TO INCORPORATE/NON‑PROFIT OR NOT
If you will recall, the origin of my children’s foundation, the Keenan’s Kids Foundation, began back when I initially had access to the financials of the non‑profits that I was giving my annual donations to. There was no question that I got the full tax deduction for the money I was giving, but I was angry that only a few pennies from each dollar actually made it to the targeted project or cause.
Incorporating a non‑profit is a lot easier than you’d think. My firm had always used a trust estate law firm to establish the guardianships and special needs trusts, etc., for our injured children clients. I simply went to them and said that in exchange for all of the good business that we had given them over the years, they should give us a 501(c)(3) corporation free of charge. Don’t know if they were happy about it, but they did it.
I looked at the documents that they prepared and discovered they were boilerplate; a high school class could have filled in the blanks. So if you want a 501(c)(3), then consider my approach with a law firm you work with, or go to www.zoom.com, get the documents and fill in the blanks.
If you have any hitches, I found that the folks at the IRS non‑profit section are very helpful with free advice, so use it.
Now I will tell you that in the first two to three years, the IRS will birddog your returns to make sure that you're doing everything correctly. I didn't find this as much of a nuisance as it was rather helpful, especially in the beginning. But please remember that there are tons of fraudulent non‑profits and you want to be as lily clean as entirely possible. Here are some pointers:
1. Make sure your Board is not just made up of family members (unless you have a family non‑profit). It looks better to the public and the IRS if you have a diversified Board. My Board has included doctors, public health officials, members of the media, community organizers and friends. In fact, at this point in time, I am not a Board member because I want the foundation to start operating on its own.
2. Avoid inside dealing; that is, people on your Board being the recipient of projects, grants, etc. It just looks bad.
3. Choose a CPA that knows their way around the non‑profit world and, in particular, can file a pristine tax return.
4. The one area that trips up most small non‑profits is keeping the books, receipts and those kinds of things so be extra careful.
5. There are several national groups that you can join membership with and it's good to become a member, because they have a ton of good information available only to their members. Try www.smallfoundations.org and www.philanthropy.org to start with.
6. Take the time to prepare a clear mission statement for your bylaws and be specific in your bylaws as to your purpose and your oversight.
7. Be aware that the IRS has a certain percentage of your net income that can go to non‑profits, including yours. This percentage changes from year to year, so just make sure you don’t exceed the permissible amount.
How much money do you have to donate to justify a 501(c)(3)? I’ve see some lawyers justify establishing a non-profit with just $15,000. Maybe you alone cannot justify a non-profit, but I bet you could if you got a couple lawyer friends together for a joint non-profit.
Remember the Major Truth I established in my first column Giving Back to the Community and Changing the Image of Trial Lawyers: Simply giving money doesn’t cut it; many will say that’s just a way for you to avoid taxes. Instead, your foundation should use its non-profit funds to conduct activities.
Once you have your own 501(c)(3), you can write firm or personal checks into the non‑profit to fund the activities that you want to do. You may want to buy bicycle helmets and distribute those to children at schools, or go through your local sheriff’s department or law enforcement. From time to time, we’ve purchased gun locks through my foundation and set up kiosks at local malls (spaces donated) to distribute gun locks to parents willing to sign a pledge that they will put the gun locks on any guns in their homes. You can buy children’s clothes and donate those to children’s shelters and other locations.
There are an endless number of projects that you can fund and do so through your non-profit, and obviously receive a tax deduction in return. My future columns will give you a veritable salad bar of ideas for activities you can do with your non-profit.