasonably necessary to remove such member from such pool.

(4) Other definitions

For purposes of this subsection—

(A) Startup capital

The term “startup capital” means any capital contributed to, and any program-related investments (within the meaning of section 4944 (c)) made in, the risk pool before such pool commences operations.

(B) Nonmember charitable organization

The term “nonmember charitable organization” means any organization which is described in subsection (c)(3) and exempt from tax under subsection (a) and which is not a member of the risk pool and does not benefit (directly or indirectly) from the insurance coverage provided by the pool to its members.

(o) Treatment of hospitals participating in provider-sponsored organizations

An organization shall not fail to be treated as organized and operated exclusively for a charitable purpose for purposes of subsection (c)(3) solely because a hospital which is owned and operated by such organization participates in a provider-sponsored organization (as defined in section 1855(d) of the Social Security Act), whether or not the provider-sponsored organization is exempt from tax. For purposes of subsection (c)(3), any person with a material financial interest in such a provider-sponsored organization shall be treated as a private shareholder or individual with respect to the hospital.

(p) Suspension of tax-exempt status of terrorist organizations

(1) In general

The exemption from tax under subsection (a) with respect to any organization described in paragraph (2), and the eligibility of any organization described in paragraph (2) to apply for recognition of exemption under subsection (a), shall be suspended during the period described in paragraph (3).

(2) Terrorist organizations

An organization is described in this paragraph if such organization is designated or otherwise individually identified—

(A) under section 212(a)(3)(B)(vi)(II) or 219 of the Immigration and Nationality Act as a terrorist organization or foreign terrorist organization,

(B) in or pursuant to an Executive order which is related to terrorism and issued under the authority of the International Emergency Economic Powers Act or section 5 of the United Nations Participation Act of 1945 for the purpose of imposing on such organization an economic or other sanction, or

(C) in or pursuant to an Executive order issued under the authority of any Federal law if—

(i) the organization is designated or otherwise individually identified in or pursuant to such Executive order as supporting or engaging in terrorist activity (as defined in section 212(a)(3)(B) of the Immigration and Nationality Act) or supporting terrorism (as defined in section 140(d)(2) of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989); and

(ii) such Executive order refers to this subsection.

(3) Period of suspension

With respect to any organization described in paragraph (2), the period of suspension—

(A) begins on the later of—

(i) the date of the first publication of a designation or identification described in paragraph (2) with respect to such organization, or

(ii) the date of the enactment of this subsection, and

(B) ends on the first date that all designations and identifications described in paragraph (2) with respect to such organization are rescinded pursuant to the law or Executive order under which such designation or identification was made.

(4) Denial of deduction

No deduction shall be allowed under any provision of this title, including sections 170, 545 (b)(2), 556 (b)(2),^[5] 642 (c), 2055, 2106 (a)(2), and 2522, with respect to any contribution to an organization described in paragraph (2) during the period described in paragraph (3).

(5) Denial of administrative or judicial challenge of suspension or denial of deduction

Notwithstanding section 7428 or any other provision of law, no organization or other person may challenge a suspension under paragraph (1), a designation or identification described in paragraph (2), the period of suspension described in paragraph (3), or a denial of a deduction under paragraph (4) in any administrative or judicial proceeding relating to the Federal tax liability of such organization or other person.

(6) Erroneous designation

(A) In general

If—

(i) the tax exemption of any organization described in paragraph (2) is suspended under paragraph (1),

(ii) each designation and identification described in paragraph (2) which has been made with respect to such organization is determined to be erroneous pursuant to the law or Executive order under which such designation or identification was made, and

(iii) the erroneous designations and identifications result in an overpayment of income tax for any taxable year by such organization,

credit or refund (with interest) with respect to such overpayment shall be made.

(B) Waiver of limitations

If the credit or refund of any overpayment of tax described in subparagraph (A)(iii) is prevented at any time by the operation of any law or rule of law (including res judicata), such credit or refund may nevertheless be allowed or made if the claim therefor is filed before the close of the 1-year period beginning on the date of the last determination described in subparagraph (A)(ii).

(7) Notice of suspensions

If the tax exemption of any organization is suspended under this subsection, the Internal Revenue Service shall update the listings of tax-exempt organizations and shall publish appropriate notice to taxpayers of such suspension and of the fact that contributions to such organization are not deductible during the period of such suspension.

(q) Special rules for credit counseling organizations

(1) In general

An organization with respect to which the provision of credit counseling services is a substantial purpose shall not be exempt from tax under subsection (a) unless such organization is described in paragraph (3) or (4) of subsection (c) and such organization is organized and operated in accordance with the following requirements:

(A) The organization—

(i) provides credit counseling services tailored to the specific needs and circumstances of consumers,

(ii) makes no loans to debtors (other than loans with no fees or interest) and does not negotiate the making of loans on behalf of debtors,

(iii) provides services for the purpose of improving a consumer’s credit record, credit history, or credit rating only to the extent that such services are incidental to providing credit counseling services, and

(iv) does not charge any separately stated fee for services for the purpose of improving any consumer’s credit record, credit history, or credit rating.

(B) The organization does not refuse to provide credit counseling services to a consumer due to the inability of the consumer to pay, the ineligibility of the consumer for debt management plan enrollment, or the unwillingness of the consumer to enroll in a debt management plan.

(C) The organization establishes and implements a fee policy which—

(i) requires that any fees charged to a consumer for services are reasonable,

(ii) allows for the waiver of fees if the consumer is unable to pay, and

(iii) except to the extent allowed by State law, prohibits charging any fee based in whole or in part on a percentage of the consumer’s debt, the consumer’s payments to be made pursuant to a debt management plan, or the projected or actual savings to the consumer resulting from enrolling in a debt management plan.

(D) At all times the organization has a board of directors or other governing body—

(i) which is controlled by persons who represent the broad interests of the public, such as public officials acting in their capacities as such, persons having special knowledge or expertise in credit or financial education, and community leaders,

(ii) not more than 20 percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially, directly or indirectly, from the organization’s activities (other than through the receipt of reasonable directors’ fees or the repayment of consumer debt to creditors other than the credit counseling organization or its affiliates), and

(iii) not more than 49 percent of the voting power of which is vested in persons who are employed by the organization or who will benefit financially, directly or indirectly, from the organization’s activities (other than through the receipt of reasonable directors’ fees).

(E) The organization does not own more than 35 percent of—

(i) the total combined voting power of any corporation (other than a corporation which is an organization described in subsection (c)(3) and exempt from tax under subsection (a)) which is in the trade or business of lending money, repairing credit, or providing debt management plan services, payment processing, or similar services,

(ii) the profits interest of any partnership (other than a partnership which is an organization described in subsection (c)(3) and exempt from tax under subsection (a)) which is in the trade or business of lending money, repairing credit, or providing debt management plan services, payment processing, or similar services, and

(iii) the beneficial interest of any trust or estate (other than a trust which is an organization described in subsection (c)(3) and exempt from tax under subsection (a)) which is in the trade or business of lending money, repairing credit, or providing debt management plan services, payment processing, or similar services.

(F) The organization receives no amount for providing referrals to others for debt management plan services, and pays no amount to others for obtaining referrals of consumers.

(2) Additional requirements for organizations described in subsection (c)(3)

(A) In general

In addition to the requirements under paragraph (1), an organization with respect to which the provision of credit counseling services is a substantial purpose and which is described in paragraph (3) of subsection (c) shall not be exempt from tax under subsection (a) unless such organization is organized and operated in accordance with the following requirements:

(i) The organization does not solicit contributions from consumers during the initial counseling process or while the consumer is receiving services from the organization.

(ii) The aggregate revenues of the organization which are from payments of creditors of consumers of the organization and which are attributable to debt management plan services do not exceed the applicable percentage of the total revenues of the organization.

(B) Applicable percentage

(i) In general For purposes of subparagraph (A)(ii), the applicable percentage is 50 percent.

(ii) Transition rule Notwithstanding clause (i), in the case of an organization with respect to which the provision of credit counseling services is a substantial purpose and which is described in paragraph (3) of subsection (c) and exempt from tax under subsection (a) on the date of the enactment of this subsection, the applicable percentage is—

(I) 80 percent for the first taxable year of such organization beginning after the date which is 1 year after the date of the enactment of this subsection, and

(II) 70 percent for the second such taxable year beginning after such date, and

(III) 60 percent for the third such taxable year beginning after such date.

(3) Additional requirement for organizations described in subsection (c)(4)

In addition to the requirements under paragraph (1), an organization with respect to which the provision of credit counseling services is a substantial purpose and which is described in paragraph (4) of subsection (c) shall not be exempt from tax under subsection (a) unless such organization notifies the Secretary, in such manner as the Secretary may by regulations prescribe, that it is applying for recognition as a credit counseling organization.

(4) Credit counseling services; debt management plan services

For purposes of this subsection—

(A) Credit counseling services

The term “credit counseling services” means—

(i) the providing of educational information to the general public on budgeting, personal finance, financial literacy, saving and spending practices, and the sound use of consumer credit,

(ii) the assisting of individuals and families with financial problems by providing them with counseling, or

(iii) a combination of the activities described in clauses (i) and (ii).

(B) Debt management plan services

The term “debt management plan services” means services related to the repayment, consolidation, or restructuring of a consumer’s debt, and includes the negotiation with creditors of lower interest rates, the waiver or reduction of fees, and the marketing and processing of debt management plans.

(r) Additional requirements for certain hospitals

(1) In general

A hospital organization to which this subsection applies shall not be treated as described in subsection (c)(3) unless the organization—

(A) meets the community health needs assessment requirements described in paragraph (3),

(B) meets the financial assistance policy requirements described in paragraph (4),

(C) meets the requirements on charges described in paragraph (5), and

(D) meets the billing and collection requirement described in paragraph (6).

(2) Hospital organizations to which subsection applies

(A) In general

This subsection shall apply to—

(i) an organization which operates a facility which is required by a State to be licensed, registered, or similarly recognized as a hospital, and

(ii) any other organization which the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption under subsection (c)(3) (determined without regard to this subsection).

(B) Organizations with more than 1 hospital facility

If a hospital organization operates more than 1 hospital facility—

(i) the organization shall meet the requirements of this subsection separately with respect to each such facility, and

(ii) the organization shall not be treated as described in subsection (c)(3) with respect to any such facility for which such requirements are not separately met.

(3) Community health needs assessments

(A) In general

An organization meets the requirements of this paragraph with respect to any taxable year only if the organization—

(i) has conducted a community health needs assessment which meets the requirements of subparagraph (B) in such taxable year or in either of the 2 taxable years immediately preceding such taxable year, and

(ii) has adopted an implementation strategy to meet the community health needs identified through such assessment.

(B) Community health needs assessment

A community health needs assessment meets the requirements of this paragraph if such community health needs assessment—

(i) takes into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health, and

(ii) is made widely available to the public.

(4) Financial assistance policy

An organization meets the requirements of this paragraph if the organization establishes the following policies:

(A) Financial assistance policy

A written financial assistance policy which includes—

(i) eligibility criteria for financial assistance, and whether such assistance includes free or discounted care,

(ii) the basis for calculating amounts charged to patients,

(iii) the method for applying for financial assistance,

(iv) in the case of an organization which does not have a separate billing and collections policy, the actions the organization may take in the event of non-payment, including collections action and reporting to credit agencies, and

(v) measures to widely publicize the policy within the community to be served by the organization.

(B) Policy relating to emergency medical care

A written policy requiring the organization to provide, without discrimination, care for emergency medical conditions (within the meaning of section 1867 of the Social Security Act (42 U.S.C. 1395dd)) to individuals regardless of their eligibility under the financial assistance policy described in subparagraph (A).

(5) Limitation on charges

An organization meets the requirements of this paragraph if the organization—

(A) limits amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the financial assistance policy described in paragraph (4)(A) to not more than the amounts generally billed to individuals who have insurance covering such care, and

(B) prohibits the use of gross charges.

(6) Billing and collection requirements

An organization meets the requirement of this paragraph only if the organization does not engage in extraordinary collection actions before the organization has made reasonable efforts to determine whether the individual is eligible for assistance under the financial assistance policy described in paragraph (4)(A).

(7) Regulatory authority

The Secretary shall issue such regulations and guidance as may be necessary to carry out the provisions of this subsection, including guidance relating to what constitutes reasonable efforts to determine the eligibility of a patient under a financial assistance policy for purposes of paragraph (6).

Who this website is for:

This website is for those who truly want to help others and their nonprofit mission complies with the IRS definition minus the religious part:

Solely for charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.

Who this website is not for:

• Religious organizations i.e. churches, mosques, temples,… (Religious entities should pay taxes like everyone else. Believing in god shouldn’t exempt you from contributing to your country’s welfare.)
• Organizations formed solely to support other organizations
• For-profit entities wanting to become a non-profit. (In my experience, 99% of this group want to avoid paying taxes with no real intention of doing good.)
• Educational organizations i.e. schools, colleges, universities. (This group should seek professional assistance)
• Medical organization i.e. hospitals, clinics, wellness centers. (This group should seek professional assistance)
• Insurance providing entities. (This group should seek professional assistance)
• Private Foundations. (This group should seek professional assistance)
• Private Operating Foundations. (This group should seek professional assistance)

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