One Community is open source sharing all aspects of our Highest Good for-profit, non-profit, and entrepreneurial economics models. This open source non-profit portal includes:
At such point as we have an accountant on the Pioneer Team we will be able to provide more help and add additional details to this page regarding the specifics of maintaining our non-profit organization. We will also evolve this page more once we move on the property and are developing specific non-profit branches of One Community. We also recommend our Open Source Taxes page for understanding complete tax differences of operating as a for-profit vs. nonprofit entity.
Our goal in open source sharing our non-profit filing and experience is to provide an example of what we wrote and how we filled out the forms. When using what we share here it is important to note that:
With all that said, we hope that sharing what’s needed to qualify and exactly what we sent to the IRS to get 501(c)(3) approved can save you time and money if used as a starting point to take with you when you talk to your accountant or other nonprofit organization professional. As with everything One Community creates, all information here is open source and free-shared without limitations of use.
First, when considering forming any collaborative community it is helpful to understand what it means to operate as a for-profit, nonprofit, neither, or both. There are significant differences between the taxation of for-profit and non-profit entities. Operating as “neither” would mean that the community is just a group of people living together and not having any specific entity structure.
Here is a general comparison between a nonprofit and for-profit entity:
Here is a side-by-side comparison of the taxation rule differences between a nonprofit (NFP) organization and a for-profit (FP) business:
Property tax consideration includes location, purpose, and market value. A NFP organization might be exempt from the property tax if the whole property is used for qualified purposes. The insurance expense and coverage on the property varies. If the property is owned and managed by the company, the insurance can cover both the building and the office content. But if the property is leased from a third party, the insurance can only cover the office content.
NFP organization who received tax exempt status will not be subject to sales tax and income tax, which can be huge savings for the company. However, the sales tax exemption is only valid on purchases of necessities used in qualified activities. For example, when hospitals make purchases of medicines, it will qualify as a necessary product and will be free of sales tax, but if they buy shavers to sell in the pharmacy store, this purchase will be considered unnecessary and thus will not receive the tax benefit. Similar rules apply to income tax exemptions, only the portion of income that is directly related to the qualified activities will be tax free.
Employee taxes include Social Security tax and Medicare tax. The tax rate changes every year and it is calculated by multiplying a certain percentage with the employee wages. The employee tax rates are the same for NFP and FP companies. For organizations that hire unpaid volunteers, the employee taxes will be greatly reduced because the wages are considerably lower than for-profit businesses.
Initially, One Community thought that some aspects of One Community’s revenue generating ventures like eco-tourism, sale of products, etc. would only be able to be operated as for-profit. Thanks to the help of our tax and accounting consultants, we’ve now come to believe that all aspects of One Community can be part of our nonprofit. Any that aren’t will be covered with complete details on our for-profit page.
For organizations like ours that are seeking to operate as 100% nonprofit, here are the steps you need to get started:
As we’ve already discussed, classifying your organization as nonprofit has significant tax benefits. However, to classify any revenue generating venture as not-for-profit, you must satisfy several key criteria:
If an organization fulfills the standards above, it can file Form 1023 to the IRS to apply for recognition of exemption under Section 501(c)(3). Section 501(a) focuses on other nonprofit or tax-exempt organizations. The qualified organizations under Section 501(a) can file Form 1024 to the IRS to apply for recognition of exemption.
Here are the steps you can expect when applying for tax exemption status. To help understand the paperwork, we’ve shared below copies of everything we filed when we applied for our nonprofit status.
Overview of steps for applying:
Additional Note: If you intend to apply for 501(c)(3) status, you must notify the Internal Revenue Service within 27 months from the date of formation if you desire to be treated as a 501(c)(3) from the date formed.
The IRS requires tax exempt organizations to file annual returns. There are some exceptions, click here for details. Here is an overview of what is required.
The initial return date is the 15th day of the fifth month after the organization’s ending date of tax year, the first extended due date is the 15th day of the eighth month after the organization’s ending date of tax year, and the second extended due date is the 15th day of the eleventh month after the organization’s ending date of tax year.
For example, an organization’s ending date of tax year is December 31, its initial return date would be May 15th, the first extended return date would be Aug. 15th, and the second extended return date is November 15th.
If a due date is not on a business day, the due date is delayed until the next business day.
According to section 6033(j) of the Internal Revenue Code, organizations that do not file for three consecutive years automatically lose their exempt status. An automatic revocation is effective on the original filing due date of the third annual return or notice.
The IRS posts the list of organizations which fail to file an annual return for three consecutive years. These organizations are no longer exempt from federal income tax. Consequently, they may be required to file Form 1120 or Form 1041 and pay applicable income taxes. Furthermore, these organizations are not eligible to receive tax-deductible contributions and will be removed from the cumulative list of tax-exempt organizations provided by the IRS.
However, these organizations have opportunities to reinstate their tax-exempt status in four different ways. You can read more about this here.
Time to fill out all the paperwork and make sure we had all the necessary documents was over 100 hours due to the fact we were still evolving One Community and needed to research many of the specifics requested. One Community incorporated in May of 2011, we filed for non-profit status in November, got notice by mail in January 2012 that our form would need to be reviewed in detail before approval, and went through the process of answering specific questions with a reviewer when our turn came up in July 2012 – at which point we were approved within a couple weeks.
In our experience the IRS made it VERY clear that the order of submission was important but there was enough conflicting information for us to feel a little confused at exactly the order to actually put all documents. After much reading and research for clarification, here is how we ended up putting them in order for mailing from top to bottom:
Clicking links below will open new windows with the PDFs of all documents listed. You can then save or print them. When reviewing or referencing these documents, please keep in mind that they were completed for the specific goals of establishing One Community as a non-profit teacher/demonstration hub. Different goals will necessitate a different filing and you should always consult a professional to help you when submitting something this important.
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