501c3 IRS tax-exempt status, nonprofit incorporation for charitable, educational, religious orgs

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Frequently Asked Questions (FAQS)

    • 1. When can we start giving tax-deductible receipts?
      The answer to this question is not a simple one, and over the years we have learned to be very careful about how we answer it. It depends on a variety of factors. Once you are a client of ours, we can have a discussion about this and enable you to accept donations at the earliest possible moment. If you call the IRS and ask the question, they will most likely tell you that you cannot give tax-deductible receipts until you receive your Determination Letter. And if you are trying to do your own 501c3 application, we would say the same thing. If you do not use our service to obtain your 501c3 status, we would never ever say that you can give tax-deductible receipts earlier than receiving your letter recognizing your nonprofit as having 501c3 status. However, our 30-year experience has enabled us to craft a way for you to give tax-deductible receipts within a couple of weeks of becoming our client. Do you have someone waiting to give you a donation but who wants assurance that the gift will be ultimately tax-deductible? Become our client, and you will be able to give that assurance and accept the donation.

    • 2. What about directors? How many do we need? How do we select them?
      Directors have 100% control of the corporation. It is very important that you have trustworthy directors. The IRS requires a minimum of three. You can have as many as thirty. We recommend an odd number to avoid a deadlock in voting. If you want more than thirty directors, you can amend your Bylaws once you have obtained tax-exempt status.

      The directors vote for the officers (president, vice-president, secretary and treasurer) and can normally change them at any time (absent a contract to the contrary). Here's a brief story to keep in mind: A man operated a nonprofit organization for 16 years. He, his wife, and a third director comprised the board of directors. When his wife divorced him, she joined up with the third director, and they removed him from his organization. After 16 years of sweat and toil in his own nonprofit, he was out in the street. Choose your directors wisely.

    • 3. Do the directors and officers have to live in my state? Be U.S. citizens?
      No, they can live anywhere in the U.S. or reside abroad. They can be U.S. citizens or foreign nationals. Normally, your treasurer must be a U.S. citizen or a legal U.S. resident, and the accounting records for the organization must be kept in the U.S. If the organization has no U.S. presence, it may still obtain tax-exempt status (e.g., to get grants), but donations to it would not normally be tax-deductible.

    • 4. How long does the process take?
      Once we get a questionnaire back from you, it takes about a week to prepare your documents. We guarantee to send you your documents within five business days or we pay you $200. States take varying amounts of time to file the Articles of Incorporation. After your application is sent to the IRS, it may be 2 months, 3 months or up to 8, 9, or 10 months before you receive your tax-exempt status (and sometimes even longer, especially if the IRS needs additional information from you in order to make its determination, but this is the exception). The IRS is very backlogged currently. See our information from the IRS about how long it takes.

    • 5. Will your fees and state and federal filing fees be tax-deductible?
      Well, here's the problem. You have no entity that is nonprofit to give you a receipt for your payment to us or for state and federal fees. So how can these payments be tax-deductible? Well, we have a procedure and a legal document that will allow these fees to be tax-deductible to you.

    • 6. What does your service NOT cover?
      Other than your corporate documents (Articles, Bylaws, etc.), we do not handle anything on the state level. State, county and city laws and regulations vary state by state, county by county and city by city. Normally, you should be able to handle them on your own. Likewise for state tax-exempt status (automatic or almost automatic for most states) Click here to see what your state requires for state tax-exempt status.

    • 7. What do your Questionnaires consist of?
      We e-mail you our Corporation Questionnaire and 501c3 Questionnaire(s). They are Word documents and consist of questions designed to elicit the required information from you. You type your answers right on the Questionnaires and e-mail them back to us. In this way, we get all the information from you to prepare all your documents. Of course, we give you guidance to answering the questions right on the questionnaires themselves, and we are also available by phone should you need additional guidance. With the 501c3 Questionnaire, we also give you sample answers taken from cases that sped through the IRS process in less than six weeks.

    • 8. What about the bookkeeping and tax returns after I get nonprofit status? Will I be able to handle this?
      It is complex to secure nonprofit status, but once you have the status, it is surprisingly easy to do the bookkeeping in most cases. Tax returns are not required to be filed for nonprofit organizations until gross revenues are more than $25,000 per year (Page 8-9 of IRS Publication 557, Rev. March, 2005). There are no federal tax returns required for churches. Most states require no tax returns from the organization (California is an exception). If your annual income exceeds $25,000, you will need to fill out the Form 990 informational tax return. If you are a private foundation, tax returns are more complex. With any organization, you need to keep good track of income and expenses.

    • 9. What if I have already filed my Articles of Incorporation? Do you have a reduced fee?
      Yes, you will be on Plan B, and your fee is reduced by $200.

    • 10. What about being under someone else’s nonprofit?
      Be careful. There may be a problem lurking here. Tax-exempt status from the IRS is not something that can be passed around like a winter jacket. The IRS says that if you are going to be a subordinate organization included in a group exemption letter, you must be, in relation to the central organization, “subject to its general supervision or control” (Page 7 of IRS Publication 557, Rev. March, 2005). Is that something you want? Will you truly be subject to the general supervision or control of that organization? If not, you could be looking at problems with the IRS.

    • 11. I have some problems with the IRS—past tax returns, an audit, owing them money, etc. Also, I have problems with my credit. I’m currently in bankruptcy. Will this affect getting tax-exempt status?
      Good news! Not at all. These problems will not in any way affect our ability to get your incorporated and obtain tax-exempt status (possible exception for corporate bankruptcy for Arizona incorporation).

    • 12. Do you have lawyers and CPA’s on staff?
      Incorporation and creating corporate documents are a job for a lawyer, not a CPA or a layman. A CPA normally cannot create corporate legal documents. Tax-exempt status is a job for a lawyer or CPA. Founder/Director David Marmon is a Harvard-trained lawyer, licensed to practice law in California (inactive), Kansas (active) and before the U.S. Supreme Court. He is not currently active in practice, and he does not give legal or accounting advice. The work we will do for you will not be done as a lawyer. We want to keep the cost down for you. We would have to charge you three to five times as much if we did our work for you as lawyers do. A few years back, a good lawyer friend sent us an e-mail stating, "We are quoting $7,000-$8,000 for fees plus the costs. The most recent organization I worked on was an educational nonprofit which ended up paying close to $10,000…." Clients have come to us with quotes as high as $10,000 from lawyers they have contacted. (This was before the IRS greatly increased the paperwork for 501(c)(3) applications in 2006.) If you desire legal or tax advice, you should contact a lawyer or CPA.

      We do not give you any specific legal advice. If you have legal questions, you should consult a lawyer. We give you the benefit of our twenty-nine years of experience, but we will not give you specific legal advice. We take you through the process of incorporation and tax-exempt status in a standard way.

      We use the corporate legal documents, the Articles of Incorporation, the Bylaws, and other documents that we have developed since 1981 and that have been proven acceptable to the IRS. If later, you want to tailor your Bylaws to some specific need or desire (for example, to add an Advisory Board), you can amend them after the process is finished and you have your 501(c)(3) Determination Letter. We give you a sample form for a corporate resolution to amend your Bylaws, but we will not specifically advise you. We caution you to be very careful in making any substantive changes to our Bylaws. Unless you’re a lawyer, you may not know the ramifications of doing so. For example, your state law may have certain requirements you are unaware of.

    • 13. They're not called "Articles of Incorporation" in my state. What about this?
      Different states call the basic organizational document by different names: Articles of Incorporation, Certificate of Incorporation, Articles of Organization, Articles of Agreement, Articles of Association or Charter. For simplicity, we call them Articles, or Articles of Incorporation. This is sometimes called the charter or constitution of the organization.

    • 14. We don’t have an office yet for our nonprofit organization or a location yet for our church/congregation/school. Can we still get tax-exempt status?
      Yes. You can have your nonprofit office in your home, and your church or congregation can meet in someone’s home. Neither of these situations will keep you from getting tax-exempt status.

      To be classified as a school, you must have facilities where the educational activities are regularly carried on. If your school does not have facilities, it can still get tax-exempt status as an educational organization.

    • 15. Do you file the Articles in my state?
      In the past, we did that, but we found a much better and faster way. We prepare your Articles and cover letter to meet all your state requirements and e-mail them to you as Adobe PDF files. You open the files, print them out, and follow our simple and concise instructions. We tell you how many originals and how many copies you need to send and how to make out your check to your Secretary of State. No more snail mail between you and us. Much faster to get you up and going.

    • 16. What is the difference between general nonprofit status and church nonprofit status with the IRS?
      You can obtain tax-exempt status for a nonprofit organization on the basis of a future plan. This is not true of church status. You must have a current operating church to obtain church status. Churches do not file any tax returns. A very small church, and/or one made up mostly of family members, may obtain 501(c)(3) status as a general nonprofit until it is large enough to qualify as a church.

    • 17. What about the IRS User Fee?
      The IRS charges a $400 or $850 User Fee to process your application. If your projected annual gross income for your first three years of operation (or up to five past years of operation if Plan B) is under $10,000 per year, then the $400 user fee applies to you. If it's over $10,000 per year, then the $850 user fee applies.

    • 18. What about sending our Questionnaires back to you?
      We e-mail you each Questionnaire as an MS Word documents. After saving the document, you type the answers right on the document and send us a reply e-mail, attaching the document to it.

    • 19. When we send back our Questionnaires to you, how long does it take you to process it and take the next step for us?
      From the time we receive your completed Questionnaires, we guarantee to e-mail you your documents within five business days or we pay you $200. The five business days excludes weekends, U.S. national holidays and times our web site says we are closed. Since there are two sets of questionnaires (one for state and one for federal), this means that you can have all your documents in a little over a week after you get started (assuming you get the Questionnaires right back to us). Now that is fast! One person came to us around Monday noon and had sent both Corporation and 501c3 questionnaires to us by ten o'clock that night. We had all his documents to him by Friday.

    • 20. What about the 501(c)(3) application, Form 1023, etc.?
      We prepare and send you the 501(c)(3) tax exempt application (Form 1023) for date and signature. We also prepare Schedule A for churches and Schedule B for schools and any other schedules that may apply to you. Using our instructions, you prepare any attachments and attach them to the Form 1023 and include a copy of your Articles and Bylaws (and whatever other documents we instruct you) and your check for the IRS User Fee.

    • 21. What about communicating with the IRS? Will we be communicating directly with the IRS?
      Most often, when you send in your application to the IRS, that is the end of the process for you. You receive a letter acknowledging that your application has been received by the IRS. Then you wait until you receive your determination letter recognizing your tax-exempt status. However, depending on how clearly and completely you described your activities on the 501c3 Questionnaire, it is not uncommon for the IRS to have additional questions for you. Responses to these questions enable the IRS to get a better understanding of your operations in order to determine that your organization is tax-exempt. Sometimes there are questions that were not asked on the form. If they asked all questions on the form that would cover every situation for the myriad types of nonprofits that the IRS handles, it would be a 150-page form.

      If you get additional questions, you will prepare the answers and send them directly to the IRS (we give you a sample cover letter to use). If you don't understand any question from the IRS or feel you need some direction in answering the question, please contact us, and we'll be happy to help you understand it and guide you in the answer.

    • 22. Are there any limitations on the kinds of organizations you will incorporate and obtain nonprofit status for?
      Normally, no. In complex cases, or in cases where you desire incorporation with formal (voting) members, we will decline to perform our incorporation service. We advise you to seek the services of a lawyer in such cases. A church/congregation with informal members (which is what we recommend) is never a problem. (Informal members may be called members, but they do not have voting control over the church/congregation.) However, even in the unusual event that we will not handle the incorporation for you, we can still handle the 501c3 process for you.

    • 23. Is it true that you will put us on your web site? Is there a charge for this?
      We put basic information on our web site for clients who so desire. Those who see your listing can find out basic information about your nonprofit and how to contact you. (We reserve the right to select whom we list.) There is NO CHARGE for this service. Here is a link to the starting page.

    • 24. When the process is over, are we still a part of tax-exempt-status.com? Do you continue to provide a service to us?
      Once we finish the process for you, we step out of the picture. You are completely independent. You are not under our “umbrella” or tied to us in any way. We gently "push you away from the dock" with our final letter full of helpful parting advice and very useful sample forms (Unanimous Written Consent of Directors (for Corporate Resolutions), Resignation of Director or Officer, Unanimous Written Consent of Directors to Set Time and Date for Annual Meeting of Board of Directors, Unanimous Written Consent of Directors to Change Location of Annual Meeting of Board of Directors, Unanimous Written Consent of Directors to Establish End of Annual Accounting Period, Waiver of Notice and Consent to Holding of Annual Meeting of Board of Directors, Minutes of Annual Meeting of Board of Directors, Waiver of Notice and Consent for Special Meeting of Board of Directors and Minutes of Special Meeting of Board of Directors).

      At that point, our service is finished. There are no additional costs and no other services that we perform. But you are still in our family, and you are still on our e-mail list. We get questions all the time from former clients, and where possible we answer them or direct them elsewhere.

    • 25. You refer to Plan B. What is plan B?
      Plan B is when you come to us with your Articles of Incorporation already filed. (Plan A is when you haven't yet filed your Articles of Incorporation). Under Plan B, you save $200, but bear in mind if you try to file your Articles yourself, you have to satisfy the IRS requirements as well as your state requirements. More than half of clients who come to us with Articles already filed end up having to amend their them. Unless you really know what you are doing, you are better off letting us handle your incorporation.

    • 26. What is your refund policy?
      We take 2 steps for you. Step 1, we e-mail you our proprietary and personalized copyrighted Corporation Questionnaire and accompanying personalized and proprietary copyrighted documents. Step 2, we e-mail you our proprietary and personalized copyrighted 501c3 Questionnaire(s) and accompanying personalized and proprietary copyrighted documents.

      When we have taken Step 1 for you, that 50% is non-refundable. When we have taken Step 2 for you, the second 50% is non-refundable. These two steps are normally taken within 24-36 hours after signup.

      Please note that our refund policy is not set up for people who change their minds after they get started. "Be sure you're right, then go ahead." --Davey Crockett

    • 27. Is there a time limit on sending back your Questionnaires?
      You should be able to complete your questionnaires in one day. The Corporation Questionnaire will not normally take more than about 45 minutes. (Add another half hour to read our introductory material.) The 501c3 Questionnaire will normally take two to four hours (attachments and financials will take longer, but you can do those while we are preparing your documentation). Count on another couple of hours if your organization is a church or school.

      You have two months to send us back your completed questionnaires. If you wish, you may extend this period by paying $100 per month (extension fee). The same applies to paying any installment payment.

      If you have not completed both sets of questionnaires (Corporation and 501c3) by the end of six months (and made any payments due), we remove you from our database, and you have lost your investment.

    • 28. What is your privacy policy?
      We do not share or sell any information to third parties. We are not a business but rather a 30 year endeavor to help you help others through your nonprofit. We are an open and transparent community, and as such we freely share non-legal-confidential information within our 501c3 community, such as in occasional newsletters.

    • 29. Why do you mention that your documents look good?
      We believe everything we do in life should be the best we can do and that your legal documents should not only be excellent from a legal point standpoint (most important), but also be esthetic and pleasing to the eye. Generally, legal documents are pretty boring. At least, ours look good! (Exception: Articles of Incorporation and government forms have to follow a specific format and cannot be made to look good.) Take a look at our documents.

    • 30. What if we are outside the U.S.?
      No problem. We incorporate and obtain tax-exempt status for people all over the world. That's one advantage of doing everything by e-mail. Your directors do not need to be U.S. citizens nor reside in the U.S. (see question 3. above for more details.)

    • 31. What about Group Exemptions (Plan C and Plan D)

      Plan C is where you come to us desiring a Group Exemption, and Plan D is used for each of various chapters or churches you wish us to incorporate for you.

      A Group Exemption Letter is given by the IRS to a central 501c3 organization that has subordinates (or chapters) so that the subordinates or chapters do not have to file for their own 501c3 tax-exempt status. We do both the application for the 501c3 and the group exemption for the central organization as well as prepare the corporate and incorporation documents for the subordinate organizations. The IRS User Fee is $3000 for a Group Exemption Letter, and our base fee is $3995. Our fee includes the 501c3 and the central organization incorporation. Our fee for the corporate and incorporation documents is $600 for each subordinate ($1,000 to include California FTB, $800 for Colorado, $900-$1200 for New York). In addition to our base fee, other fees at How Much Does It Cost? may apply. Our fees are exclusive of state and federal filing fees. The group exemption letter can be useful for churches that wish to have "daughter" churches under a head or principal church (denominational model). For chapters of a central organization, think "Boy Scouts." If you already have your IRS501c3 determination letter, our base fee is $2995.

      Group exemptions are for related organizations that are very similar to each other in their structure, purposes and activities. The central organization generally supervises or controls many chapters, called subordinate organizations. An example of this would probably be the Rotary Club or the Boy Scouts of America. To qualify for a group exemption, the central organization and its subordinates must have a defined relationship. Subordinates must be affiliated with the central organization and subject to its supervision or control.

      For more information, please see Group Exemptions Letters.

    • 32. Which state to file in? What about Delaware or Nevada?

      People often think they should file their Articles of Incorporation in Delaware or Nevada because they have heard that these states are better to incorporate in. This is not true. If you have a profit corporation, then Delaware or Nevada can have substantial tax advantages. But there can be no tax advantages for a nonprofit, because there are no taxes! The disadvantage of filing in Delaware or Nevada is that you will have to relate to that state as well as to the state you are operating in. So you end up having to relate to two states. If you have filed in Delaware or Nevada but are operating in State X, you will have to register your Delaware or Nevada corporation in State X as a foreign (i.e., foreign to State X) corporation. You will have to file any annual or bi-annual statements in both states.

      What if you are operating in more than one state? The basic rule is that you must either file Articles in the state you are operating in or, if you file in another state, you must register that foreign corporation in the state you are operating in. In some cases, you may have the choice to file in either State X or State Y or State Z because you aren't really operating in any state (foreign mission work, for example). In this case, we can tell you which state is most favorable to incorporate in. Not all states are equal!

    • 33. What if we already have our own Bylaws?

      We suggest you still take our Bylaws (by not checking on the Sign Up page that you want to use your own Bylaws). There is no charge to take our Bylaws and just see if you would prefer them to yours. If not, you can just toss them. We also include two other necessary documents at no charge: The Action of Board of Directors Adopting the Bylaws or the Unanimous Written Consent of Directors Adopting the Bylaws, and the Certificate of Secretary re Bylaws.

    • 34. How can you assure me I can get my application off to the IRS in a week if my state takes three weeks to file my Articles?

      We've learned a few tricks in our 30 years of helping you get through the IRS process. We're sorry, but you'll only find out about this one when you become a client of ours.

      35. Why do you charge more because we have higher income or assets?
      Higher income and/or assets means more complexity and more scrutiny from the IRS. This can result in more supplemental questions from the IRS and these questions tend to be more complex. It is also our experience that those of you with higher income and/or assets also have more questions for us. In both cases, we spend more time on your case.





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