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WHAT’S THE DIFFERENCE BETWEEN A NON-PROFIT AND A 501(C)(3) NON-PROFIT?

WHAT’S THE DIFFERENCE BETWEEN A NON-PROFIT CORPORATION AND A 501(c)(3) NON-PROFIT?

By Richard E. “Rick” Dennis
February 24, 2019

DONATION WRITE OFF’S FOR TAX RETURNS.

On social media, a “Hot-Button-Issue” is being debated among horse enthusiasts. With specificity, the topic of conversation pertains to donating to horse rescues whose sole purpose is the care of horses no longer wanted by society, including horses who are abandoned, abused, rescued from the slaughter pipeline or in distress from sickness or disease. Aside from the welfare of the horse itself, the other main interest to the donor can be summed up in one question, “What’s the difference between a non-profit corporation and a non-profit corporation with an IRS 501(c)(3) designation?  More specifically, Which one allows the donor to write off his or her donation on their annual tax return filing? 

My due diligent research into this topic, included an Internal Revenue Service publication as well as similarly related internet articles. An excellent article on this topic is written by Sam Ashe-Edmunds from which excerpts are included in this article.

Non-Profit Corporation:
A non-profit corporation is a state entity that does not automatically come with a federal tax exemption. A non-profit corporation that has been given 501 (c)(3) status by the Internal Revenue Service is not only tax exempt but also allows donors to write off donations. Not every nonprofit organization needs to apply for federal tax-exempt status.

The first step in becoming a non-profit organization begins with a state registration as a non-profit corporation. The entity can make a profit but all of its profits must be put back into the corporation and no members may take profits from the organization. Individuals can be paid a salary, wages or contract fees but they may not take profits that the entity earns.

Each state has its own requirements for a non-profit corporation status and you can find the rules for your state by visiting the website of your Secretary of State. The process is usually simple, requiring paperwork you can file online for a small fee, which is usually less than $100. State non-profit incorporation does not come with federal tax-exempt status but the organization can apply for and receive some tax relief at the state level, such as sales or income tax. Simply stated, some state non-profit organizations never apply for federal tax-exempt status. Therefore, please consult with your Secretary of State in your State of organization.

Tax-exempt Status:
An organization might want to become a state non-profit corporation to avoid paying certain state taxes, never opting to become a federal tax-exempt organization. Once a non-profit organization has incorporated, it can file for a federal tax-exempt status with the Internal Revenue Service or within its state. The IRS will review the application and determine what type of organization the entity is. The 28 different classifications include such categories as: charity, trade, research, civic and religious associations.

501(c) Status:
A 501 (c)(3) is considered a charity and the IRS allows donors to take a tax deduction for contributions of goods, cash and other assets. A 501 (c)(6) organization is a business entity that doesn’t necessarily seek to promote the public good but rather the interests of a select group of business people. Donations to 501 (c)(6) organizations are not tax deductible, which is why many trade associations set up 501 (c)(3) foundations. These related foundations solicit funds for scholarships, research or education.

Either type of organization can make a profit from its operations but if the entity consistently makes a significant annual profit, the IRS might remove its tax-exempt status. For this reason, tax-exempt organizations try to operate at or near a break-even basis. If you join a trade association, your membership dues might not be tax deductible unless you itemize your business expenses and declare your dues as an expense, not a donation.

Form 990:
Federal, tax-exempt organizations file an annual financial return to the IRS called a Form 990, which is available to the public each year. This document lists the organization’s board of directors, key employees, income, expenses, assets, mission and major activities. You can download a free copy of many tax-exempt organizations’ Form 990 at web sites such as GuideStar.org and FoundationCenter.org.

Verification of Status:
The easiest way to verify the claimed status of a specific entity is to contact the Secretary of State in the state of organization or directly contact the Internal Revenue Service.  If the organization is claiming a 501 (c)(3) status, just proceed to guidestar.org, enter the name of the organization and obtain the desired result in the search query. If the organization is a legitimate 501 (c)(3) and this organization files tax returns, it will show up here as legitimate.  If an organization previously holding a 501 (c)(3) tax exempt status has lost its exempt status, this information will also be available to the searcher.

The final result is: There’s a lot of very fine horse rescues out there. However, the donor should perform due diligent research into an organization prior to handing over your hard-earned cash to help horses. During my research, I also noticed a lot of bashing by one rescue organization against another. In my opinion,  in some cases, it appeared some of this bashing was for the demise of one organization to support the favorable competition. In law enforcement, this cyber bullying could be interpreted as “impeding commerce” or a violation of U.S. Code 1951.

Interference With Commerce by Threats or Violence:
Whoever in any way or degree obstructs, delays or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion, or attempts or conspires to do so, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section, shall be fined under this title or imprisoned for not more than 20 years, or both.

As with all things.  “Trust, But Verify!”

“Until Next Time, Keep Em Between the Bridle!”

Copyright 2019, all rights reserved

WIND RIVER COMPANY LLC
Richard E. “Rick” Dennis
Managing Member
Freelance Writer and Author
Office/Mobile: (985) 630-3500
Email:  HYPERLINK Mailto: richardedennis@yahoo.com or richardedennis@yahoo.com
Web Site:  HYPERLINK http://www.richardedennis.net or http://www.richardedennis.net

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4 Comments

  1. Great Article…Thanks

  2. This was very much needed …..I , and MANY people in rescue , thank you for this one.
    It’s a ‘hot topic’ and the source of much heartache among many in the equine rescue community. This will help many and we thank you!

  3. WOW, this is a very interesting article. I’ve often wondered why anyone would want be a nonprofit in lieu of just a regular company. As always, your articles are explicit, well defined and extremely well crafted for reader understanding.

    Alex

  4. Hello Rick. Cuddos on your very fine article. I agree. Nothing more childish and degrading than to see women and men, on social media, bashing an individual or company with lies, unfounded rumors and innuendos for their own bullying gratification and personal gain. If more of these folks went to jail for their illegal actions then this might stop. You hit the nail on the head. Thank you

    Joan

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