Joseph Fedorowsky – Legal Blog

Without nonprofit organizations there would be fewer programs for us to share and learn, places for our children to visit or places for seniors to socialize or get support. For some people, volunteering their services makes them proud and useful; it provides them a chance to get out of the house and into the community. Then there are people who are fighting for a cause and know without the additional funds they wouldn’t be able to continue with needed services in a particular community.

You will often be called at your home asked to donate to nonprofit organizations. Examples of nonprofit organizations would include prevention of cruelty to children or animals, national or international sports and public safety as well as various humanitarian issues. But be sure to check out the bona fides of the organization before making a donation.

Joseph Fedorowsky / Legal Blog

A top ten misunderstanding: nonprofit corporations are not necessarily nonprofit. The word nonprofit is somewhat of a misnomer. If the operation of any organization (not including the government, of course) results in no profit, it would likely go out of business!

Nonprofits are, essentially, preferred tax organizations, such that certain taxes are not levied on exempt activities. Taxes are levied, however, on non exempt activities (unrelated business income).

While I’m at it, here’s another top ten misunderstanding: not all nonprofits apply for or receive official 501(c)3 status. Many churches fit in this category. There are, however, benefits of being a federally recognized nonprofit . . . more on that later.

Joseph Fedorowsky / Legal Blog

A nonprofit is initially set up as an organized group or entity under state law for exempt purposes. Nonprofit organizations include, for example, churches, schools and other types of charitable organizations recognized under law. Funds collected for approved exempt purposes must be properly applied to those exempt purposes. Generally, members are not paid, although it may be perrmissible to reasonably compensate management personnel. When such an organization is first formed it is designated as a nonprofit under state incorporation laws and, if later qualified under federal law, the entity would not be subject to certain federal taxes.

Before moving forward to actually set up a nonprofit organization, it is critically important to plan out the process and understand what state and federal laws and regulations apply and exactly how to comply with those laws and regulations. A nonprofit organization which is not properly structured may later be forced to involuntarily convert to a for-profit corporation, a result which is likely have serious, direct tax ramifications for the organization, its organizers and control group.

Joseph Fedorowsky / Legal Blog