Difference between revisions of "FOTSC/501c3"

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(add link to irs pub 557)
(added questions and answers section)
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* We would need to become more disciplined in recording meeting notes and results of voting.
 
* We would need to become more disciplined in recording meeting notes and results of voting.
 
* We would be absolutely prohibited from participating (as a hackerspace) in the political process. (Individuals, of course, could do whatever they want).
 
* We would be absolutely prohibited from participating (as a hackerspace) in the political process. (Individuals, of course, could do whatever they want).
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 +
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==Questions and Answers==
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( I am working on this section -- Mert)
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# What is the difference between nonprofit, tax-exempt and 501(c)3?
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#*  '''nonprofit''' is (quote Texas BOC)
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#* '''tax-exempt''' means (quote pub557)
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#* '''501(c)3''' means (quote pub557)
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# Can the LLC become a 501(c)3?
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#* i1023 p. 7 (quote)
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#* pub557 p. 23 (quote)
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# Can a 501(c)3 have memberships/collect membership dues?
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#* pub557 p. 40 (quote)
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# Can members or others make products for a profit at the hackerspace if we are a 501(c)3?
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#* gjincubator.org
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#* rutgersbiz.com
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#* google "501(c)3 business incubator"
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# Will my membership dues be tax deductible?
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#* pub 526 p 4
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Revision as of 05:57, 10 December 2011

Information on 501c3 organizations

Problem to be solved

When ATX Hackerspace was formed the LLC business form was selected as an expedient and as a way to get things going quickly and simply. As a result we have a form where the LLC can veto any decision of the board or membership. This worked when we were a small cohesive group because we all know and trust the LLC members. However, as we grow into a large diverse group, we may be better served with an organizational form that relies less on interpersonal trust and more on clearly defined roles, responsibilities and limits of power. A 501(c)3 nonprofit may be one way to accomplish this.


What is a 501(c)3

501(c)3 refers to a section of the IRS tax code that provides for a nonprofit organization limited to (among other things) charitable, educational, and scientific purposes. 501(c)3 organizations are exempt from taxes, and can receive donations on a tax deductible basis to the donor. Membership fees, however, are not tax deductible.

A 501(c)3 can be a "public charity" or a "private foundation". We would want to be a public charity if at all possible. Some hackerspaces that have organized as public charities include HacDC (Washington), Noisebridge (San Francisco), Harford Hackerspace (Baltimore), Makers Local 256 (Huntsville), and HeatSyncLabs (Mesa).

A 501(c)3 organization can make a "profit", but the profit must go to further the organization's nonprofit mission. It cannot go to benefit individuals. 501(c)3 nonprofits can hire employees and contractors, and can pay for services.

There are other forms of tax exempt organizations that do not allow for tax deductible donations, but they appear to require similar effort and expense to set up.


Advantages

  • We would be able to receive donations of equipment or funds on a tax deduction basis. This might help us get more neat stuff.
  • We would be able to receive assistance from other 501(c)3 organizations.
  • We may be able to apply for and receive grants, most of which are restricted to 501(c)3 nonprofits.
  • The ideals we have for the space would be formalized.


Disadvantages

  • Application involves considerable time, effort, and expense.
  • There is a $850 application fee. Also, we may require professional assistance with our application.
  • We would need to modify our charter and bylaws.
  • The LLC as it exists cannot become a 501(c)3. We would have to create a new legal structure, either standalone or as a subsidiary of the LLC.
  • We would need to find a way to make the transition that is fair to the LLC.
  • We would need to become more disciplined in recording meeting notes and results of voting.
  • We would be absolutely prohibited from participating (as a hackerspace) in the political process. (Individuals, of course, could do whatever they want).


Questions and Answers

( I am working on this section -- Mert)

  1. What is the difference between nonprofit, tax-exempt and 501(c)3?
    • nonprofit is (quote Texas BOC)
    • tax-exempt means (quote pub557)
    • 501(c)3 means (quote pub557)
  1. Can the LLC become a 501(c)3?
    • i1023 p. 7 (quote)
    • pub557 p. 23 (quote)
  1. Can a 501(c)3 have memberships/collect membership dues?
    • pub557 p. 40 (quote)
  1. Can members or others make products for a profit at the hackerspace if we are a 501(c)3?
    • gjincubator.org
    • rutgersbiz.com
    • google "501(c)3 business incubator"
  1. Will my membership dues be tax deductible?
    • pub 526 p 4


How we would do this

  1. We would obtain a new IRS tax ID number and form a Texas nonprofit corporation ($25).
  2. We would need to modify our bylaws
    • Our mission statement needs to be limited to charitable, scientific and education objectives (this can be done by referencing IRC 501(c)3)
    • We would need to write a "dissolution clause" that says if we disband our assets would go to another 501(c)3 or to the government
    • We may need additional clauses prohibiting private benefit and political activity. example
  3. We fill out IRS form 1023 (instructions) -- all 12 pages plus attachments -- and send it in with a check for $850
  4. If we are complete and clear enough the IRS bureaucrat may give us a ruling that gives us 501(c)3 status
  5. Otherwise our application will be given to an IRS agent who will ask additional questions. We would have a limited time to submit answers and additional documentation
  6. If all goes well the IRS sends us a "ruling letter" advising us of our exempt status. We can then advertise ourselves as a 501(c)3 nonprofit organization.
  7. Every year, in lieu of a tax return, we need to submit IRS form 990 (instructions) advising the IRS of our activities and finances as a nonprofit.


Additional information