Do you aspire to effectuate change to a charitable cause? Do you have an interest in setting up a tax-exempt entity? Using Wisconsin state law and the federal Internal Revenue Code (“IRC”), setting up a tax-exempt, non-profit entity to effectuate your goals requires a few steps:
- Creation of the Non-Stock entity.
The Wisconsin legislature has created a unique entity, called a “Nonstock Corporation”, to effectuate the purposes of what is commonly referred to as a non-profit. Wisconsin Statute Chapter 181 provides for the legal status of a nonstock corporation, and lays out the general procedures of corporations organized under its rule. To create a nonstock corporation under Chapter 181, business owners must file the articles of incorporation with the Wisconsin Department of Financial Institutions, similar to a traditional for-profit corporation.
- Application for Tax-Exempt Status with the IRS.
After the entity is created, the owner must apply for its tax treatment with the IRS. Under the IRC, there are several different entity types which allow for tax-exempt status. The most common form of tax-exempt entity is the 501(c)(3) designation, or a traditional charitable organization. Other designations may be appropriate depending on your entity’s purpose, such as a political organizations, business leagues, or recreation clubs, all of which may be tax-exempt if it complies with the IRC. Some considerations as to what tax-exempt form is appropriate include whether the entity will accept charitable donations, whether the entity will make political donations, or whether the entity is to fund its operations through membership fees.
Once the entity is created, the next step is to put together the tax-exempt application to be send to the IRS, Form 1023. This form requires significant information to be provided, including the name and title of any officers or directors of the entity, prospective budget information, the basis for the tax-exempt status, and other details of the entity’s operations. Consulting with an experienced attorney to put together this application can help to ensure your application will be approved and tax-exempt status is enjoyed. These applications take months to be reviewed by the IRS, and any misstep in the application can prolong or deny the award of tax-exempt status.
- Ongoing Operations.
Once the proper tax-exempt status is awarded, the operations of the entity must continue to comply with the IRC regulations applicable to maintain its tax-exempt status. Additionally, the entity must comport with Wisconsin state requirements, including the periodic filing of an annual report and disclosure of certain financial information. If the entity fails to comply with its ongoing state and federal obligations, the tax-exempt status may be revoked.
To plan and create your own non-profit, consult with a knowledgeable attorney when creating the entity and preparing the IRS application to ensure your entity can effectuate the goals you hold.
