Nonprofit Law Blog: “Today, more than ever, the public and government agencies are demanding nonprofits to be transparent. . . . When Guidestar released its report ‘The State of Nonprofit Transparency, 2008: Voluntary Disclosure Practices’ in 2009, it suggested five simple steps for increasing transparency:”
One of the reasons I have formed over 2,600 Arizona companies since 2001 is my information “how to” articles on my website. I am happy to announce that I just revised my popular article called “How to Form an Arizona Nonprofit Corporation.” I updated the article to include the current fees to file an IRS Form 1023 and to reflect changes in Arizona nonprofit corporation law and federal tax-exempt organization laws. I added new text that explains why I think it is a big, big mistake for people to form do-it-yourself nonprofit corporations. There is much more to forming a nonprofit corporation than just submitting the three page fill in the blanks form Articles of Incorporation found on the Arizona Corporation Commission’s website.
I also just published a new article called “Arizona Nonprofit Corporation Formation Service,” which explains in detail the 24 services I perform and the 16 documents I prepare when I am hired to form an Arizona nonprofit corporation for $1,319. That is $62/lawyer prepared document. This guaranteed fixed fee includes the $75 Arizona Corporation Commission expedited filing fee, publication cost of $175, $72 for a corporate minute book with corporate seal, and the postage to mail the minute book to the corporation.
If you have questions about forming or operating an Arizona nonprofit corporation, please call me at at 602-906-4953, ext. 1. I don’t charge to answer questions over the phone about forming or operating Arizona nonprofits.
If you are ready to hire me to form your Arizona nonprofit, complete my online Nonprofit Corporation Incorporation Questionnaire. You may pay with a credit card or by check.
Wall St. Journal: “As the leading breast-cancer charity, Susan G. Komen For the Cure helped make “for the cure” a staple of the fund-raising vernacular. The slogan is so popular that dozens of groups have sought to trademark names incorporating the phrase . . . . Komen . . . launching a not-so-friendly legal battle against . . . fund-raisers that it contends are poaching its name.”
IRS Announces One-Time Filing Relief for Small Tax Exempt Organizations That Failed to File for Three Consecutive Years
Federal tax law provides that a tax-exempt organization that does not file appropriate tax returns for three consecutive years automatically loses its tax-exempt status. The IRS announced that it is giving one-time relief for small exempt organizations that failed to file for three years to reinstate compliance and retain tax-exempt status. Tax-exempt organizations that lose their exemptions must reapply for tax-exempt status. Income received by the organization while it is not tax-exempt may be taxable.
The IRS posted a list of organizations that may lose their tax-exempt status. See the list of Arizona tax-exempts that are in jeopardy. The listed organizations have until October 15, 2010, to file all necessary returns to reinstate their tax-exempt status.
If your organization needs to reinstate its tax-exempt status there are two options:
- Small organizations that file Form 990-N should obtain this form from the IRS website and file it by October 15, 2010.
- Organizations that file Form 990-EZ (but not eligible to file Form 990-N) should obtain the form from the IRS website and file it by October 15, 2010, plus pay a $100 – $500 compliance fee based on revenue.
Large tax-exempt organizations that must file IRS Form 990 or Form 990-P are not eligible for this one-time relief program.
From the IRS website:
Tax-exempt organizations that fail to satisfy annual filing requirements for three consecutive years automatically lose their tax-exempt status. The IRS is providing one-time relief that will allow small exempt organizations to come back into compliance and retain their tax-exempt status even though they failed to file for three consecutive years. If an organization loses its exemption, it will have to reapply to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.
This one-time relief benefits Form 990-N (e-Postcard) and Form 990-EZ filers only. Organizations required to file Form 990 or Form 990-PF are not eligible and are automatically revoked if they fail to file for three consecutive years.
List of organizations at risk of automatic revocation: The IRS website has a list of organizations at risk of losing their tax-exempt status because, according to IRS records, they have not filed for 2007, 2008 and 2009. The list contains the name of the organization and its last-known address. Check this list to see whether your organization is at risk of automatic revocation and can avoid this consequence by following IRS guidance.
Note: The list may be incomplete, as certain organizations may be at risk even though their names do not appear. In addition, the list may include organizations that were required to file Form 990 or Form 990-PF and are not eligible for the relief program, and organizations whose filing dates have not yet occurred.
- Filing relief for small organizations – home
- News release
- Frequently asked questions
- Automatic Revocation for Not Filing Annual Return or Notice – overview
- Exempt Organization Annual Filing Requirements – Chart
- What to do if you think IRS records are in error
- Form 990-EZ filing thresholds
On November 2, 2010, Arizona voters will vote yes or no on Proposition 203, the medical marijuana law. If approved, Prop 203 will legalize the prescription, sale and cultivation of marijuana in Arizona for approved medicinal purposes. Doctors will be able to issue prescriptions for an “allowable amount” of marijuana to a “qualifying person” who suffers from a “debilitating medical condition.” The term “debilitating medical condition” means one or more of the following:
- cancer, glaucoma, positive status for human immunodeficiency virus, acquired immune deficiency syndrome, hepatitis c, amyotrophic lateral sclerosis, crohn’s disease, agitation of alzheimer’s disease or the treatment of these conditions.
- a chronic or debilitating disease or medical condition or its treatment that produces one or more of the following: cachexia or wasting syndrome; severe and chronic pain; severe nausea; seizures, including those characteristic of epilepsy; or severe and persistent muscle spasms, including those characteristic of multiple sclerosis.
- any other medical condition or its treatment added by the Arizona Department of Health Services (“DHS”).
A qualifying person is a person who has been diagnosed with a debilitating medical condition. The allowable amount of marijuana that a qualifying person may acquire and use is:
- 2.5 ounces of “usable marijuana,” which is defined as “the dried flowers of the marijuana plant, and any mixture or preparation thereof, but does not include the seeds, stalks and roots of the plant and does not include the weight of any non-marijuana ingredients combined with marijuana and prepared for consumption as food or drink; and
- if the qualifying patient’s registry identification card states that the qualifying patient is authorized to cultivate marijuana, twelve marijuana plants contained in an enclosed, locked facility except that the plants are not required to be in an enclosed, locked facility if the plants are being transported because the qualifying patient is moving. An “enclosed, locked facility” is defined as a closet, room, greenhouse or other enclosed area equipped with locks or other security devices that permit access only by a cardholder.
For patients who are not able to acquire or administer allowable amounts of marijuana, they may use the services of a “designated caregiver” which is defined as a person who:
- is at least twenty-one years of age.
- has agreed to assist with a patient’s medical use of marijuana.
- has not been convicted of an excluded felony offense.
- assists no more than five qualifying patients with the medical use of marijuana.
- may receive reimbursement for actual costs incurred in assisting a registered qualifying patient’s medical use of marijuana if the registered designated caregiver is connected to the registered qualifying patient through the department’s registration process. The designated caregiver may not be paid any fee or compensation for his service as a caregiver.
The amount of allowable marijuana a designated caregiver may possess, cultivate or transport for each designated patient is the same as for the designated patient.
If approved, Proposition 203 provides that within 120 days of its effective date, the Arizona Department of Health Services must promulgate rules and regulations governing nonprofit medical marijuana dispensaries, for the purpose of protecting against diversion and theft without imposing an undue burden on nonprofit medical marijuana dispensaries or compromising the confidentiality of qualifying persons and caregivers.
Proposition 203 also would allow for the creation of Arizona medical marijuana dispensaries that must be Arizona nonprofit entities. Qualifying parties and designated caregivers who do not cultivate grow their own personal weed, will be able to buy it from a DHS approved medical marijuana dispensary.
What is an Arizona Medical Marijuana Dispensary?
Unfortunately, Proposition 203 contains some unanswered questions for people contemplating creating an Arizona medical marijuana dispensary (“MMD”). The proposition defines “nonprofit medical marijuana dispensary” as “a not-for-profit entity that acquires, possesses, cultivates, manufactures, delivers, transfers, transports, supplies, sells or dispenses marijuana or related supplies and educational materials to cardholders.” As an Arizona attorney who has formed over 2,600 companies, including many nonprofit corporations, I don’t know what the proposition means when it uses the term “not-for-profit entity.
Arizona statutes provide for the creation of limited partnerships, limited liability limited partnerships, general partnerships, business trusts, limited liability companies, for profit corporations and nonprofit corporations. The term “entity” is a general term that applies to all of the previously mentioned types of business organizations. Any of these organizations could be operated on a not-for-profit basis, but the corporation is the only type of nonprofit entity expressly provided for under Arizona statutory law.
Proposition 203 contains this provision:
A registered nonprofit medical marijuana dispensary shall be operated on a not-for-profit basis. The bylaws of a registered nonprofit medical marijuana dispensary shall contain such provisions relative to the disposition of revenues and receipts to establish and maintain its nonprofit character. A registered nonprofit medical marijuana dispensary need not be recognized as tax-exempt by the Internal Revenue Service and is not required to incorporate pursuant to Title 10, Chapter 19, Article 1.
The good news for the future owners of Arizona MMDs is that the Arizona nonprofit medical marijuana dispensary need not be an IRS approved tax-exempt organization, but this provision further muddies the waters. What does operated on a not-for-profit basis mean? Must the entity operate at a loss or plan its affairs so that its annual income is exactly equal to its annual expenses? What happens if the MMD has a loss in year one and a profit in year two? Does DHS net the profits against the losses and revoke the MMD’s license if it has a profit? What if it has losses two out of five years? How are profits defined? Can the people who form the entity, officers, directors and employees be paid sufficient compensation to zero out the profits each year? If so,could a member of the board of directors who attends a few board meetings during a year be paid $150,000 and would that payment reduce the entity’s profits?
The provision quoted above refers to Bylaws that must contain such provisions relative to the disposition of revenues and receipts to establish and maintain its nonprofit character.” Does this language imply that the MMD must be a corporation? In general Bylaws is a governing document used by corporations. Other types of entities can adopt “Bylaws,” but Bylaws are not one of the governing documents used or adopted by non-corporate entities.
As an Arizona lawyer who has drafted the organizational documents for many nonprofit corporations, I don’t have a clue what Prop 203 means when it says the Bylaws must “contain such provisions relative to the disposition of revenues and receipts to establish and maintain its nonprofit character.” The nonprofits I create do not have any such provisions, nor are these types of provisions required under Arizona’s nonprofit corporation statutes. Hopefully the DHS will tell MMD’s what this provision means so they can modify their organizational documents to contain the required provisions.
Nor does it help that Proposition 203 says MMDs are not required to incorporate pursuant to Title 10, Chapter 19, Article 1. The statute cited concerns only Arizona nonprofit corporations formed as cooperative marketing associations. Chapter 19 also applies to electric cooperative nonprofit membership corporations, fraternal and benevolent societies and nonprofit electric generation and transmission cooperative corporations. The reference to Title 10, Chapter 19, Article 1 in the language of the proposition is baffling because most Arizona nonprofit corporations are formed under other chapters of Title 10 of the Arizona Revised Statutes. Why did the drafters cite only this one little used type of Arizona nonprofit corporation?
The $64,000 Question about MMDs
Proposition 203 creates a big problem for people who are contemplating creating an MMD? The $64,000 question is must an Arizona MMD be created as an Arizona nonprofit corporation or can it be one of the types of entities typically formed to make a profit, but operated as a nonprofit entity? We will not know the answer to this question until DHS gives us the answer or it approves MMDs that are not Arizona nonprofit corporations. The answer to this question is important because of a fundamental difference between Arizona nonprofit corporations and all of the other types of entities mentioned above. This fundamental difference is:
- Arizona nonprofit corporations do not have owners. This means that if the nonprofit corporation becomes valuable, there are no owners who can easily (or perhaps lawfully) put that value in their pockets.
- Arizona limited partnerships, limited liability limited partnerships, general partnerships, business trusts, limited liability companies and for profit corporations have owners who can sell the business and keep the money.
For more see “Prop. 203: Legalization of medical marijuana” and “Text of Prop 203 that Would Legalize the Prescription and Sale of Medical Marijuana in Arizona.”
How to Hire Arizona Business Attorney Richard Keyt to Form an Arizona Nonprofit Corporation
To learn about forming and operating Arizona nonprofit corporations, see the Arizona Corporation Law Library. To hire Arizona medical marijuana attorney Richard Keyt (aka the Arizona medical marijuana lawyer) to form an Arizona nonprofit corporation, read my articles called “How to Form an Arizona Nonprofit Corporation” and “Arizona Nonprofit Corporation Formation Service” or just complete my online Nonprofit Corporation Incorporation Questionnaire.
IRS Will Give Relief to Tax Exempt Organizations that Missed the May 17, 2010, Tax Return Filing Deadline
Tax exempt organizations that earned less than $25,000 of annual income where not previously required to file a tax return with the IRS. The tax law changed and all tax exempt organizations, including those with incomes less than $25,000 were required to file an IRS form 990 by May 17, 2010, or risk losing their tax exempt status. Now, the IRS Commissioner posted a notice on the IRS website that says the IRS will provide guidance to organizations that missed the deadline. Here’s the Statement of IRS Commissioner Doug Shulman on the Filing Deadline for Small Charities:
Now that the May 17 filing deadline has passed, it appears that many small tax-exempt organizations have not filed the required information return in time. These organizations are vital to communities across the United States, and I understand their concerns about possibly losing their tax-exempt status.
The IRS has conducted an unprecedented outreach effort in the tax-exempt sector on the 2006 law’s new filing requirements, but many of these smaller organizations are just now learning of the May 17 deadline. I want to reassure these small organizations that the IRS will do what it can to help them avoid losing their tax-exempt status.
The IRS will be providing additional guidance in the near future on how it will help these organizations maintain their important tax-exempt status — even if they missed the May 17 deadline. The guidance will offer relief to these small organizations and provide them with the opportunity to keep their critical tax-exempt status intact.
So I urge these organizations to go ahead and file — even though the May 17 deadline has passed.
Filing a tax return for the small organizations is easier than you’d think. It just takes a few minutes to fill out the electronic notice Form 990-N (e-Postcard). This is available for small tax-exempt organizations with annual receipts of $25,000 or less.
For access to the e-Postcard and further details, see Annual Electronic Filing Requirement for Small Exempt Organizations, Form 990-N (e-Postcard).
May 17, 2010, is the deadline for nonprofit corporations that are tax exempt organizations (other than churches) with less than $25,000 in income to file IRS form 990-N. A change in the law three years ago become effective on May 17th. See “Thousands of nonprofits may lose tax-exempt status” and “Thousands of non-profits could unwittingly lose tax status.”
See the article in the Nonprofit Law Blog called “The End of Small Nonprofits That Have Not Filed Form 990.”
I form a lot of Arizona nonprofit corporations. Some are tax exempt charities and some are not. A nonprofit corporation formed under Arizona law does not automatically qualify as a charity that is exempt from federal income tax. Nonprofit corporations that want to be tax exempt organizations must file an IRS form 1023 and receive approval from the IRS.
IRS form 1023 is not for the faint of heart. For those who want to prepare the form 1023 themselves rather than hire a professional, I recommend an excellent how-to book called “Prepare Your Own 501(c)(3) Application” by former IRS agent Sandy Deja. Sandy’s resume is impressive:
- She has worked with form 1023 almost daily since 1974
- She reviewed about three thousand exemption applications during her 12 years as an IRS Exempt Organizations Specialist
- She has prepared over one thousand forms 1023, and reviewed almost that many prepared by others since leaving the IRS
If you want a professional to assist in preparing IRS form 1023, call me, Arizona nonprofit and charitable organization attorney Richard Keyt at 602-906-4953, ext. 1 or call Richard C. Keyt, CPA, at 602-906-4963, ext. 3. We do not charge to answer questions about forming nonprofit corporations or applying for tax exempt status with the IRS. See my article called “Hire Us to Get an IRS Tax Exemption for a Charitable Organization.” We can prepare and file an IRS Form 1023 for a charity formed in any of the fifty states.
For more about nonprofits and charities go to my website called Nonprofit Corporations.
New York Times: “At midnight on May 15, an estimated one-fifth to one-quarter of some 1.6 million charities . . . will lose their tax exemptions . . . . federal legislation passed in 2006 required all nonprofits to file tax forms the following year. Previously, only organizations with revenues of $25,000 or more . . . had to file.”
See IR-2010-10, The IRS Reminds Tax-Exempt Organizations of All Sizes to File the Form 990 on Time to Preserve Their Tax Exempt Status, IRS, Annual Electronic Filing Requirement for Small Exempt Organizations — Form 990-N (e-Postcard) and a story in the Chronicle of Philanthropy “Up to 25% of Nonprofit Groups Could Soon Lose Charity Status.”
Nonprofit Law Blog: “All too often, the issue of legal compliance receives attention from a nonprofit corporation only after a conflict arises. Instead, a nonprofit corporation can better prevent conflicts and protect itself through regular legal audits. Financial audits alone, while important, will not sufficiently account for the bigger issue of overall compliance with state and federal laws. A legal audit will include a wide range information-gathering, such as:”