Forming a non-profit, but not a 501 (c)(3)

[Ellie]

Because I have nothing else to do, I'm thinking quite hard about starting a Scottish Highland games in my town. I had thought it would be a 501(c)(3), but when I was sleuthing around I found another similar organization that was a 509(a)(2), which seems to be a nonprofit that is formed for a specific kind of event, like a pageant. Do any of y'all know anything about that? Is this something that I'm really going to need an attorney for? or an accountant?

[Liz CA]

Dh has been on the ground level of several non-profit organizations. I don't think you necessarily need an attorney but you will likely need a treasurer. Most, if not all, of the paperwork can be downloaded and filled out. I have never heard of a 509 a 2 and you may need to do a little research on this or wait until someone more knowledgeable chimes in.

[J-rap]

What are Scottish Highland games?  Is it a one-time deal (over one weekend, for example?), like a Scottish fair?

A small group of us in our town are looking into a one-time event type thing, but we're joining up with an already existing non-profit group in town to do that, a group that we felt there was an intersection of interests with.  It saves us a lot of hassle!  Could you do something like that?

[Ellie]

9 hours ago, J-rap said:

What are Scottish Highland games?  Is it a one-time deal (over one weekend, for example?), like a Scottish fair?

A small group of us in our town are looking into a one-time event type thing, but we're joining up with an already existing non-profit group in town to do that, a group that we felt there was an intersection of interests with.  It saves us a lot of hassle!  Could you do something like that?

Generally, Highland games happen on a weekend, once a year. It is "games," and not a "fair," because there will be athletic competition, bagpipe band competition, Highland dance competition, and all that stuff.

There is no other nonprofit in my area, as far as I know, that could do this with me. We are a Scottish-poor area, lol.

I don't know how to do a proper hyper link on the new forum, so here's the code to the Caledonian Club Highland Games,, the oldest and largest in America. We will never, ever be this big, but they are still my role model. :-)

http://www.thescottishgames.com/

 

[Ellie]

14 hours ago, Liz CA said:

Dh has been on the ground level of several non-profit organizations. I don't think you necessarily need an attorney but you will likely need a treasurer. Most, if not all, of the paperwork can be downloaded and filled out. I have never heard of a 509 a 2 and you may need to do a little research on this or wait until someone more knowledgeable chimes in.

Thanks. I had never heard of a 509 (a)(2), either, until I started looking for other Highland Games organizations. LSNED, eh? I'll see if I can find the forms.

[Bootsie]

Are you seeking simply a non-profit structure (so that the organization does not pay taxes) or do you want to create a charitable non-profit to which people can make tax-deductible donations?  

The difference between a 501c3 and a 509a2 is where much of the funding of the organization comes from.  For a 501c3, most money is raised through contributions (like a local food bank) whereas a 509a2 may raise money through membership fees (or other ways of selling its services) that are in line with its charitable purpose (a zoo receiving much of its funding through memberships and entrance fees).  

To become a charitable organization you must have articles of incorporation that outline your charitable purposes; then you must apply to the IRS for exemption.  A user fee must be paid to the IRS (I think it is around $400 for most organizations) There may also be state paperwork, depending upon the state in which you incorporate.  It can be done without an attorney, but it is a hassle for a small organization or event.   

[Ellie]

I'm prepared to write articles of incorporation. :-)

I'm not sure which is better for this organization. It's an annual event (I hope); there are expenses which will be paid for through advertising in the program, vendors, entrance to the event, and entry fees paid by the different competitors, etc. I hadn't thought that people would make actual donations, but that is a possibility.  I think that a 509a2 can receive donations, as long they make up only a small percentage of the organization's income.

Thank you for your thoughts. :-)

[Tsuga]

Ellie you are definitely one of the coolest people I have ever met online. Scottish highland games are the best. Have only witnessed once. Amazing. Anyway... I don't know about the other structure but 501 (c) 3 allows corporate matching. Depending on your target demographic, that could make up a large portion of the funds you need.

[Bootsie]

1 hour ago, Ellie said:

I'm prepared to write articles of incorporation. :-)

I'm not sure which is better for this organization. It's an annual event (I hope); there are expenses which will be paid for through advertising in the program, vendors, entrance to the event, and entry fees paid by the different competitors, etc. I hadn't thought that people would make actual donations, but that is a possibility.  I think that a 509a2 can receive donations, as long they make up only a small percentage of the organization's income.

Thank you for your thoughts. :-)

If you seek 501c3 status, you need to be careful regarding program advertising and fees charged to vendors.  You can easily cross into "unrelated business income" on those items which is taxable.  You can have some UBI as a 501c3, but you must pay tax on it.  Also, the majority of your money cannot come from UBI.  

I would consider first--what is the charitable activity (as defined by the IRS) this would fall under because the Articles of Incorporation would need to be in line with the charitable activity.  Then, if you think most of the funding would come from donations you would structure it as a 501c3 and if most of the funding would come from fees paid by participants it would be a 509a2

[bibliophile]

Check out guidestar.org — make a free account and then search “Highland games” or some variant.  There are a bunch of similar organizations. You can view their 990 tax documents. There you will find their organization type as well as their mission statement. In my experience, most festival type organizations are 501(c)3.

[Ellie]

39 minutes ago, jdahlquist said:

If you seek 501c3 status, you need to be careful regarding program advertising and fees charged to vendors.  You can easily cross into "unrelated business income" on those items which is taxable.  You can have some UBI as a 501c3, but you must pay tax on it.  Also, the majority of your money cannot come from UBI.  

I would consider first--what is the charitable activity (as defined by the IRS) this would fall under because the Articles of Incorporation would need to be in line with the charitable activity.  Then, if you think most of the funding would come from donations you would structure it as a 501c3 and if most of the funding would come from fees paid by participants it would be a 509a2

I'm thinking this is why 509 would be better than 501c3, because of the advertising and whatnot. Thanks!

[Catwoman]

Is there any reason why you wouldn’t just start a for-profit business? Do you have a particular reason for wanting it to be a non-profit?

[Bootsie]

I am not sure that you initially decide whether you will be considered a 509a2--I am on the board of a 501c3 and I went back and looked at what I have of our official paperwork (unfortunately I do not have all of the originals because our headquarters were in the World Trade Center).  In the copies of the paperwork that I do have there is information from the IRS that the would not make an initial determination regarding the public support of the organization and that after a 90-day ruling period decisions would be made regarding that and where we fell under 509 rules