Amending Nonprofit Papers
Did the IRS decline your organization's request to be treated as a 501(c)(3)? Did the IRS ask for more information before they will give you a determination? Did you start your nonprofit without the intent to be treated as a charity, but now you want to attract tax-deductible donations or grants that are limited to tax-exempt organizations? You might need to amend your nonprofit's bylaws and articles of incorporation. Or you might even need to dissolve and start over.
Although people often use "nonprofit," "tax exempt," and "charity" interchangeably, they are three different things from a legal perspective. Creating a nonprofit organization in Indiana does not automatically mean that it will receive tax exempt status from either the federal or state governments. And only some tax exempt nonprofits are charities.
A nonprofit is a corporation under Indiana law that has chosen to be governed by the Indiana Nonprofit Corporation Act of 1991. Those nonprofits are one of three things: a "religious corporation," a "public benefit corporation," or a "mutual benefit corporation."
Tax exemption is a status that is given to some (but not all) nonprofit organizations. The nonprofit has to be formed for certain purposes and must comply with certain rules. As long as the organization follows those rules, it does not pay tax (or it pays very little tax) on income that it receives.
Charities are a type of tax-exempt organization, but not the only type. They are organized for certain purposes that give benefits to the public. The are often referred to by the section of the Internal Revenue Code (Section 501(c)(3)) that applies to them. Charities enjoy an additional benefit that other tax-exempt organizations do not: people who donate to them can (usually) claim those donations as deductions on their personal income tax returns.
Because these three terms mean different things to the IRS (and others), a "nonprofit" organization might need to amend or adopt new documents before the IRS will recognize that it is a "tax-exempt charity." Some of the big roadblocks to getting 501(c)(3) status are: a missing "charitable purpose" clause in the articles of incorporation, a missing "distribution of assets" clause, or insufficient detail on the programs and missions of the charity.
Do you have questions that are not answered here? LET'S TALK. Our law firm focuses exclusively on advising nonprofit organizations to help them avoid, minimize, and respond to legal challenges. Schedule a free consultation with a nonprofit attorney by clicking the link below.
