Nonprofit Basics What is a nonprofit Nonstock corporation

Nonprofit Basics

What is a nonprofit? • Nonstock corporation • Provides for dedication of assets to nonprofit purpose (MGL Ch. 180, Sec. 4) • Benefits cannot be to private individuals 2

Nonprofit vs. Benefit Corporation • Not the same as a nonprofit • For profit corporation that allows some of profits to go to a “benefit” purpose • Some states require benefit reports • Not tax-exempt 3

Lifecycle of a Massachusetts Nonprofit • Formation • Form an entity • Register with Massachusetts Attorney General • File with IRS for Tax Exempt Status • Governance • Adoption of appropriate policies • Maintenance of registration • Employment • Compensation • Volunteers • Dissolution 4

Articles of Organization • Name • Purpose • Address • Fiscal year end • Officers • Directors File Online https: //www. sec. state. ma. us/corpweb/cornp/npfrm. htm 5

Directors • Must have at least one • What talent sets do you need? • Interrelationships an issue 6

Formation Documents • Bylaws • Sole Incorporator Consent • Directors Consent • Policies to minimize risk of abuse and nonexempt activities • • Conflict of Interest and policy acknowledgement Whistleblower Travel/Expense Gift Acceptance 7

Tax Exempt Status • Tax-exempt status exempts a nonprofit from paying corporate income tax on income generated from activities that are substantially related to the purposes for which the group was organized. • Nonprofits are not automatically exempt (for federal OR state tax) • Not all are 501(c)(3) • • (c)(4): civic leagues (c)(6): business leagues, chambers of commerce (c)(7): social and recreational clubs (c)(8): fraternal organizations 8

501(c)(3) organizations fall into one of three primary categories: • Public charities: Designed to directly benefit the public • Activities are restricted to the charitable purpose • Have active program of fundraising and receive contributions from many sources • Cannot be closely held • Private foundations: Designed for the purpose of financially supporting other public charities • Receives donations from limited number of sources • Can be closely held • Excise tax • Private operating foundations: Hybrid (rare). Must directly benefit public • Can be closely held • Can have funding from a limited number of sources 9

How to file with the IRS • EIN • File 1023 or 1023 -EZ with IRS 10

EIN • https: //www. irs. gov/businesses/small-businesses-selfemployed/apply-for-an-employer-identification-number-ein-online • • Select “Begin Application” Then select kind of organization applying for Select if Individual or existing business is applying Fill in the name, address, and other details • Will automatically log out if inactive • Must complete it in one sitting • Get an EIN immediately online upon completion of the application 11

1023 or 1023 -EZ • Recognition of 501(c)(3) tax-exempt status 12

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1023 or 1023 -EZ Complex Simple Up to 6 months to process Up to 3 months to process IRS checks compliance with 501(c)(3) Company must make sure compliant with 501(c)(3) No donation issues Certain foundations have policies stating they will not accept grant applications if company used 1023 -EZ Important to work with nonprofit accountant for preparation of 1023 Possible to complete 1023 -EZ without help from nonprofit accountant 14

Form 1023 Resources • Massachusetts Society of CPAs • Massachusetts Nonprofit Network 15

Register with Massachusetts https: //www. mass. gov/info-details/registering-a-public-charity 16

Register with Massachusetts 17

Solicitation for Donations • Each state has different requirements for soliciting donations from state residents • In Massachusetts, nonprofit must first obtain a Certificate of Solicitation from MA Attorney General (Submit Form PC to get Cert or just A-2 if before Form PC due) • Exception for < $5 k annual contributions • Once nonprofit obtains 501(c)(3) status, donations become tax deductible for donors (retroactive effect back 27 months). • Be clear in Solicitation Letter 18

Maintenance of Registration • Annual report (MA) • Filed by November 1 • Publicly available • Annual Form PC (MA) • Filed 4. 5 months after close of fiscal year • Publicly available • Form 990/990 -EZ(IRS) • Filed 4. 5 months after close of fiscal year 19

Overall Cost One Time Fees Annual Fees Articles of Organization: $35 Annual Report: $15. 00 Form 1023/1023 -EZ: $600/$275 Form 990: $0 -$190 Massachusetts Registration: $100 Form PC: $35 -$2, 000 Accountants? 20

Employment Executive director payment • Independent Review • No more than “fair and reasonable” compensation for services rendered to the organization • Conflict of Interest policy • Pay at similarly situated organizations • Experience, education, other qualities • Reporting • • Form PC (MA Attorney General) IRS Form 990 (Federal) W-2 (Federal) I-9 (Federal) 21

Volunteers • Non Profit organizations may utilize volunteers, but don’t assume everyone working for non profit counts as volunteer • Non Profit Policies • Volunteer Agreement • Conduct Policies 22

Dissolution https: //www. mass. gov/guides/dissolving-a-charity • Where does the money go? 1. Articles 2. Any charitable purpose • Process • Court petition required, possible Attorney General involvement • Revocation for not filing a report for two years 23

Questions? • For more information please visit the Start Up Law Clinic’s website: https: //sites. bu. edu/startuplaw/ • Eligibility: BU and MIT students 24