Non-profit status info

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Avery Boyce

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Jul 10, 2009, 3:09:18 PM7/10/09
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Hey all, I've kind of lost track of what is being filed, but I thought I would share this in case it's important.  

I was talking to the people who run CSBA (a 501c6) and they explained that you *cannot* be a 501c3 if you take dues.  If you're a dues-charging organization you have to be a 501c6.  You also cannot charge anything for a service provided as a 501c6, there's another type of non-profit designation for that.  If we do classes for free and ask for a suggested donation, that's cool.  They also said that the IRS would see right through any consistent "donation" each month from every member.  My apologies if this is not news.

Awesome event last night!  I had a great time.

-Avery

Patrick Roanhouse - Plan8

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Jul 10, 2009, 3:31:49 PM7/10/09
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well we can have the fee that it costs to order parts and stuff and
also we could always upsale the cost of the parts we get. We buy in
bulk and ad a 10% fee to it.

Sepideh Miller

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Jul 10, 2009, 3:34:12 PM7/10/09
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I don't think that we could necessarily pay rent without the dues. 

Kelly Egan

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Jul 10, 2009, 3:34:17 PM7/10/09
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I am not sure this is correct. Dues are owed by those who are actual members of the organization, not benefactors. Also I am pretty sure that just because you are a non-profit doesn't mean you have to give everything away for free, Goodwill charges for stuff in their stores, they use that to fund charitable activities. Perhaps we should arrange that meet with Mike to see how they did it. I am pretty sure they are a 501(c)3. I think they may even charge for some of their shows. Also we should talk to hacdc which is a dues paying organizations that I believe is also registered 501(c)3.

That said a 501c6 might be a better fit if it is closer to our model. One thing that we do have to show to the IRS if we market ourselves as a charitable organization is what about what we do is charitable. That might be why we have free workshops instead of charge. Maybe workshops cost money but we work with school kids occasionally. Even if we charge for workshops perhaps they are essentially discounted. Especially if the workshop leaders are volunteer we are might be able to show that we are offering affordable education of some type.

Adam D Bachman

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Jul 10, 2009, 3:34:47 PM7/10/09
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Of course you can, YMCA seems to be doing fine as a 501c3. Googling { 501c3 "membership (dues|fees)" } gets another 20,000 hits. What's your friend smoking? ;)

There's a pretty comprehensive booklet at http://www.irs.gov/pub/irs-pdf/p557.pdf, linked from http://en.wikipedia.org/wiki/501(c).

I see this:

Example 8. An organization that is expressly
empowered by its articles to carry on
social activities will not be sufficiently limited as
to its power, even if its articles state that it is
organized and will be operated exclusively for
charitable purposes.

under the "Articles of Organization" exemption checking section of the .pdf. From what I gather, if we want to do anything that could be accomplished in a non-exempt way (like running workshops, collecting membership fees, etc.), we would straight fail the organizational test. They *really* dislike vague language, and seem to punish it with non-exemption.


- Adam


On Fri, Jul 10, 2009 at 3:09 PM, Avery Boyce <avery...@gmail.com> wrote:

Kelly Egan

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Jul 10, 2009, 3:42:25 PM7/10/09
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I have been doing some additional reading and Avery's friend may be write in some sense. We have to define what our primary purpose is and it can't overlap with another exempt purpose, so we can't be a  organized for educational purposes 501(c)3 and also for social or recreational club which is 501(c)7 or whatever the exempt purpose of 501(c)6 is. Looking into this might be very useful. We should examine these other tax exempt status. If we really are closer to a social club and it means we are also exempt it may really be a better fit. We need to find the right fit for what we are doing.

Kelly

Kelly Egan

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Jul 10, 2009, 3:42:45 PM7/10/09
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Excuse "right" not "write."

Sepideh Miller

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Jul 10, 2009, 3:46:36 PM7/10/09
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I think 501(c)3 status may be more desirable, and there are other large organizations that fall into this category with similar inclinations as ours..  For example, the SCA falls under 501(c)3.  They take dues, and a lot of what they do is social recreation even though a lot of members do research into period costumes, foods, and other activities. 

Patrick Roanhouse - Plan8

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Jul 10, 2009, 3:50:36 PM7/10/09
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I see our selfs as a community center for tech gadgetry, the YMCA equivalent of a non-secular technology education and workshop location. We open our doors to anyone who would like to help maintain the organization with moderate simple monthly dues. We might even want to look at the gym due membership system that the YMCA uses how they have tiers for different age groups. and Sign up fees if your over 25. We could easily use the YMCA as out ref model for how to take in membership fees. We are less of a social club or recreational club i fully believe and more about education and science technology awareness in the community. While that can be a hobby or recreation to other people we are creating a space for people to come and learn and during the non class session hours provide a workshop environment to do projects they couldn't normally do else where. Much like how kids who want to swim or play basketball or what ever do it. Also another thing we could do is we could have groups that are not part of the Node officially be able to charge for the classes and then the group could make donations for access to use the space or what ever, much like how they have martial arts, dance, pilates, or yoga classes at the YMCA but are separate things you have to pay for but still much more discounted due to the fact the instructor is using the facilities at the YMCA

Adam D Bachman

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Jul 10, 2009, 3:55:03 PM7/10/09
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Noisebridge is at or over two years old and not yet 501c3. I say it's not a concern right now. If membership dues and the occasional event can't carry the space then it's not worth it until we hire someone to work on grants and donation acquisition.

It would probably be safer to talk with a CPA (not lawyer in this case) than speculate on what we would or wouldn't be able to do. It also looks like this is irrelevant until we break the $25,000 a year barrier, which I have no interest in doing. If the opportunity arises to spin off a "Baltimore Node Foundation" that acts as a wholly charitable arm or branch of the node (which is specifically permitted and suggested in the IRS documentation), then someone with the time and inclination can do it. I'm not interested in doing charity work in this context.


- Adam

On Fri, Jul 10, 2009 at 3:31 PM, Patrick Roanhouse - Plan8 <patrickr...@plan8ts.com> wrote:

Avery Boyce

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Jul 10, 2009, 4:13:27 PM7/10/09
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So I did a little research too.  This guy says that a 501c3 can take dues, but it has to do with the size of the intended audience - "must be large or indefinite enough that providing aid to members of the class benefits the community as a whole" (me quoting him quoting the IRS). 

I agree with Adam.  It probably doesn't make a big difference whether we're an official charitable organization right now and the status can always be changed.  The only potentially meaningful downer is in tax-deductible business sponsorships, and it's not really clear how much we're planning on pursuing that as a way of generating revenue.  Saving a little on sales tax is cool, but without a lot to spend it's pretty meaningless.

-Avery

Patrick Roanhouse - Plan8

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Jul 10, 2009, 4:40:55 PM7/10/09
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It costs the same price for us to file down the road it isn't like you can do it for free. Also think of all the stuff we have to deal with then to change down the road as well. I think it is just best to start out the gate as the 501c3. I really hope we don't turn this group into some sort of super snob elite organization and try to have to be a community outreach and development group. 

I mean I have an agenda I will be open to everyone about it. I feel our group should promote core science and interactive creative education. I want also to provide a place where people know its ok to mess around and learn from failing when it comes to technology with out having to front the $32,000 a year tuition fee or $5000 training fee. I want a location to develop community centric inventors and innovators to help deal with problems in their community. Also I really also want to have a space that provides for free or a very low monetary cost access to tools that only universities or large industrial design organizations have access to. I want to allow dreamers to learn how they can take an idea and make a prototype product from scratch on their own with support from people around them to talk to.

Well thats the end of my dreamer rant though and the TDLR point is I think its best we start from a clear point and not have to realize we need to change the underlying foundation halfway through already building the house it self.

Regards,

Patrick

Kelly Egan

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Jul 10, 2009, 4:59:31 PM7/10/09
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Speaking of elite, a note on the 501(c)7. Part of the conditions forming a social or recreational club is that your club be exclusive, that is, you don't let the general public (non-members) use your facilities. It also means donations are not tax deductible.

I don't think there is any reason to rush the 501(c)3 but if we begin other corporate activities such as filing Articles of Incorporation it pretty much sets us on a specific path. We have a lot of time to file the 501(c)3 documents. Not filing doesn't prevent us from doing what a 501(c)3 does and it might allow us time to find another source of funding to pay for the filing itself. Or at least get more members to cover the cost.

There are some other forms that might make other things more difficult, such as fundraising, without registering with the state. Personally there are plenty of up front costs and it doesn't hurt us to wait on filing the IRS paperwork a little, even a few months.

The other organizational issues may be more important to do right away.

Kelly

Mark Huson

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Jul 10, 2009, 5:14:52 PM7/10/09
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So to break this all down into bite sized pieces. We can rent a space and then file for incorporation but we need the incorporation to file for 501c3 status. So there is no governmental paperwork stopping us from renting a space and we can always change the lease to the incorporation later. If that is the case then i say we at the most we file for incorporation before the space but hold off on the 501c3 until we have more money in the bank.

Adam D Bachman

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Jul 10, 2009, 5:26:33 PM7/10/09
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Yeah, incorporate since there's money and liability at stake. There's a lot of noise (paperwork, legal documentation, IRS forms, etc) that surrounds the $25,000 barrier. I'd suggest that unless someone is interested in carrying it past that point (that's way out of my league) then we don't get anxious about the 501's at all. Additionally, once we've had some time to develop things like a board, a track record, and officers, we can talk to someone like the Fusion group or a CPA and do the whole meet-with-and-take-the-recommendations-of dance and go from there.

What we are trying to do--right now--is rent a workshop and open the door for membership, 501-anything is not needed for that, but incorporation is. (unless someone wants to be both insurance and tax liable)


- Adam

cooter

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Jul 11, 2009, 4:14:21 AM7/11/09
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I agree with the recommendation to incorporate. The main reason to
seek a 501 designation is the exemption from taxes for most revenue. I
am guessing that we will run the corporation at a break even
standpoint, which should make the tax exempt status moot. The
advantage of the 501(c)3 is that donations are deductible, but you are
limited to "charitable" purposes. These purposes are sufficiently
broad to encompass the hackerspace concept. The $25,000 barrier is a
501 threshold for filing a tax return. Below this threshold you only
need to file a post card, otherwise you need to file a tax return
demonstrating which revenue was taxable and which is not. If we do not
go down the 501 road, we will need to file a corporate tax return with
the IRS every year.

I think the 501(c)3 would be the best 501 option, but I do not believe
that we need to pursue the 501(c)3 right away. I would recommend that
we incorporate the appropriate language of the 501(c)3 into the
charter. The disadvantage to doing this is that it prevents any profit
from being dispersed and it costs an extra $50. The advantage is that
we save $150 and the need to modify the charter if we decide to file
for 501(c)3 status.

John

Joe Reinsel

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Jul 11, 2009, 9:46:41 AM7/11/09
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Hey all,

I think that cooter recommendation is a good one. Another idea that
could happen is that we could link up with another organization that
has a 501(c)3 and use their status to get grants. This is done alot
for small growing organizations and I think it might be a good option
for now.

Another area is risk issues that needs to be tabled(fired, explosions,
etc) and how we deal with this.

Maybe I missed a thread but it is in the back of my mind.

Joe
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