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    Default 501c(3) Designation

    Since I just found out my current department is having issues with the 501c(4) versus 501c(3) designation, and we have several FF Associations we're working with that haven't filed anything other than a non-profit organization within their own state I figured I'd post the process for folks wanting to open all grant opportunity doors.

    If you are registered as a non-profit with in the state but not the IRS (with TaxID and all), then you have to file Form 1023 and Page 1 of Form 1024 in order to be recognized as a 501c(3) from the date of filing forward, and a retroactive 501c(4) to the date of organization. Not sure why the c(4) part but seems like a full CYA for handling donations and whatnot.

    If you are a c(4) and want to move to a c(3) then it's just Form 1023.

    Both require Form 8718 to go along with them which is the payment form, including check for the right amount attached at the bottom.

    Even though all 501c sections are non-profit filings with the IRS many foundations including Wal-Mart stores will not give funds to anything but c(3).

    Happy Granting - Brian

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    A lot of people ask if donations they make to the fire department itself (not the Association) are tax deductible. Does anyone know?

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    Is the fire Dept run by the town,/township/ county?
    Or is it owned & operated as a stand alone 501 c3 corporation ?

    When you say "association" do you mean firemans relief assoc or some other form of auxiliary?

    I know there are areas of the country, that an "assoc." owns the property & equipment and operates bingo halls , bars ,& function facilities, all allegedly in the name of making donations to support the fire department which is contracted to provide coverage to a piece of a given township. Some of these towns may have multiple fire associations within a small radius.

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    Isn't it up to the IRS to determine your 'non-profit' designation? When I talked with an IRS agent last spring they mentioned they were getting very critical of organizations that are hosting fun events. Now she failed to answer if she meant the department hosting the event which may have included registration fees or if an organization hosting a fun event was using a fire department as its 'charitable organization' for soliciting tax-deductible sponsorship dollars.

    Either way they wanted to know and were specifically asking for the record. Not sure whether I agree with this as volunteer departments are constantly fundraising because they have to.

    Thanks Brian, this thread a little more helpful than you know at this time.

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    Quote Originally Posted by jam24u View Post
    Isn't it up to the IRS to determine your 'non-profit' designation? When I talked with an IRS agent last spring they mentioned they were getting very critical of organizations that are hosting fun events. Now she failed to answer if she meant the department hosting the event which may have included registration fees or if an organization hosting a fun event was using a fire department as its 'charitable organization' for soliciting tax-deductible sponsorship dollars.

    Either way they wanted to know and were specifically asking for the record. Not sure whether I agree with this as volunteer departments are constantly fundraising because they have to.

    Thanks Brian, this thread a little more helpful than you know at this time.
    It's up to the organization to choose their filing designation and then up to the organization to fillow the accounting rules and practices for said filing designation. Otherwise they may you pay what you should have paid for not filing your returns properly.

    Off to the side example for a for-profit, as an LLC (Limited Liability Company) all income/expenditures are done on the owner's personal tax return, which depending on the business and it's income could shoot the income tax rate through the roof. Also means the business can't do retirement, health care reimbursement, etc. They're not valid business deductions so if paid for the amount spent still counts as income that's taxable against the owner. Pay for the owner's is handled as straight deductions (drawings) from the bank account with no withholdings for taxes.

    As a C-class corporation (Incorporated, which we are) there is a separate income tax return for the company and one for the employees (including the owner). Corporate income tax rate is 35% flat no matter how much profit versus the sliding scale personal rate. Inc's can buy health care, run 401k with matching, true payroll, and a whole lot of other stuff which reduces the profit margin of the company on purpose. So the goal is no profit, which means no income tax for the company. Running payroll collects income taxes for the employees so all is kosher there.

    Whether an organization is filed as a strict non-profit (no TaxID), or 501c then the goal of the organization is to use any income to assist others in a charitable manner, not make more money. The exception is that the non-profit can use its funds to make money (investments) as long as any profits are spent on the mission of the organization. So lots of folks buy CDs with their truck fund money to make some interest. As long as it's documented that either the interest is still in the bank somewhere, or the money was spent on a truck/equipment then the organization isn't taxed on that interest like we would personally if we cashed out a CD and made interest.

    To answer the question about the donations being tax-deductible it depends on how the organization is filed. If they claim $50 given to the FD and you're not organized as a non-profit, it's on the IRS to challenge the person claiming that donation. Same as if they gave it to a homeless person: it was charity but not income tax liability reducing charity that they can claim. Many people do not donate unless the organization is a registered charity, so that benefits of being properly are there.

    Jim, doesn't matter what the IRS agent said, FDs can run carnivals, Bingo, raffles, or anything else they can think of just like any other non-profit as long as the money is properly accounted for. Same as any other business or person operating in this country.

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    Dont forget to file your 990's at year end.

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    Thanks Brian, We have been struggling to find out what needed to be done to get the 501c3. We have asked accountants and they say for $500 the will tell us and for another $1000 they will do it for us. Now maybe we can make some headway.

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    Quote Originally Posted by Cappy05 View Post
    Thanks Brian, We have been struggling to find out what needed to be done to get the 501c3. We have asked accountants and they say for $500 the will tell us and for another $1000 they will do it for us. Now maybe we can make some headway.
    For $750 you can click the checkboxes yourself, save $750. Isn't that bad to fill out, just somewhat tedious.

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    Correct me if I'm wrong (because our VFD has been 501(c)(3) since long before me) ... but I was under the impression that after a non-profit filed for 501(c)(3), the IRS would grant an initial approval after a review, and then after something like 3 to 5 years of returns, they would audit and provide a more permanent approval.

    I was also under the impression is that the main thing that 501(c)(3) buys you is the ability to have your donors take a tax-deduction on their Federal taxes... and that is one of the standards by which a lot of corporations determine eligibility for grants/funding/donations.

    There is a lot of info (overload actually) at http://www.irs.gov/charities/

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    Quote Originally Posted by Andy2802 View Post
    Correct me if I'm wrong (because our VFD has been 501(c)(3) since long before me) ... but I was under the impression that after a non-profit filed for 501(c)(3), the IRS would grant an initial approval after a review, and then after something like 3 to 5 years of returns, they would audit and provide a more permanent approval.

    I was also under the impression is that the main thing that 501(c)(3) buys you is the ability to have your donors take a tax-deduction on their Federal taxes... and that is one of the standards by which a lot of corporations determine eligibility for grants/funding/donations.

    There is a lot of info (overload actually) at http://www.irs.gov/charities/
    Correct but it is mainly semantics on the approval process. It's either yay or nay on approval. Once they give it you're immediately a 501c(3), and they're required to do a closer audit of the finances within that 3-5 years but at any time from the date of approval they can come down, audit, and yank the designation, just like they can with any filing for any company.

    And yes on the designation's benefits. Some don't want to donate unless they can claim the tax benefits on their personal income taxes. So unless you're a 501c-something then they can't. Anything under 501c is non-profit since schools and hospitals aren't supposed to be c(3) either, neither are churches. But many foundations are lazy to the point that they don't realize about the whole 501c designation as non-profit because they get hit on their taxes if they don't donate to a registered non-profit just like we will if we claim it on our taxes.

    So if Wal-Mart doesn't have documented proof that $50,000 of what they donated to local charities weren't registered non-profits then they get taxed as if that money was still in their account, to the tune of 35%. So in addition to having paid out that $50k, they'll owe the IRS another $17,500 in corporate taxes assuming they didn't just break even for that tax year in all other business. So giving away money cost them money that didn't benefit anyone, which they don't want to do. That's why they've gone so anal on the 501c(3), so they don't have to pay more to their accountants and lawyers if they get audited.

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    Quote Originally Posted by islandfire03 View Post
    Is the fire Dept run by the town,/township/ county?
    Or is it owned & operated as a stand alone 501 c3 corporation ?

    When you say "association" do you mean firemans relief assoc or some other form of auxiliary?

    I know there are areas of the country, that an "assoc." owns the property & equipment and operates bingo halls , bars ,& function facilities, all allegedly in the name of making donations to support the fire department which is contracted to provide coverage to a piece of a given township. Some of these towns may have multiple fire associations within a small radius.
    I was referring to our Firefighter's Association, which I know isn't 501 c3 and it doesn't own anything. Our FD is organized as a "special district", but I'm not sure if that is a California-thing, or if that terminology is used nation-wide.

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    I had already copied the first 5 replies on this thread for future reference. Now it looks like I will wait a little longer as the thread continues with more and more valuable answers to questions that may come up at our monthly and annual budget meetings. Important info here.

    Now, about getting the official 501C(3) status. If desired. The IRS told me the normal fee is $750 dollars when filing the application, but there could be a change and might be $500 dollars and I can't remember exactly why. It might have been for 501C(4). Again they would make the determination and price accordingly. I decided I would wait until I could arrange an appointment and have a face to face with the IRS.

    (Thanks again Brian)

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    Quote Originally Posted by jam24u View Post
    I had already copied the first 5 replies on this thread for future reference. Now it looks like I will wait a little longer as the thread continues with more and more valuable answers to questions that may come up at our monthly and annual budget meetings. Important info here.

    Now, about getting the official 501C(3) status. If desired. The IRS told me the normal fee is $750 dollars when filing the application, but there could be a change and might be $500 dollars and I can't remember exactly why. It might have been for 501C(4). Again they would make the determination and price accordingly. I decided I would wait until I could arrange an appointment and have a face to face with the IRS.

    (Thanks again Brian)
    The fee is on Form 8718, it's $300 if the net receivables for the organization are less than $10,000 for the previous 4 years for an existing organization, or are expected to be for a new one. Otherwise it's $750. $900 for a group filing of related existing organizations.

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    Is there any down-side to being a c3... other than the fee you have to pay of course? Does it restrict they way you operate or anything?

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    Quote Originally Posted by Co59Bob View Post
    Is there any down-side to being a c3... other than the fee you have to pay of course? Does it restrict they way you operate or anything?
    Nope. If you're operating as a non-profit now then the rules on what you can spend money on, sales tax exemption, and other details are all the same. c(3) means you have to file a Form 990 every year but odds are if you're receiving tax funding at all then you have an accountant preparing an audit anyway, can't be much more for them to do that at the same time. Or take their report and file it out in-house.

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    Quote Originally Posted by BC79er View Post
    Jim, doesn't matter what the IRS agent said, FDs can run carnivals, Bingo, raffles, or anything else they can think of just like any other non-profit as long as the money is properly accounted for. Same as any other business or person operating in this country.
    Depending on your state laws you might still need to get a gambling,bingo or raffle license.

    Quote Originally Posted by BC79er View Post
    Nope. If you're operating as a non-profit now then the rules on what you can spend money on, sales tax exemption, and other details are all the same. c(3) means you have to file a Form 990 every year but odds are if you're receiving tax funding at all then you have an accountant preparing an audit anyway, can't be much more for them to do that at the same time. Or take their report and file it out in-house.
    If you have any income over $25,000.00 in any given 3 years then the association will need to file a tax return.Anything below then you won't.
    you'll also will need to file Articles of Incorporation papers with your Secretary of state office. When setting up your 501c3 make sure you cover your butt for all the purposes of what the Association will be able to do also.

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    Quote Originally Posted by mtndew21 View Post
    Depending on your state laws you might still need to get a gambling,bingo or raffle license.



    If you have any income over $25,000.00 in any given 3 years then the association will need to file a tax return.Anything below then you won't.
    you'll also will need to file Articles of Incorporation papers with your Secretary of state office. When setting up your 501c3 make sure you cover your butt for all the purposes of what the Association will be able to do also.
    Articles of Incorporation have to precede the IRS filing in most states if not all as far as I can find. Especially since the name registration is done at the state level for most after the applicant does a national check. Can't send anything to the IRS until the name is confirmed.

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    Isn't it funny how the 'name' is so important. For us the correct name is anytown VFD. When we expanded with a fire service based ems that could treat and transport victims/patients, all of a sudden reports are being filled out as, anytown fire & rescue. 20 years go by and when expanding our outside funding efforts, this turns around and bites you in many ways. State agency reports, donations, purchases, fundraisers. The most revealing is collection of fire calls and ems runs. Funny how a state agency remarked that they have two names showing up on file and do you want the totals of both.
    A lot of this is just from a lack of correcting the mistake from first occurrences. A lot of this is also done intentionally for several reasons and when the issue is brought to light, those intentions are revealed. Exposed would be a better word. Can cause a few problems internally, but whatever the outcome, the Name has popped up as a more important issue than I had planned on.

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