Nonprofit organizations are tax exempt businesses that are deemed to operate for the public benefit.
Generous individuals establish nonprofit organizations to advance a variety of causes such as those that are charitable, academic, scientific, artistic, or religious.
The federal government often recognizes the societal benefits of nonprofit organizations by allowing the nonprofit entity an exemption from income tax and allowing benefactors of the nonprofit entity to deduct their donations from their taxable incomes.
Additionally, many families have enjoyed the benefits of private foundations established by their predecessors, both as a source of security and as a continuing legacy of commitment to a charitable cause.
Charity & Private Foundations
Starting A Charity
It is important to remember that there are numerous state and federal issues that must be addressed both before and after formation of a charity. There are many important considerations that one must consider before forming a charity.
Before forming a charity, we recommend you consider and answer 10 questions to help keep you on the right track.
Download our Charity Formation Worksheet, and then contact us to discuss the next steps.
Nonprofit Status Requirements
Nonprofit status is purely a state law concept and the term nonprofit does not necessarily indicate that an entity is exempt from federal taxes.
In order to form a nonprofit in the State of Florida, the entity must register as a nonprofit corporation by filing articles of incorporation with the Florida Division of Corporations. Note that Florida law does not currently recognize any other type of nonprofit entity, such as an LLC. The requirements for registration are similar to those of a for-profit corporation, and include:
Once the nonprofit entity is formed, it may seek an exemption from sales and use tax by filing a Form DR-5, Application for Consumers Certificate of Exemption, with the Florida Department of Revenue.
Any exemption from Florida’s sales and use taxes has no impact on whether the entity will also be exempt from Florida’s other taxes such as ad valorem (property) tax or corporate income tax.
- Naming The Corporation:
- Choosing The Effective Date:
- Stating A Corporate Purpose:
- Naming A Registered Agent:
- Choosing The Initial Directors:
- Signing The Articles
Tax-exempt Status Requirements
Once the nonprofit entity is formed, it may seek an exemption from sales and use tax by filing a Form DR-5, Application for Consumers Certificate of Exemption, with the Florida Department of Revenue. Any exemption from Florida’s sales and use taxes has no impact on whether the entity will also be exempt from Florida’s other taxes such as ad valorem (property) tax or corporate income tax.
To qualify as exempt from federal income tax, an organization must meet the requirements set forth by the IRS and the Internal Revenue Code. The first step is the filing of a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Form 1023 is quite detailed, and generally requires the following information:
- Identification Of The Applicant:
- Organizational Structure:
- Required Provisions:
- Description Of Activities:
- Description Of Compensation:
- History Of The Entity:
- Who Will Receive Benefits:
- Details On Specific Activities:
- Financial Data:
- Classification As A Public Charity:
- Fee Information:
After filing, the IRS will either grant a federal tax exemption, request more information, or deny the exemption.
Although it is not necessarily required, obtaining federal tax-exempt status is nevertheless a critical step in the formation of a Florida nonprofit organization.
Forming A Private Foundation
A private foundation is a charitable organization that receives the majority of its funding not from the public, but from a sole individual, a group of individuals, a family, or other limited number of benefactors.
Private foundations may enjoy many of the same tax benefits as other charitable organizations. Many families have established private foundations to serve a charitable purpose while providing for a family legacy as well as economic support for their family for generations to come. When formed correctly, a private foundation can accomplish all of these goals and more.
Proper formation and operation is essential to establishing a private foundation. Private foundations are subject to their own set of strict statutes under the Internal Revenue Code. Failure to follow these statutes can be detrimental to both the foundation and the family that operates it by leading to harsh consequences such as the disallowance of foundation status and exorbitant excise taxes on both the foundation and the family member.
Oftentimes, the parties charged with violating these provisions have no idea what they have done until the receive a collection notice from the IRS. Sadly, when a problem like this arises, lack of intent may not serve as a defense.
How We Can Help You
The process of properly forming a charity or private foundation can be extremely daunting, and should be handled by a knowledgeable Florida tax attorney.
At Ourednik Law Offices, all of our attorneys have obtained a masters degree in tax law (LL.M.) and we are happy to advise our clients on how to obtain tax-exempt status.
If you are interested in forming a Florida nonprofit and obtaining tax-exempt status, contact our office to see how we can be of service to you.