does anyone know:
how much i can expect to pay altogether from start to finish to get 501(c)3 status for my chess club in colorado?
how long the approx min time it will take to get it.
the government says i need at least 2 people for 501(c)(3) status. is there anyone who would like to be an officer in my chess club in grand junction colorado?
i’m new here and don’t yet know anyone.
The process isn’t complicated, but it will cost you $300. Our club has never had $300 at one time, so we didn’t bother.
Actually $400 for the IRS-1023 form processing as of January 1, ($200 if using their computer application system - don’t know if that’s available yet or not) for 501(c)(3) status.
Then there’s becoming a nonprofit corporation… (Why one would apply for 501 status and not become an NFP corp escapes me.) In llinois $50 for the Secretary of State application for NFP corp, and $15 for the Attorney General application. Plus about $75 if you want a build-it-yourself corporation kit (not absolutely required, but not a bad idea if you haven’t ever built a corporation and don’t want to pay for a lawyer… though paying for a lawyer’s time is generally always advisable.) Then, while one can certainly keep the books of a smaller organization manually, and tax filing isn’t hugely complicated for a small NFP, accounting software is about $100 for entry level QuickBooks. (Unless you happen to have an accountant in the club as a member. 
)
After all that, the USCF affiliate fee and (if desired) state organization membership…
I think $300 is probably a tad on the low side, at least for Illinois. We find it a lot easier to just meet. 
Perhaps the question should actually be: What would be the purpose in pursuing 501 status at all? (That may also answer whether (c)(3) status in right to seek, or if it should be (c)(4) or even (c)(7) status…)
Again, paying for a lawyer’s time might not be such a bad idea…
P.S. - If you look at the instructions for Form 1023 (application for 501(c)(3) status,) it states that you do not have to file for recognition but qualify as a 501(c)(3) if annual gross revenue is under $5,000.00. ( irs.gov/pub/irs-pdf/i1023.pdf ) And, of course, meet the other standards…
thanx guys. that’s all good stuff to know. you’ve been very helpful.
now i’m curious though…
so until i make over 5k a year, as long as i meet all the other qualifications, is it possible that i could honestly advertise my club as being a 501 c 3?
Now that is the kind of question one hires a lawyer to answer. Instead of relying on opinions from someone who has “IANAL” in his signature for a purpose. For example, that instruction document I cited states that an organization “may be considered” tax exempt under 501(c)(3) if the gross receipts are under $5,000. But does advertising an entity as 501(c)(3) imply that one has applied for and received that determination from the IRS - not just assumed it?
This is where you want expert paid advice that you can rely on. Not just “so-and-so” here said it was OK. Your expert would also tell you exactly what you must have and what you must do. Examples off the top of my head: File a 990-N every year, either be incorporated as NFP or have a unincorporated constitution (depends on your state’s laws,) avoid undeclared Unrelated Business Income (sell concessions at your tournaments???), and what do you do when a member wants to write off their dues as a charitable contribution on their personal taxes?
Trust me - I’m not a lawyer, and know it. Just a dude with a degree in Business Administration and some experience working with nonprofit entities.
But coming back to one question I asked earlier: Why do you want 501 status? I think most experts would probably advise, “so we can say we are,” is probably not a compelling enough reason.
thanx again for all the advice, to answer your question:
first off, i have plenty of free time on my hands so that’s not an issue, and secondly, i want very much to remain self-employed.
all i want to do is play chess and have fun. but to make a modest living at that it seems that large numbers of players and large amounts of money must be generated somehow.
in order to get lots and lots of players at my chess tournaments i think it would help a lot to get kids indoctrinated to chess playing in schools. the easiest way i know to work with schools is to have an organization that is legitimately tax compliant.
in order to get large tournaments at nice locations with lots of advertising with big prize funds i think that big sponsors would be very helpful. the first potential large corporate sponsor i talked to some one from told me that they would require guaranteed media coverage for a $2,000 contribution. i am suspicious that media would also like me to be legitimately tax compliant before they’ll gimme the time of day.
i just figured, if i’m going to start to actually bother with tax compliance i might as well get non profit so i can take donations, recruit volunteers, and request grants from foundations. i already noticed that intel, and ibm for starters are donating funds to npo chess organizations in addition to sponsoring events. and i heard something on public radio the other day about foundations that are eager to give to npos.
i don’t plan on enlisting the help of any lawyers unless i can find one to work for me pro bono. i’m not relying on any 1 source of advice though. i’m asking around from as many sources as i can at the moment, gathering opinions, stories, information, etc. and weighing them all against what i already know or thought. i try to not take advice for granted until i can verify from an official government source that it’s good.
NFP status can be useful for some clubs. Mine has a free site at the park district as long as it is a NFP, charges dues (we opt for $12 per year) and provides its own liability insurance policy ($1 million).
501c3 may be overkill for many cases (mine is 503c7).
i don’t think it would be possible for anyone to make a case that i do not qualify for 501,3,c. federal tax exemption despite not submitting form 1023 since my club operates solely for the purpose of playing chess for fun, doesn’t influence the political process, and makes less than 5k in gross profit a year
all my assets that i bought with profits over the last 3 years i can claim were personal assets i bought with money the organization paid me, and i just donated the use of said assets to the organization temporarily. so the organization doesn’t have any assets.
personally, i think i could have an issue with non-compliance with my income taxes but i’m not too worried about it since i hardly made any money the last 3 years and i hope no one cares about such a small fry as me.
According to the IRS:
I don’t see ‘playing chess for fun’ listed there. I really think you need to talk to an attorney on this issue.
i can see your point. i thought that just playing chess for fun is fostering national or international amateur sports competition and educational. maybe if i add, “and try to win” at the end?
There may be a level where you are small enough that IRS won’t pay attention. However, keep in mind that the IRS does not necessarily know that. And one thing the IRS seems to get very hot over in EOs is the concept of inurement.
Also, you may want to look into whether or not you are still required to file the 990-N return annually if you intend to claim that status. Again, I don’t know enough to give you professional advice about that. But if you are required to file, and do not, you may find yourself in evasion trouble - a world you do not want to step into.
(And with the domino chain continuing, I believe that to file the 990-N you would probably need to apply for an EIN. Though I could be wrong about that, too.)
NFPs that had less than $25K in annual revenue used to not have to file a 990 every year, but I believe that changed a year or two ago as a rider on some other bill.
According to a story in our local paper a few weeks back, the IRS is also cracking down on 501(c)(3) organizations that don’t file their paperwork, that story said there were hundreds of such organizations in Nebraska that were in jeopardy of losing their 501(c)(3) status later this year if they haven’t filed a 990.
There is a landmark court case where a chess club lost their appeal of the IRS’s denial of (c)(3) status. I don’t have the cite handy at the moment but as I recall the club was the Kingsmen Chess Club in Minnesota. As I recall, the basis for the (c)(3) application was the primary activity of the club which was the running of chess tournaments. Just playing chess ain’t going to get it.
Most, if not all, chess related (c)(3)’s claim that they are organized for educational purposes. The USCF is taking this route in their (c)(3) application.
The IRS does require all NFP’s to file annual 990’s of some sort, generally a 990-N for those not required to file another 990 form. As I understand, if the organization does not file at least once in a three year period, the IRS will cancel the NFP’s status as a NFP.
Here’s a link to the story about 501(c)(3) organizations that could lose their tax-exempt status that was in our local paper:
The takeaway from the article is that all NFP’s, not just (c)(3)'s, need to file annual form 990’s.
Possibly Minnesota Kingsmen Chess Association, Inc. v. Commissioner, T.C. Memo. 1983-495, found with a short Google cited in another case. But the text of the memo itself doesn’t seem to be online - the Tax Court Memorandum online archive only goes back to 1995.
I wonder if it would be in the USCF’s interest to pay for a little research and have available how affiliates and/or organizers can legally form, and then publish those resources here. The big obstacle would be that I couldn’t see the scope of it extending to the state level. But there could be a little guidance on (c)(3) vs. (c)(4) vs. (c)(7) vs. non-EO methods.
Cite: Minnesota Kingsmen Chess Assn., Inc., TC Memo 1983-495
In ruling against the Minnesota Kingsmen Chess Association the Special Trial Judge Fred S. Gilbert, Jr. stated:
Of the 17 or so State Chess Associations that have (c) (3) status, I wonder how many would lose their status if challenged by the IRS under the above ruling.
i think that the educational benefits of playing a game of chess for fun and trying to win are inherent and blatantly obvious. so why wouldn’t any organization that helps people to play chess for fun be considered educational? furthermore, if i’m a uscf affiliate and the uscf has national competitions and works with international competitions than why wouldn’t i be automatically considered as an organization that’s fostering national and/or international competition?
You aren’t the IRS, though, the question isn’t whether we think chess has educational benefits, the question is whether the IRS will agree that it qualifies for 501(c)(3) status.
With the IRS and also for potential donors you have to provide specific details on how you are providing educational programs or benefits. They want to see what actions you are doing, not just playing chess or operating tournaments. Actions might include: developing a program for schools, providing pre- or after school lessons, holding benefit events to raise money for charities, working with individuals with disabilities, having programs for seniors. It is usually a good idea to even have a list and articles on hand on the benefits of chess, but what you are doing is as important as the why for organizations you are dealing with concerning your non-profit status. The IRS is very detail oriented. Blue smoke and mirrors do not impress them, or donors, for that matter.