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Q: Unrelated Business Income - Can the org sell stuff and make money?
There is a thing called “Unrelated Business Income Tax” or “UBI.” For any funds obtained under UBI, you will most likely be required to pay income tax. UBI is a tax placed on funding/monies received that are not generated by conducting an activity that generates revenue, which is not is directly related to an organization’s mission.
For example, in the simplest form, if your organization owns a parking lot, and it rents out the lot to a business so they have a place for their customers to park, that income is not related to your stated purposes. So those funds would be considered UBI, and you (the organization) would have to pay income on those funds. Even if you use that money to fund your programs – it is unrelated to your activities and you’ll need to report it at the end of the year.
According to the IRS, "For most organizations, an activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements:
It is a trade or business, It is regularly carried on, and It is not substantially related to furthering the exempt purpose of the organization.
Read more: Q: Unrelated Business Income - Can the org sell stuff and make money?
Q: Who can serve on my BOD - can it just be me?
In most states, you’ll at least want a president, a vice-president, a secretary and a treasurer or a secretary/treasurer.
Most states will require at least 3 (three) individuals at a minimum. So with 4 (four) officer positions on your board, that means one person can serve as both the Secretary and the Treasurer, if you only have 3 individuals. The President should not also serve in any other Board position. The other thing you will need is the addresses of each of your officers and members-at-large. You should note that in MOST states, they will require the HOME address of your officers - you cannot use your organization or an office address for such individuals. So be sure to get that information from your BOD. Again - this is MOST, but not all, states, so if you’re not sure - call your state to ask!
So those rules were state-specific, now let’s review the basic rules for the IRS, with respect to BOD officers. According to the IRS, unless absolutely necessary, your officers should not be related, they should not live in the same household, nor should they live in a different state from the location of the organization’s primary delivery of services location. So when forming your board, try to not include persons who are related and/or living in the same household. Additionally, you should make sure officers are not “disqualified” individuals.
Q: What is a Private Foundation?
A "private" foundation can be described as a nonprofit, non-governmental organization with a principle fund or endowment of its own. Foundations are dedicated to providing a common good for society and that good usually is in the form of providing funds for individuals, businesses who conduct research and development and nonprofit organizations. This year Private Foundations will give away billions of dollars in grants.
A "private" foundationon is organized for many reasons. The main reason is that Foundations are exempt from taxes. However, in order to retain this tax exempt status A FOUNDATION MUST BY LAW GIVE AWAY AT LEAST 5% OF ITS TOTAL ASSETS EVERY YEAR. This serves as an excellent tax shelter for companies and individuals. How these funds are distributed is left up to the organizations/foundations themselves. There are Foundations that specialize in giving aid to women who are widowed or divorced while others may give money for everyday living expenses, depending, of course, on your needs! Most private foundations are found right in your local phone book and all you have to do is call them to find out what they fund and what their requirements are to submit a request for funding.
If you are an individual, or you own a business that conducts research and development or provides job services, if you have a non-profit organization, or serve in city government, city department, etc. and your organization needs and wants to obtain a GRANT, you usually must first submit an Application and then a Grant Proposal to the Foundation or Government Agency, depending on their guidelines...BUT YOU MUST KNOW WHICH ONE TO APPLY TO BEFORE YOU START! You also need to know WHERE TO GET THE APPLICATIONS and you need to have a proposal to submit to these organizations or agencies, describing your program! There are over 35,000 private Foundations in the United States, and they all give money away.
Q: Am I a Nonprofit if I just get Incorporated?
If you have ever tried to fill out all those IRS 1023 32 page application form and attempted to deal with the mounds of confusing paperwork -- then you know how difficult and time consuming obtaining your non-profit status can be - which is why most people hope that just by filing their “Nonprofit Incorporation” or “Nonprofit Charter” – that means they’re tax-exempt and can immediately start getting grants.
THIS IS SIMPLY NOT TRUE! You MUST obtain tax-exempt status from the IRS!
This requires you to fill out the dreaded 32-page plus 1023 Application, feared by just about anyone who’s ever attempted to read through it, let alone complete it.
You most likely know that as a tax-exempt corporation, you’ll be eligible to obtain private and public grants. Not just that, but you’ll also be able to solicit and accept tax-deductible donations from corporate donors, public entities, and private citizens – all of which are critical to not just your fundraising efforts, but the success of your organization.
The good news is that tax-exempt 501(c)(3) status tells your potential donors that you are a legitimate and well-organized entity. It is for all those reasons we recommend you move forward with obtaining your tax-exempt status, and make sure you don’t just stop at your obtaining your articles of incorporation.
Have a question or need help setting up your tax-exempt, 501(c)(3), nonprofit organization? Call us at 1.865.408.8833, Comment below, or email us directly, and we'll get back with you ASAP! Just click This email address is being protected from spambots. You need JavaScript enabled to view it. to send an email!
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Nonprofit Quarterly
Non Profit News | Nonprofit Quarterly
03 December 2023
Journalism for Non-profit Organizations and Leaders
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Progressive Organizations Must Speak Up about Palestine
Two movement leaders write a call to action telling US-based nonprofits to take a stand on Palestine and push philanthropy to respond to the ongoing crisis.
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With Help from the Donors of Color Network, Two Organizations Are Creating Change
The Climate Justice Founders Pledge is an initiative from the Donors of Color Network. NPQ’s conversation highlighting their work continues with a look at two organizations working for climate and racial justice.
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UNESCO World Heritage Designation in Ohio Honors Indigenous Culture
Eight locations in Ohio have received the unique honor of becoming UNESCO World Heritage Sites. Native leaders hope the designation will bring recognition of the importance of Hopewell culture.