The Unincorporated Nonprofit Association
Whenever a group of individuals comes together and organizes itself to provide a benefit to the public (such as the educational programs and events most of our guilds provide), without the intent of generating a profit, the group has automatically formed an unincorporated nonprofit association.
The advantage: no paperwork, no cost. Just an automatic nonprofit!
The major disadvantage to the unincorporated nonprofit association, however, is that it may leave officers open up to potential liability issues, and in some states, an unincorporated association may not be allowed to sign contracts (e.g., with instructors or venues.)
The Nonprofit Corporation
Some guilds choose to incorporate, especially if they are large or own or rent facilities and/or expect to run many workshops or other events. Incorporating requires registering as a corporation with one’s state, and requirements and fees vary by state.
If you decide to incorporate, be sure that you have included the correct language in your organizing documents so that you can later apply for tax-exempt status. (See IRS Publication 557, Appendix: Sample Articles of Incorporation.)
Guilds with gross receipts of less than $5000 per year
Whether the guild is an unincorporated nonprofit association or a nonprofit corporation, if it has gross receipts of less than $5,000 per year, IRS will automatically consider the organization to be tax-exempt. That is, without the need to apply to IRS for tax-exempt status. (Note, “gross receipts” means the total amount of income your guild receives from all sources before any expenses are subtracted – i.e., all your dues, workshop fees, sales proceeds from guild sales–before you subtract instructor fees and payouts to guild members for the goods sold.)
This automatic tax-exempt status is a huge benefit because donations to your guild are tax deductible as long as you meet other requirements for nonprofits, which are clearly defined in this article from Nolo.com.
Remember, though, even in this status, your guild has an annual reporting requirement to IRS in order to keep its tax-exempt status. (See Annual IRS Reporting for Nonprofits.)
Guilds with gross receipts over $5,000 per year
If your guild has annual gross receipts higher than $5,000, you need to officially request tax-exempt status from IRS. Most likely you can do this with the simplified Form 1023-EZ. In 2018 the application fee for this form is $275.
Before you can file Form 1023-EZ, however, you need to be certain to have:
- An organizing document with the correct clauses required for tax-exempt organizations
- (See appendix of Pub 557 for sample Articles of Incorporation with the correct language needed. Note, if you don’t want to incorporate, but want to continue to be an unincorporated association, you just need to change the “corporation” terms to “association” and create Articles of Association and/or ensure that this language is in your bylaws.)
- The document must have signatures of two officials of the organization and be clearly dated.
If your guild decides to incorporate, you should do this before you submit your tax-exempt application to IRS.
Once you have received your tax-exempt status, be sure to keep it!
Resources
IRS Publication 577: Tax-Exempt Status for Your Organization
IRS Customer Service for Nonprofits: 1-877-229-5500
IRS website for Charities and Nonprofits
This information is being provided by MAFA to make our member guilds aware of information other guild members have learned in their research. We are neither tax accountants nor tax attorneys and the information on this website is not intended to serve as legal or tax advice.