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501c3 Non Profit Status

Congratulations, you’ve made the important first step in the rescue world: setting up a proper rescue! Now what do you do? You want to help as many pigs as you possibly can, but this not only takes up valuable resources like money, but requires a skill at networking, marketing, and planning out your business operations. And then there is the choice of what type of rescue business to run: for-profit or nonprofit?

If you are interested in taking the leap to become a federally recognized, tax exempt nonprofit, be prepared for a long journey. The second you download the application and start looking through it, you will feel overwhelmed and unsure of how to move forward. This guide will answer your questions about all things nonprofit, and allow you to determine if you should proceed with the 501C3 paperwork or not. You can run a nonprofit organization without federal tax exemption status, so bear in mind that a 501C3 is not necessary for every nonprofit.


Why 501c3? Advantages and Disadvantages

Becoming a federally recognized 501C3 organization has the potential to open new doors and opportunities for your business that may otherwise prove difficult. 501C3 organizations are exempt from filing federal income taxes and federal unemployment taxes, meaning that more of the money brought in can stay within the organization and can be used towards important programming and the daily operations.

Perhaps the most obvious choice to apply for this status is the credibility it will give your organization. When soliciting funding, most individuals are leery of where their hard-earned money is going. As a society, we will look the other way when asked to spend our money. But, if you have not only an appealing cause—like rescuing, rehabilitating, and providing sanctuary for pigs—you may draw attention to your business. Having the 501C3 status to back your organization will guarantee incoming funds of varying amounts. Bear in mind that no gift is too small; you are asking for money, so take in what you can get! But also be aware that not only does the 501C3 allow you to be credible to potential donors, it offers incentives for donors, too. All donations made to a 501C3 organization are tax deductible. At the end of the year, wealthier individuals and even corporations wanting greater write-off opportunities will solicit nonprofit organizations to make donations to. If your organization is a registered 501C3, the invitation for donations is in place and, given your visibility, will make a difference in funding.

As a 501C3, businesses can solicit funding from government, private and foundation grants; this is free money to use towards your documented goals, expenses, and programming. An important fact to consider, however, is that most government grants are not designed for “livestock” rescue operations, and our cute potbellied friends are considered livestock. Do not be discouraged, though, as there is a wealth of private and foundation grants available that you can apply for. Applying for grants is a whole other topic. The process is time consuming, time sensitive, and very specific; consider hiring someone or seeking a volunteer who has experience with grant writing, rather than jumping in head first without experience.

Fundraising is perhaps the most crucial component of running and maintaining a nonprofit; as a 501C3 nonprofit, there are better opportunities for public fundraising events that standard corporations do not qualify for. For example, you may hold raffles and games at an event that are not allowed for normal businesses because of gambling restrictions or expensive permits. 501C3 organizations are allowed to hold gambling fundraisers without seeking an additional permit ! In addition to gaming, 501C3 nonprofit organizations can easily obtain a permit for bulk mailing, and have access to better databases for soliciting donations, promoting the organization or events, and more.

Do these advantages sound worthwhile? Becoming a 501C3 does offer more opportunities, but there is a lot of responsibility involved. As a 501C3, the IRS offers exemption from income tax and unemployment tax—but the organization is not off the hook from all taxes. A 501C3 is required to file certain reports, such as a quarterly 941 (wages and withholdings for the nonprofit’s employees), annual W2 and W3 reports, file required state/federal returns, pay sales taxes on certain items , and file reports annually or every 3-5 years to maintain exemption status. 501C3 organizations must keep strict and regular records for all financial transactions—and the IRS can and will audit such nonprofits. Having an experienced bookkeeper on staff (either paid or volunteer) will resolve a major headache in financial record keeping. As a nonprofit, part of the records keeping is to maintain transparency for the IRS, the general public, and your specific donors. Nonprofits are required to disclose certain financial information, and there are websites that offer these reports to the public, such as GuideStar.com.


501C3 Application Process

Ready to apply? Be prepared for a long, time-consuming journey! Before launching into the application process, there are a few important details you must already have in place:

1. Have a registered business in the state and county where you operate. This is a low-cost process, and can be done relatively quickly!
2. File for a federal employer identification number (EIN). You must have this whether your organization is private (for profit) or nonprofit.
3. Establish a board of directors. Do NOT choose your friends or family for the board; instead, choose individuals from your network who align themselves with your long-term business goals and strategy who will not only be willing and able to help, but will benefit your organization in the long term. You will need a minimum of four board members—President, Vice President, Secretary and Treasurer—and these members must strictly be volunteers. It is also important to keep your founding members somewhat separate from your board; for example, if you are the founder, do not position yourself as the President on the board. This can be a conflict of interest, as your board serves to advise and review organization decisions and development from an objective source and point of view. Finally, your board members should be qualified to hold such positions; for example, your treasurer should have strong experience in the financial field.

There are a few options to consider when you begin the application process for 501C3 exemption status. First, you may consider filling out all of the documents (forms, attachments, and budgets) alone. Second, you may consider meeting with another nonprofit organization that focuses on helping startup nonprofits. Third, you may hire a lawyer to help you draft all required documents and guide you through the submission process. Or fourth, you may do everything alone and then hire a lawyer or organization to review the documents prior to submission. Based on these four choices, the best method is two through four. It is inadvisable to complete this task without any prior knowledge of the process or experience filing without help from an expert.

When seeking help to draft the application, a budget, and all of the attachments required for submission, please be aware that a cost will be associated. While there are lawyers willing and able to offer this service for free, they are few and far between—and are often only willing to pick up one or two application reviews free of charge per year. If obtaining 501C3 status is important to the goals of your organization, then paying for the service should not be a problem. You can rally your followers and supporters to donate towards the expense of applying, too. This is a great opportunity to learn how to effectively solicit donations—and to learn how to explain your goals, strategy, and give those supporters a reason to donate!

In many cities and counties across the United States, organizations exist to help startup nonprofits. For example, there is an organization in Colorado called the Colorado Nonprofit Association. This organization offers free resources for those interested in creating a nonprofit, and has a network of lawyers that are reputable for assisting nonprofits in all stages of development, growth, and business. If your area or state has such an organization available, use it as an important resource! Schedule a meeting with a member or employee of the organization—that is what they are in business for. Utilizing such a resource can help put your organization on the map as well, opening the door to future networking and fundraising opportunities.

Finally, be aware of the expense to simply file for 501C3 exemption status. There are two levels for 501C3 organizations: if you expect to bring in less than $10,000 annually, the cost to apply is only $400. Any amount greater than $10,000 annually is a charge of $850. As a rescue, consider $10,000 annual revenue; it is not a lot of money in the grand scheme of running a nonprofit! Perhaps in the first year, or first couple of years, revenue of $10,000 is realistic. As your organization grows and develops, however, you should not only want to have greater revenue, you should strive to bring in more than $10,000. So when you apply for the 501C3 exemption, you should automatically pay the $850 fee and be done, allowing you the opportunity for expansion without another fee to pay the IRS later on down the road.


How long does the 501C3 application process take?

As mentioned previously, the application process is a long journey. Expect to spend a minimum of four months compiling all of your documents—the application, attachments, and budget forms—and to have your board review those documents. Once the application and documents are complete, expect another 2-4 months for the review process to be conducted by a lawyer or experienced nonprofit consultant. After the IRS receives your completed application and paperwork, you will receive a notification letter; in this letter, you will be told to expect 90 days for a decision, so long as you did not leave any required information out of your submission. This puts the application process timeline at a minimum of one year. Within this time frame of a year, be sure to conduct business operations as transparently as possible—you will be required to disclose all of your operating information to the IRS in the application. It is also important to note that, even as a registered nonprofit, without 501C3 status, you are still required to file taxes. Do not forget to do so!