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LUGs Applying for 501(c)(3) Non-Profit Status?
concord asks: "Our group applied for 501(c)(3) non-profit status with the IRS a few months ago. We are an educational group dedicated to assisting any individuals or groups interested in learning more or employing free software. We hold monthly LUG meetings here in Southwest Florida and have been doing so monthly for the past two years. Nevertheless our IRS case manager is denying our request (so far). Have any other LUGs in the US successfully attained 501(c)(3) status? Can you offer any pointers?"
You're trying to become a charitable organization 501(c)(3) but in reality, I think you're probably a social club 501(c)(7) and I'm sure the IRS feels the same way too.
Look into the IRS's Tax Expemtion for Social Clubs
"The exempt purposes set forth in 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals."
I've been involved in a few 501(c)(3) organizations, there was a circus, an amiga users group, and my wife has a documentary film production company that is a 501(c)(3). These all fell under the "educational". I also know of a few theater and performance spaces, movie theaters, music and poetry magazines etc. that are 501(c)(3). Just about anything can be educational, I assume a LUG would be educational, and you might even be scientific, charitable, or literary, but educational would be enough.
What is the benefit of 501(c)(3) status ? There are a lot of 501(c)(3) organizations which can assist other 501(c)(3) orgs with various resources. Many grants , especially in the arts are only awarded through 501(c)(3) umbrella organizations who get a cut of the grant for administering it ( and for dealing with the IRS ). Lots of corporations will donate goods, services , and sometimes money, but only to a 501(c)(3).
Ask anybody in the academic or arts worlds about 501(c)(3) organizations. For better or worse they are a way of life.
No matter which category you end up, all your board members should understand the limitations so as to avoid stepping over the line.
I went through an application process about 10 years ago, so the following may have changed. When I applied for the tax number, the type of organization was to be indicated (if Pub 557 doesn't tell you which one, search the irs.gov website). In the form letter the IRS sent out, they indicated that application for status was required if the organization's annual income exceeded a certain threshold. The exact level of the threshold escapes me, seems it was either $2000 or $5000, but it may have changed since then. Point is that if your group just has a 100 members or so meeting in free public rooms at libraries and your major revenue is dues to cover a newsletter, you may not even need to apply for formal recognition. Should this turn out to be the case, you still need to understand and comply with the laws. I'd guess that you may have already applied for a tax ID if you've been turned down for 501(c)(3) status, so check into whether you should change the organization type associated with that number or apply for a new one.
Disclaimer: I am not a lawyer or accountant, so review the situation yourself from other sources.
I made a presentation at our local HoustonWireless meeting regarding becoming a 501(c)(3). The presentation slides are here. The slides aren't entirely self-explanatory, but hopefully they'll be useful to someone.
Could you perhaps qualify as a 501(c)3 educational organization (as opposed to social club, etc.)?
h tm
Way way back I worked with a university organization that was able to qualify for this. It seems the greek letter organizations had to apply as a social organization, but since we had an educational mission, we got the educational exemption.
Not sure if you need to be affiliated with a university for this, though.
IANAL, and of course you should talk to an attorney first.
Here's some interesting links for more info:
http://www.tgci.com/publications/96summer/tobeor.
http://www.taxexemptlaw.com/lr-04.shtml
And did you know SETI At Home is a 501(c)3 educational organization?
http://www.setileague.org/admin/taxexmpt.htm
The IRS agent handling your application has probably cited to a series of cases and Revenue Rulings that hold that computer user groups cannot qualify as charitable or educational under Section 501(c)(3) because they tend to promote the products of a particular hardware or software vendor. That "commercial" flavor to them conflucts with requirement that Section 501(c)(3) organizations must carry out a public, not private purpose. It seems to me that a Linux user group is very much distinguishable from these, since Linux is not commercial software and runs on such a wide variety of platforms, and so you may need to educate the agent about whtya Linux user group is so different from, say, a Mac users group.
One of the prior posts mentioned a minimum dollar threshhold for applying for Section 501(c)(3) status. It is $5,000 per year. If your annual gross revenues are less than $5,000, you do not need to apply.
You didn't say where your application is in the IRS's pipeline, but you should have ample opportunities to challenge the agent's decision. Typically, an agent will write what is known as a "21-day letter," which asks you to respond to a list of questions and is your best chance to raise arguments in favor of obtaining tax-exempt status. (If you do not respond within the 21-day period, you will actually have another 90 days to do so.) If the agent does issue a final adverse determination, you will have a right to appeal within the IRS. If you get to that stage, a lawyer would be quite useful, but not necessary.
LUG's usually beneift a small group of individuals. Thiis is why they are denied. You need to show that you are benefiting the public in some way. Not the members of the LUG's.
Try looking at a association, which is a 501(c)6 .
Be very carefull when forming a non-profit, there are over 26 different kinds, and everyone of them has restrictions. That the IRS will not hesitate to pounce on you for , and hold its manager liable.
Cheers,
Tomas