Nonprofit organizations are tax exempt businesses that are deemed to operate for the public benefit.

 

Generous individuals establish nonprofit organizations to advance a variety of causes such as those that are charitable, academic, scientific, artistic, or religious.

The federal government often recognizes the societal benefits of nonprofit organizations by allowing the nonprofit entity an exemption from income tax and allowing benefactors of the nonprofit entity to deduct their donations from their taxable incomes.

Additionally, many families have enjoyed the benefits of private foundations established by their predecessors, both as a source of security and as a continuing legacy of commitment to a charitable cause.

Charity & Private Foundations

Starting A Charity

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.



Before forming a charity, we recommend you consider and answer 10 questions to help keep you on the right track.

Download our FREE Charity Formation Worksheet, and then contact us to discuss the next steps.

Nonprofit Status Requirements

Nonprofit status is purely a state law concept and the term nonprofit does not necessarily indicate that an entity is exempt from federal taxes.

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:



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.


Non-Profit Requirments

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.”
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.
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.
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.
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.
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.

Tax-exempt Status Requirements

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.



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:


Tax-Exempt Requirements

Basic information such as the name of the Florida nonprofit corporation, contact information, and when the articles of incorporation were filed.
In Florida, this will be a nonprofit corporation as Florida law does not currently recognize any other type of nonprofit entity.
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.
The applicant must provide a detailed description of all the organization’s activities and how these activities will further a charitable purpose.
Information about proposed compensation or financial arrangements with directors, officers, and certain employees and independent contractors.
Information regarding whether the nonprofit is the successor to a preexisting organization as through merger or conversion.
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.
The IRS scrutinizes certain activities, such as political activity and fund raising.
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.
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.
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.

Although it is not necessarily required, obtaining federal tax-exempt status is nevertheless a critical step in the formation of a Florida nonprofit organization.

Forming A Private Foundation

A private foundation is a charitable organization that receives the majority of its funding not from the public, but from a sole individual, a group of individuals, a family, or other limited number of benefactors.

Private foundations may enjoy many of the same tax benefits as other charitable organizations. Many families have established private foundations to serve a charitable purpose while providing for a family legacy as well as economic support for their family for generations to come. When formed correctly, a private foundation can accomplish all of these goals and more.

Proper formation and operation is essential to establishing a private foundation. Private foundations are subject to their own set of strict statutes under the Internal Revenue Code. Failure to follow these statutes can be detrimental to both the foundation and the family that operates it by leading to harsh consequences such as the disallowance of foundation status and exorbitant excise taxes on both the foundation and the family member.

Oftentimes, the parties charged with violating these provisions have no idea what they have done until the receive a collection notice from the IRS. Sadly, when a problem like this arises, lack of intent may not serve as a defense.

How We Can Help You

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