At Ourednik Law Offices we have the skill and knowledge necessary to help you plan your charitable organization from start to finish. It is important to remember that there are numerous state and federal issues that must be addressed both before and after formation of a charity. There are many important considerations that one must consider before forming a charity.
At the outset, it is important to have an answer in mind for the following 10 questions:
- What kind of charitable purpose will the entity serve?
- Will this entity fulfill a need in my community?
- Who will I be helping and how will I be helping them?
- What business form will my charity take?
- What is the procedure necessary to establish my charity?
- What Florida laws and regulations will impact my charity?
- What federal laws and regulations will impact my charity?
- How will establishing this charity help me and my family?
- How will establishing this charity hinder me and my family?
- Who can I depend on to help answer these tough questions?
Thankfully, the answer to number 10 is not so difficult. Get your charitable organization off to a strong start by contacting Ourednik Law Offices today.
Establishing a charity generally requires compliance with both the Florida Statutes and the Federal Internal Revenue Code.
What is required to seek nonprofit
status in the State of Florida?
A charity established in the state of Florida is known as a nonprofit organization. It is important to note that nonprofit status is purely a state law concept and the term nonprofit does not necessarily indicate that an entity is exempt from federal taxes. Under Florida law, nonprofits may qualify for certain benefits, such as state sales, property and income tax exemptions. Additionally, certain nonprofit organizations are exempt from sales and use tax on purchases and rentals of tangible personal property if that property is used in carrying out the organization’s nonprofit activities.
In order to form a nonprofit in the State of Florida, the entity must register as a nonprofit corporation by filing articles of incorporation with the Florida Division of Corporations. Note that Florida law does not currently recognize any other type of nonprofit entity, such as an LLC. The requirements for registration are similar to those of a for-profit corporation, and include:
- Naming the corporation: The name of the corporation must be distinguishable from all other entities or filings (except fictitious names) organized or registered and on file with the Florida Division of Corporations. The corporate name must include “corporation”, “incorporated”, “Corp.”, or “Inc.” and should not contain “Company” or “Co.”
- Choosing an effective date: An effective date may be chosen, but is not required. The effective date may be 5 days prior to the date of submission of the articles or up to 90 days after submission.
- Naming a registered agent: A registered agent is a person or business that is responsible for accepting service of process on behalf of the entity. The registered agent’s address must be a Florida street address and may not be a post office box or an address located outside of Florida. The registered agent must agree to serve by signing the articles before they are sent to the Division of Corporations.
- Stating a corporate purpose: A nonprofit corporation is required to list a specific purpose (e.g. church ministry, community outreach, homeowners association, Masonic organization, care of animals, or education) in its articles of incorporation. The statement can be as lengthy as necessary but statements over 240 characters may not be filed online. If the nonprofit intends to seek tax exempt status from the IRS, specific language is required to be included in the articles.
- Choosing the initial directors: A Florida nonprofit corporation must have at least 3 directors. They need not be listed on the articles but must be listed on the corporation’s first annual report. The articles must also state the manner in which directors will be elected or appointed.
- Signing the articles: The signature of the person forming the corporation (known as an incorporator) is required upon submission of the articles. The original signature is required if the articles are submitted by mail, while a typed signature is acceptable for articles submitted electronically.
Once the nonprofit entity is formed, it may seek an exemption from sales and use tax by filing a Form DR-5, Application for Consumers Certificate of Exemption, with the Florida Department of Revenue. Any exemption from Florida’s sales and use taxes has no impact on whether the entity will also be exempt from Florida’s other taxes such as ad valorem (property) tax or corporate income tax.
What is required to seek tax-exempt
status from the IRS?
Although most federal tax-exempt organizations are also nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as exempt from federal income tax, an organization must meet the requirements set forth by the IRS and the Internal Revenue Code. The first step is the filing of a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Form 1023 is quite detailed, and generally requires the following information:
- Identification of the applicant: Basic information such as the name of the Florida nonprofit corporation, contact information, and when the articles of incorporation were filed.
- Organizational structure: In Florida, this will be a nonprofit corporation as Florida law does not currently recognize any other type of nonprofit entity.
- Required provisions from the articles of organization: As stated above, the articles must include certain provisions pertaining to the organization’s purpose and the disposal of the organization’s assets in the event of dissolution.
- Description of activities: The applicant must provide a detailed description of all the organization’s activities and how these activities will further a charitable purpose.
- Description of compensation or financial arrangements: Information about proposed compensation or financial arrangements with directors, officers, and certain employees and independent contractors.
- Members and others that will receive benefits: If the entity will provide goods or services, it must report that these goods or services will be provided to a significant portion of the general public and not just a few particular individuals or groups.
- History of the entity: Information regarding whether the nonprofit is the successor to a preexisting organization as through merger or conversion.
- Details on specific activities: The IRS scrutinizes certain activities, such as political activity and fund raising.
- Financial data: All groups wishing to obtain 501(c)(3) exempt status must provide a statement of revenues and expenses and a balance sheet. The amount of financial data that must be provided generally depends on how long the entity has been in existence.
- Classification as a public charity or private foundation: The entity must be classified as either a public charity or private foundation. Generally, most organizations want to be classified as a public charity because private foundations are subject to stricter operating rules and regulations.
- Fee information: A fee must be paid upon submission of the Form 1023 application.
After filing, the IRS will either grant a federal tax exemption, request more information, or deny the exemption. When an exemption has been approved the IRS will issue the entity a favorable determination letter and the entity may then be listed in Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, which is a list of organizations eligible to receive tax-deductible charitable contributions.
Although it is not necessarily required, obtaining federal tax-exempt status is nevertheless a critical step in the formation of a Florida nonprofit organization. Many of the most significant benefits of being a nonprofit flow from achieving tax-exempt status, such as the tax-deductibility of donations; access to grant money; exemption from federal and state income tax; and state property tax exemptions.
The process for obtaining tax-exempt status can be extremely daunting, and should be handled by a knowledgeable Florida tax attorney. At Ourednik Law Offices, all of our attorneys have obtained a masters degree in tax law (LL.M.) and we are happy to advise our clients on how to obtain tax-exempt status. If you are interested in forming a Florida nonprofit and obtaining tax-exempt status, contact our office to see how we can be of service to you.