December 28, 2016

Tax Tips from the Tax Lawyer: Set Up a 501(c)(3) Charitable Organization as a Subsidiary of Your 501(c)(6)

As nonprofits grow in popularity, the number of Charitable Organizations, or 501(c)(3) organizations, is rising. A 501(c)(3) is a form on nonprofit that is ideal for fundraising, community and organizational support, education initiatives, and more. If you already have a 501(c)(6) nonprofit, you might want to open a subsidiary 501(c)(3) to maximize your nonprofit’s ability to benefit your organization’s goals.

Why set up a 501(c)(3) Charitable Organization as a subsidiary of your 501(c)(6)?

  • Your chamber, board, business league, or other organization wants to assist, educate the community about, or otherwise support your current organization’s goals.
  • You want to maximize your organization’s effectiveness through Charitable Organizations’ revenue options, which are not counted against income tax.
  • You want to offer deductible charitable donations to your organization’s donors.
  • You want to open your organization to private foundation funding.

Are you ready to set up your 501(c)(3) as a subsidiary of your (501)(c)(6)? Get started with your 501(c)(3) by getting in touch!

How to obtain 501(c)(3) status:

In order to obtain 501(c)(3) status, you need to set up a subsidiary organization. That means you will need to establish a separate board of directors, elected through separate organizational resolutions and bylaws. This might seem like a big hurdle, but with an experienced attorney guiding the process, we can keep your subsidiary’s formation running smoothly. Christina Weed is your experienced partner for nonprofit formation, and will always work toward your best interests.

Additionally, you will need separate articles of incorporation, a separate cost-sharing agreement, and to fill out form 1023 with the IRS. Form 1023 will include a filing fee of $850 if your gross receipts are expected to be $10,000 or more, and $400 if they are expected to be under $10,000. The cost sharing agreement ensures that your 501(c)(3) revenues do not impact income taxes by sharing unrelated business income with the parent organization.

You will also need to file form SS-4 with the IRS, which sets up your 501(c)(3)’s Employer ID number and Taxpayer ID number. This will be your identification for all IRS communications and forms. This might seem like a lot of work, and it can take months to process, but the benefits for your nonprofit’s organizational goals can be great.

Are you ready to get started on your subsidiary 501(c)(3)? Let’s go over your options and get started with maximizing your nonprofit’s potential.

Disclaimer: The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.