<<O>>  Difference Topic LegalEntityType (r1.4 - 26 Aug 2007 - BenScott)

META TOPICPARENT LegalEntity
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We are a LegalEntity, a non-profit corporation, per the state of NH. However, there is discussion about what kind of non-profit status we should seek with the IRS (Federal), and when we should even bother to seek it.

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General information

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IRS guidance

Most of this section was compiled by BenScott. In particular, it is his interpretation of the IRS guidance which is given. Do not take this material on faith; it is likely reality is different.

General information


There are quite a few different types of organizations which are tax-exempt. Most of them we definitely are not, or definitely do not want to try to be. For example, we're not an "Agricultural/horticultural organization". I see only a few possible candidates, in roughly increasing order of likelihood:

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Social and Recreation Clubs

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Social and Recreation Clubs


Social and Recreation Clubs - Section 501(c)(7)

Line: 19 to 25

  • "submit evidence ... that there are limits on admission to membership consistent with the character of the club". Our incorporation paperwork explicitly states membership is open to all, and most people seem to want it that way.
  • "engage in business such as selling ... products or services, it generally will be denied exemption." So no selling CDs, T-shirts, etc.
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Charitable organizations

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Charitable organizations


Charitable organizations - Section 501(c)(3)

The major advantage to a 501(c)(3) is that donations are not just tax-exempt for the receiver (GNHLUG), but also tax-deductible for the donator. That can be a strong incentive for donations. (But do we need such?) Due to this benefit, the paperwork requirements for keeping track of things like fund-raising and contributions are stricter.

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Organizing document

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Organizing document


Charity - Required Provisions for Articles states that the "organizing document must limit the organization's purposes to one or more of the exempt purposes set forth in section 501(c)(3)". Our incorporation paperwork did not get into this. We would have to amend our charter before submitting our exemption application. (But that's not overly hard.)

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Qualifying activities

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Qualifying activities


Exemption Requirements spells out a lot of the requirements in plain English, and it appears that several of them would conflict with GNHLUG's history and/or goals.

Line: 58 to 64

In short, the above appears to be about "betterment of mankind" sort of things. Jokes about zealotry aside, I'm not sure Linux would qualify in the eyes the IRS.

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Political activities

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Political activities


A repeated theme in GNHLUG organizing has been that we want to push for acceptance/adoption of Linux/FOSS in government and education. Limits are imposed on political activities undertaken by 501(c)(3). In particular, Lobbying Activity states that "no organization may qualify ... if a substantial part of its activities is attempting to influence legislation". It goes on to state that it is okay if one does "some lobbying, but too much lobbying activity risks loss of tax-exempt status". Of course they never define "too much".

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Social welfare organizations

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Social welfare organizations


Social welfare organizations - Section 501(c)(4)

Line: 82 to 88

In short, while we might be able to argue our case, it seems quite possible that we would have to argue it. Do we want to go down that road? Would we be better off avoiding the argument?

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Business leagues

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Business leagues


Business leagues (trade associations) - 501(c)(6)

Line: 104 to 110

  • "Encouraging the use of goods and services of an entire industry"
  • "Attempting to influence legislation germane to the common business interests of an organization's members"
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Other guidance

Ed Lawson

Ed is an actual lawyer, so he's better qualified to speak on this than most of us (in particular, me). Summarization of key points:

  • He recommends we claim 501(c)(3) status (10:16, Aug 22, 10:03, Aug 23)
  • A 501(c)(3) can perform limited political lobbing; we are unlikely to go over any limits (13:59, Aug 22)
  • Easiest method would be to become an affiliate of Learning Networks Foundation (10:03, Aug 23)
  • No need to file Form 1023 unless we receive over $5000/year (ibid)
  • "No reporting requirements at all" unless we receive over $25,000/year (ibid)
  • One has to have a multi-year budget to file Form 1023 (ibid)
  • We should worry about this stuff later (ibid)
  • We should also seek the guidance of someone with specific experience in 501(c)(3) tax law (ibid)

Bruce Dawson

  • "Carole's company (Rivendell a.k.a. Learning Networks Foundation) is a 501(c)(3) and will act as a fiscal agent for similarly minded organizations." (13:17, Aug 22)

maddog

maddog has a long, gray beard, which automatically makes him qualified to speak on any subject. wink Plus, since he's been rather involved in LI and at least somewhat involved in USENIX, he's got some apropos experience.

  • He stated some concerns with lobbying (04:20, Aug 26):
    • Potential GNHLUG presence at trade shows, etc., where we might speak against patents, etc.
    • "we have a lot of strong-willed people in our group who might want to have the group actively lobby for things"
  • USENIX had advised that obtaining a 501(c)(3) was becoming harder to get, and a 501(c)(6) was easier (ibid)
  • Sister orgs (one a 501(c)(3), one a 501(c)(6) for politically-connected stuff) are a possibility (ibid)

Other stuff

Other 501(c)(3) orgs

Useful resources

Mailing list discussions

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Revision r1.3 - 22 Aug 2007 - 21:37 - BenScott
Revision r1.4 - 26 Aug 2007 - 22:21 - BenScott