There are a lot of nonprofits in the central Texas area – more than anywhere else per capita in the United States, in fact. Maybe this is evidence of a strong philanthropic culture or maybe it suggests an overabundance of duplicated efforts. Either way, there’s no denying that the nonprofit sector is growing rapidly. The IRS reportedly received over 50,000 applications for newly-formed nonprofit organizations in 2013. Nonprofits are an important part of society, but how do you know if your idea is worthy of nonprofit status? Here are a few considerations:
The term “nonprofit” encompasses many different types of organizations. It’s a good idea to know which one best fits your project before you sign any legal documents. Are you forming an adult sports team for fun? It’s probably a 501(c)(7) social club. A sports club for youth that teaches skills or keeps kids safe and occupied after school may qualify as a 501(c)(3) charitable organization. A group of people in the same business industry that plans to address issues related to the industry would probably form a 501(c)(6) business league. Some organizations that are doing good for the community, but don’t qualify as a charitable activity, may be able to get 501(c)(4) status as a civic organization. Each type of organization has slightly different rules, so be sure you know what your organization can and cannot do before starting any activity.
Nonprofits aren’t owned by anyone. When you turn your idea or project into a nonprofit organization, you’ve formed a public entity that is no longer controlled by you or any other individual. Nonprofits are controlled by the board of directors/trustees, a group of independent people qualified to guide the organization toward mission-oriented goals. If you want to personally maintain control of the organization, a nonprofit may not be the best option.
Who will benefit from your organization’s program(s)? If it’s a fairly small class of people, the IRS may reject your application for exempt status since it doesn’t fulfill a community or public interest. Even if your organization will benefit a large class of people, the method by which you offer your services may not fall into a nonprofit category. Business models that aren’t distinguishable from for-profit models may not be granted exempt status by the IRS.
Is your idea or project sustainable? If it’s a short-term project, consider a fiscal sponsor model where an established nonprofit takes on your project while you operate the project under the umbrella of the established organization. Gaining nonprofit status can be expensive and time-consuming, so consider your true goals before starting a new nonprofit. Does collaborating with another organization make more sense for efficient use of resources and community impact?
Let us know if you’d like to discuss your concept for a new nonprofit. We can help you vet ideas, develop a solid nonprofit business model and apply for exempt status with IRS.
