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Founding Your Nonprofit: Incorporation and Tax Exemption

Taking a nonprofit from a dream to a viable entity involves weeding through the state incorporation and federal tax exemption process. Would-be founders of a nonprofit often find this a daunting marathon rather than a quick sprint. Indeed, there are many steps to be followed (with the proverbial “i” dotting and “t” crossing) and a bit of IRS grace to make this a reality. (Or, if you are hoping to form a 501(c)(4) on the wrong side of the political fence, maybe “grace” isn’t the operative word.)

I would like to give an overview of nonprofit incorporation and 501(c)(3) tax exemption, which is the most common way that charities are formed and become tax exempt entities. There are two main stages to the process:

1) State incorporation as a nonprofit entity. At a state level, founders of a nonprofit will create a nonprofit corporation after obtaining consent where required from government agencies. There should be helpful information the Department of State (or Secretary of State) website in your state. In New York, for example, you can visit the following website: http://www.dos.ny.gov/corps/nfpfaq.asp. A corporation is formed as a not-for-profit entity in a single step, which means among other things that it has a public purpose and is not formed for the benefit and financial interest of private individuals. Nonprofit status, however, does not equate to tax exempt status. That is the second step.

2) Tax exemption at the federal level.  At a federal level, the Board of an incorporated nonprofit will file a Form 1023 to apply for tax exempt status with the IRS. This is a complex form and takes much diligence, thought and time to complete. Often a lawyer’s assistance is helpful so that the nonprofit knows it is answering questions correctly and completely. Important items on the Form 1023 include the Statement of Activities and financial data.

For more information, enclosed is a short video on the incorporation and tax exemption process:

Law Office of Anne Marie Segal provides legal counsel to businesses and individuals. Please visit www.amscounsel.com for more information. None of the information posted on this site constitutes legal advice or forms an attorney-client relationship, and there may be facts not discussed here that are relevant to your situation. This is a public forum. Please do not post confidential or fact-specific information regarding your legal questions on this site.

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Happy New Year: Five Essential Legal Documents for 2013

Happy New Year!

If you don’t have them already, and unfortunately many of us don’t, here are five essential legal documents to prepare you for 2013 and beyond. Do your family a favor and get these in place before they are ever needed.

1) Will. A “Last Will and Testament” is the central estate planning document that allows you to direct how your assets will be distributed upon your death and who will serve as your executor. If you have minor children, you can also designate guardians in a will. If you die without a will, the laws of your state determine how all of your property – from stocks to shoes – will be distributed. This may or may not accord with your intentions.

2) Advance Directives. A “living will” and a “health care proxy” are the two essential elements of an advance directive. The first gives your wishes for medical care in case of, for example, emergency and terminal illness. The second appoints an agent to make medical decisions if you are unable to do so. In some circumstances, a DNR is also appropriate.

3) Durable Power of Attorney. You will want to appoint someone you trust implicitly to be in charge of your finances in the event you are not able to do so (such as a prolonged recovery from an accident that leaves you mentally impaired). If not, valuable time will be wasted while your agent attempts access your assets, which may be needed for your or your family’s care. Depending on your personal circumstances, you may determine that a “springing” attorney is more appropriate, which is valid only if it is demonstrated that you are incapacitated.

4) Records of Passwords. Since bank statements and other important elements of our lives are often dependent on online passwords, you should have a secure system or file so that your personal representative can access these records if needed. The last thing you want is for assets to be left unclaimed (and escheated to the state) because no one knows where your accounts were held.

5) Temporary Guardianship Paperwork. If you have minor children, in addition to appointing a long-term guardian in your will, you want to have temporary guardians available to step in for emergencies and other situations where you may not be able to serve as guardian for your children, or upon your death in the first hours and days while the long-term guardian arrangements are put into place.

Just as you are jumping on the treadmill or passing up that second piece of chocolate cake to stay healthy for years to come, also take some time to prepare your estate plan. If you would like to watch my video 6 for 5: Six Minutes for Five Essential Legal Documents for 2013, see below.

Anne Marie Segal is admitted to practice law in Connecticut and New York and provides estate planning and other legal counsel to businesses and individuals. This information is provided for your convenience and does not comprise a complete estate plan or give legal advice for your situation. Other documents, such as a living trust, may be appropriate for your circumstances, depending on your state’s probate procedures, your asset base and other factors.

 None of the interactions on this site form an attorney-client relationship. This is a public forum. Please do not post confidential or fact-specific information regarding your legal questions on this site.

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