Using a tax-exempt organization/non-profit "vehicle"

"Tax-exempt" is a larger umbrella

"Non-profit" is the "IRC § 501" designation that provides exemption

"Charity" offers the most tax deductions

Public charities § 501(c)(3)

Social welfare organizations § 501(c)(4)

Social clubs § 501(c)(7)

Business leagues § 501(c)(9)

Political organizations § 527 - different class of tax exemption for political activity

Why seek tax exemption?

Revenue is taxable where not exempt.

America was not born with the income tax, but there were federal measures proposals to tax income above high thresholds until the Supreme Court ruled such unconstitutional in the 1895 Pollock decision. Theodore Roosevelt paved the way for the 16th Amendment, which was ratified by the following Taft Administration, enabling federal income tax.

Individuals and businesses can receive tax deduction for supporting charities.

Charities are organizations that privileged to tax-exempt treatment as they serve "public purposes."

The exempt purposes set forth in Internal Revenue Code section 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. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

https://www.irs.gov/charities-non-profits/charitable-purposes

"Education" and "Religious" Purposes

Education

IRS pays particularly recognizes "schools" and likewise donors and the public value that clarity of this public purpose.

There are other meanings of "education" for nonprofits and charities that include "education" of the public about their rights, etc., as can sometimes take quite a broad meaning of the term "education."

Religious - Christianity is the primary example of what "religion" is. Use of cannabis, e.g., is not accepted as "religion."

Churches can be special category of § 501(c)(3) designation, which can include a school, as does RCMI.

Perks include reduced filing requirements and special protections from audits and regulatory burdens. https://www.irs.gov/charities-non-profits/churches-religious-organizations/special-rules-limiting-irs-authority-to-audit-a-church

There are other meanings of religious activity defining this exemption other than organizations defined by a church.

"Churches" are typically defined by the characteristic of having a weekly or regular worship service - as opposed to the organization being a ministry, e.g., or other characteristic.

State Requirements

Minnesota Non-profit Corporations are created under Minn. Stat. § 317A

https://www.revisor.mn.gov/statutes/cite/317A

Minnesota has another non-profit entity option, the Nonprofit LLC by filing under §322C.1101. https://www.revisor.mn.gov/statutes/cite/322C.1101

Minnesota Charities must contact the Attorney General upon creation or solicitation of funds (Minn. Stat. 309). Solicitations and professional fundraising are matters of regulation address by these statutes.

https://www.revisor.mn.gov/statutes/cite/309

Smaller Charities can be exempt from most AG regulation, but still must remember to timely file their exemption. https://www.revisor.mn.gov/statutes/cite/309.515

Benefits for a school organization

Tuition can be low, with those supporters or parents who can contribute offered the deduction for donations or sponsorships, which can include benefits like a quarterly event with leadership.

Organization is exempt from paying taxes on all activity funded and conducted according with charitable purposes.

Exemption and deductability commence from the date of incorporation as submitted to the State of Minnesota.

The school can sell items as a fundraiser for its charitable purposes, but if any activity is conducted for other purposes, including "public" but not "charitable" purposes, there may need to be separate accounting kept. If the school, as an organization, conducts activity which is not tax exempt under § 501(c), as opposed to § 527, the school will need to pay income tax on that revenue.

Churches can be a "fiscal host" for a school organization, given the congruence of activity being limited to charitable purposes, for both organizations.

This relationship is less than the Church having the school within itself, as an organization. Donors can contribute to the Church, designating the gift for the school, or to the school, with the Church authorized to hold or process funds through it, etc.

RCMI is a fiscal host for "Education Choice"

Email David Benson-Staebler david@mnstandards.org or call (651) 505-3111 for more information or for a possible referral to an attorney for legal advice, which this presentation does not offer, consist of, or represent.