Why you need one and a step-by-step how to guide
One of the questions I am asked by activists repeatedly is whether or not they should file papers to form their organization into a 501c4 non-profit entity.
The short answer, in most cases, is yes.
The process of getting from where you are to that acceptance letter can be daunting if you’ve never done it before.
But it’s really rather straightforward.
And despite what you may have heard about Lois Lerner and her cronies at the IRS rejecting conservative non-profit applications out of hand -– that’s just not the case.
Before we get to the step-by-step process that you need to undertake to properly file for non-profit status, I’m going to clear up a number of misconceptions that people struggle with.
Fiction #1 – We do not need 501c4 status, we are already an approved non-profit with the state.
Fact #1 – Of course many non-profits never need more than state level non-profit approval. But the primary benefit to federal 501c4 status is the ability to do mail at non-profit rates, something that your state level non-profit will not allow you to do.
Fiction #2 – We should not seek 501c4 status, that means that I can never be paid for my work.
Fact #2 – That’s false. Your 501c4 status means that your organization’s monies are not taxed for income tax purposes. But the organization can certainly pay expenses to carry out its non-profit charter and that can absolutely include salaries, within reason.
Fiction #3 – The administrative headaches with having to file an annual report are too difficult for most people to handle, we’re better off not even bothering.
Fact #3 – Trust me, if you can balance a checkbook, you can file an annual 990EZ form. Above annual receipts of $300,000 you need to submit a long-form 990, but this is still very easy to comprehend and most CPA’s will do this for a nominal fee.
Fiction #4 – The application process takes over a year!
Fact #4 – Actually, that’s not true at all and I can teach you how to get your application returned in a fraction of that time. Our current record for approval was granted in just 14 days!
Fiction #5 – I can’t apply for this now, our organization is just getting started and we have nothing to show for ourselves.
Fact #5 – You’ve got it backwards. The earlier in your organizational lifecycle that you apply for it the better since there is always more inspection when an established group suddenly seeks non-profit status.
Having disposed of some of the misconceptions about the application process and the implications of obtaining 501c4 status, here are the two primary benefits of becoming a non-profit.
First, as a 501c4 non-profit, you’re able to apply for a permit to send direct mail at non-profit mailing rates. Any political organization that is serious will be running a mail program and the difference in postage could be massive!
Second, while it may be alright for your organization to start out as a group of 5 guys who keeps the organizational money in a coffee can, at some point you need to get serious. Having 501c4 status gives you an air of legitimacy and also tells donors that you are making an annual account of how you are using the resources that your members give you.
That being said, here’s a simple and straightforward checklist that you can follow to apply for 501c4 status.
Note: you’re likely already somewhere in this process whether you’re doing it on purpose or not, so just skip ahead to the appropriate starting point.
Step 1: File for an EIN number with the IRS. While you could use your personal Social Security number, there is no point is risking having your information stolen.
There are many scam websites that will try to charge you $100 for this, watch out. You never have to pay for an EIN number. Go here to start your application: http://bit.ly/1P1f7jS
Cost: $0
Time involved for application: 20 minutes
Normal wait time: None
Step 2: Obtain a USPS or UPS mail address for your organization. Yes, you could use your personal address as the corporate address of your organization, but why have your address tied to your organization?
The only real difference between the USPS and UPS box is that the UPS will forward your mail to you if you can’t pick it up yourself.
Cost: $75-$300 depending on which option you chose.
Time involved in filing the application: 30 minutes to an hour.
Normal wait time: USPS has no wait time, UPS same or next day.
Step 3: File for nonprofit status with your state government. Usually this is done through the Secretary of State’s office, but not always. This will require you to submit the Articles of Incorporation for your organization.
Cost: $10-$25 usually.
Time involved in filing the application: depending of what your state require this can range from 20 minutes to a couple of hours.
Normal wait time: Without paying for expedited service this is usually returned in a week.
Step 4: Open a bank account. The money for your organization needs to be totally separate from your personal funds for obvious reasons.
To do this, you’ll need your approved Articles of Incorporation (the approved version will bear the seal of your state), usually your board minutes, and your personal ID.
Cost: $0
Time involved in filing for the account: 1 hour
Normal wait time: None
Step 5: Apply for a merchant services account to enable online contributions. There are countless vendors who offer this service, but I only use one.
To do this you’ll need a letter from your bank on letterhead or a cancelled check and usually a completed website so that they can verify you are a legitimate organization.
Cost: $25-$75 in set up fees depending on the vendor
Time involved in filing for the account: 1 hour
Normal wait time: 3-4 business days
Step 6: Fill out and submit your 501c4 application (IRS form 1024). You’ll need your EIN number, your approved Articles of Incorporation, board member information, and your USPS/UPS address at a minimum.
This application explains who your group is and why you think you should be considered a non-profit. You will have to explain what your group will do, give projected or actual budgets and explain what will happen to your organization’s assets upon dissolution.
Cost: $350 or $850, depending on how much money you anticipate raising. I would strongly consider you spend the $850 for faster service, and if you follow my advice you’ll be raising the higher dollar amounts anyway.
Time involved in filing the application: If it’s your first time, this may take you three or four hours or perhaps longer. With experience, you can complete one in under an hour.
Normal wait time: there is no normal wait time. If you submit the application correctly you can get approval in a few months. If your application is submitted incorrectly, it can take six months or more.
Step 7: Once the IRS grants you 501c4 status, the last step is to file with the USPS for permission to mail at non-profit mail rates.
This is the goal, to be able to send out fundraising mail at the cheapest rates possible. You’ll need your 501c4 approval letter, your articles of incorporation, your bylaws, membership signup sheets, newsletters, and other misc. documents to submit this.
Cost: $0
Time involved in filing for the account: 1 hour
Normal wait time: 7-21 days
Conclusion:
While it may seem like a daunting process, it is really not that difficult to successfully apply for and obtain your 501c4 status.
There are many law firms that will assist you in obtaining your 501c4 status for thousands of dollars, but there is no need to do that.
If you follow the steps above, you will avoid missteps and scams that could cost you thousands of dollars. If you need more help with this application, please contact me for more specific assistance.