I've had multiple requests to help use elevate from 501 C 7 to 3 status. However does anyone actually know what the difference is? It's less than you think. And it requires the club to maintain much more paperwork to hold such a status. Just because crestline became a 3 organization doesn't mean they are overflowing with money and life is all good.
7 vs. 3 in the 501C arena has pros and cons. There are a few tax advantages which we wouldn't have ever enjoyed. But there are a bunch of regulatory costs and encumbrances we would have to deal with on a more than annual time scale.
Here is the main question: Do we obtain our operating costs from dues and fees from glider storage; or do we obtain most of our operating cost from large donations?
If we obtain most of our $ from dues, we are best being a 7 organisation. If we generate most of our cash from donations, then we should go for the 501 C 3 status.
Small clubs that exist off club fees do better on our current 501C7 status. It's easy with less paperwork. Much is still tax free.
Large clubs that exist off large donations and not club fees do well with 501C3 status. They make so much money the tax saving vs. the administrative hassle is well worth it.
Please argue against me if you think I'm wrong.
501 C (7) vs. 501 C (3)
Moderator: Chip
Research
OP
Looks like you have researched this at least to some extent. I have the following questions:
1. What benefit did clubs like CSS and Elsinor get or expect to get by being a 3?
2. What is the tax status of other clubs in the U.S.? Maybe USHPA could be of some help here.
3. There is a tax benefit to any current dues paying member that files form 1040A. Is the general membership going to support a benefit that only goes to a few (I love a US versus THEM fight - aka - 53%ers versus the 47%ers).
4. What COULD be the benefit in the future? I know it is hard to predict but the potential impact could be rather large.
5. Have you talked to CSS or other clubs and determined what the real difference is between IRS reporting for a 7 versus a 3? I'd be surprised if there is really much difference except maybe for the initial filing.
6. Have you talked to Kevin Greene, or any one else, that has been involved in a 3 filing or more importantly a conversion from a 7 to a 3?
7. What is the down side from converting from a 7 to a 3 other than the initial cost and time to file?
It is nice that you have "taken on" this project. It has been "started" and silently dropped numerous times in the past.
I'm sure if you get the answer to all the questions above there will be even more questions resulting from those answers.
Good Luck!
Looks like you have researched this at least to some extent. I have the following questions:
1. What benefit did clubs like CSS and Elsinor get or expect to get by being a 3?
2. What is the tax status of other clubs in the U.S.? Maybe USHPA could be of some help here.
3. There is a tax benefit to any current dues paying member that files form 1040A. Is the general membership going to support a benefit that only goes to a few (I love a US versus THEM fight - aka - 53%ers versus the 47%ers).
4. What COULD be the benefit in the future? I know it is hard to predict but the potential impact could be rather large.
5. Have you talked to CSS or other clubs and determined what the real difference is between IRS reporting for a 7 versus a 3? I'd be surprised if there is really much difference except maybe for the initial filing.
6. Have you talked to Kevin Greene, or any one else, that has been involved in a 3 filing or more importantly a conversion from a 7 to a 3?
7. What is the down side from converting from a 7 to a 3 other than the initial cost and time to file?
It is nice that you have "taken on" this project. It has been "started" and silently dropped numerous times in the past.
I'm sure if you get the answer to all the questions above there will be even more questions resulting from those answers.
Good Luck!
7 vs 3
OP,
I have been working on this for awhile now and have been told that we really need legal assistance to convert from the Mutual to the Public and then apply to the IRS for the status change. Since the club has been short on funds, I hoped to find a non-profit legal aid group to help but they are all overwhelmed with requests they deem more important than mine. So, if you are willing to help in this, I would truly appreciate it
The main advantage to being a 3 are donations are tax deductible for most taxpayers. A number of members have indicated to me that they would be willing to give more to the Club if they could deduct the donation. I know this does not apply to everyone but... Donations from corporations, whether direct or donations in kind for things like silent auctions, are easier to collect if we are a 3. Also, often when non-profits are applying for grants, it is easier if we are a 3.
Having been involved in organizations that file either a 7 or a 3, I don't think there is that much difference in filing the returns - a 990 is a 990 and I believe we are in the Postcard category which is really simple. Dan could answer that question.
As a 3, we cannot support political events or candidates as a club but that does not keep members from supporting whoever they want.
I spoke with Alan Krause (sp?) at length early on, and he indicated that Crestline has benefited from being a 3 but I don't know him and did not get a lot of details; ditto for Elsinore. It would be good to know how much they feel being a 3 has helped.
I am thrilled you are looking into this and would appreciate any assistance in moving it forward IF the Club agrees it is a step they want to take.
Cyndia
I have been working on this for awhile now and have been told that we really need legal assistance to convert from the Mutual to the Public and then apply to the IRS for the status change. Since the club has been short on funds, I hoped to find a non-profit legal aid group to help but they are all overwhelmed with requests they deem more important than mine. So, if you are willing to help in this, I would truly appreciate it
The main advantage to being a 3 are donations are tax deductible for most taxpayers. A number of members have indicated to me that they would be willing to give more to the Club if they could deduct the donation. I know this does not apply to everyone but... Donations from corporations, whether direct or donations in kind for things like silent auctions, are easier to collect if we are a 3. Also, often when non-profits are applying for grants, it is easier if we are a 3.
Having been involved in organizations that file either a 7 or a 3, I don't think there is that much difference in filing the returns - a 990 is a 990 and I believe we are in the Postcard category which is really simple. Dan could answer that question.
As a 3, we cannot support political events or candidates as a club but that does not keep members from supporting whoever they want.
I spoke with Alan Krause (sp?) at length early on, and he indicated that Crestline has benefited from being a 3 but I don't know him and did not get a lot of details; ditto for Elsinore. It would be good to know how much they feel being a 3 has helped.
I am thrilled you are looking into this and would appreciate any assistance in moving it forward IF the Club agrees it is a step they want to take.
Cyndia
CSS Conversion
We managed to convert from 7 to 3 at CSS without an attorney, but it was difficult and I did find a lawyer friend who could read the statute to make sure I understood what it was trying to say.
The 3 status made our dues deductible (up to the annual limit) which was very helpful when we were low on cash and needed to raise them. Again, you have to meet certain restrictions to do this.
There is more reporting: IRS, Franchise Tax, Attorney General.
- Alan
The 3 status made our dues deductible (up to the annual limit) which was very helpful when we were low on cash and needed to raise them. Again, you have to meet certain restrictions to do this.
There is more reporting: IRS, Franchise Tax, Attorney General.
- Alan
I haven't checked in years if the 14 cent mileage is still deductible when performing in a work party for benefit of the forest service from an outside 501 C 3.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55.5 cents per mile for business miles driven
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
I don't know if flying off the mountain after the work party would allow deducting the cost of the hang glider, but I have seen business logo's on the wing and that is a marketing expense.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55.5 cents per mile for business miles driven
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
I don't know if flying off the mountain after the work party would allow deducting the cost of the hang glider, but I have seen business logo's on the wing and that is a marketing expense.
I've been thinking of this for the past 4 years too. To convert the current club is difficult.
Here's an alternative: Create a separate C3 charity. This way we keep the SHGA as is, run as is, and no worries about altering any of our by-laws or articles of incorporation. The C3 (which we could call the Sylmar HG Endowment Charity), collects the big donations, gives tax relief to the donors, and then passes the funds to the club. I think the USHPA has something similar (Free Flight Foundation or something..?). When filing the C3 we add something in the articles of incorporation that it's existence is to aid needy free flight clubs in the Los Angeles or Sylmar area (to make sure the money stays here).
It will require an extra tax return each year, but nothing to troublesome. There's several websites about how easy it is to start your own C3: I'm sure we could pull that off on our own. That way we avoid converting a good thing (and any pit falls associated with members that don't want to risk the change).
Here's an alternative: Create a separate C3 charity. This way we keep the SHGA as is, run as is, and no worries about altering any of our by-laws or articles of incorporation. The C3 (which we could call the Sylmar HG Endowment Charity), collects the big donations, gives tax relief to the donors, and then passes the funds to the club. I think the USHPA has something similar (Free Flight Foundation or something..?). When filing the C3 we add something in the articles of incorporation that it's existence is to aid needy free flight clubs in the Los Angeles or Sylmar area (to make sure the money stays here).
It will require an extra tax return each year, but nothing to troublesome. There's several websites about how easy it is to start your own C3: I'm sure we could pull that off on our own. That way we avoid converting a good thing (and any pit falls associated with members that don't want to risk the change).
The other benefit of creating a separate C3, if we decide we don't like the extra paper work, we can just close it, with no effects to the club.
Granted, our $75 dues won't be deductible, but the real advantage I see to us getting a C3 would be for individuals who want to make a large contribution and enjoy the reward of a tax break.
Just my $.02 after looking this up and down few years.
Granted, our $75 dues won't be deductible, but the real advantage I see to us getting a C3 would be for individuals who want to make a large contribution and enjoy the reward of a tax break.
Just my $.02 after looking this up and down few years.
Think twice
Better talk to a good tax attorney before trying this "and then passes the funds to the club" with funds from a (C)(3) to a (C)(7).
- Alan
- Alan
Re: Think twice
I don't see a problem with it. Depending on how we set it up, it should be fine. Many hospitals and musuems have separate charities set up to collect donations for their special uses. The charity then grants funds to the musuem/hospital. The donations are sometimes restricted for certain expenditures (i.e. construction of a bathroom).AlC wrote:Better talk to a good tax attorney before trying this "and then passes the funds to the club" with funds from a (C)(3) to a (C)(7).
- Alan
After further thought, a better name for our charity would be "Sylmar Hang Gliding Foundation".
I still think this would be easier, and less risky than converting the club from a C7 to a C3.
RE: Think Again
BJ:
I think you are on the right track. My point was that you just can't take funds into a C3 and pass them along to some other non-charity. You have to remain consistent with the stated and approved purposes of your C3 and with the restrictions you accept in exchange for the ability to issue tax receipts.
- Alan
I think you are on the right track. My point was that you just can't take funds into a C3 and pass them along to some other non-charity. You have to remain consistent with the stated and approved purposes of your C3 and with the restrictions you accept in exchange for the ability to issue tax receipts.
- Alan
Last edited by AlC on Wed Oct 10, 2012 6:12 pm, edited 1 time in total.
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Mike Blankenhorn
- Posts: 157
- Joined: Wed Nov 19, 2008 9:33 am
- Location: North Hollywood
Re: Think twice
- Alan[/quote]After further thought, a better name for our charity would be "Sylmar Hang Gliding Foundation".[/quote]
Really?
Really?
Take Care,
Mike Blankenhorn
Mike Blankenhorn
Re: RE: Think Again
Completely agree. There are a lot of restrictions, and money granted to the C7 by the C3, if any at all, would need to be for restricted purposes. They also need to be of benefit to the community (not just the club). If my memory is correct, you're not allowed to use C3 donations to fund C7's (or any other organization's) operational expenses. Thankfully, the club dues and glider storage already accomplish that. But for large purchases, or (hopefully) for large donations, we could (or I suppose anyone could with or without the club) set up a charity.AlC wrote: I think you are on the right track. My point was that you just can't take funds into a C7 and pass them along to some other non-charity. You have to remain consistent with the stated and approved purposes of your C7 and with the restrictions you accept in exchange for the ability to issue tax receipts.
All the CPA's I've consulted with agree that this would be an easier route than converting the C7. I know Crestline did it, and it's always tempting to keep up with the Jones, but I personally believe this is an easier and safer way to go.
But by all means, we should consult with a lawyer before proceeding in any direction. I'm just throwing in my $0.02 here.
Re: Think twice
Yep, really. Unless you can think of something better...Mike Blankenhorn wrote:- After further thought, a better name for our charity would be "Sylmar Hang Gliding Foundation".
Really?
You don't have to be wealthy
There is a big difference between income and wealth - try reading the book "The Millionaire Next Door". It is a little out-dated but the message doesn't change.OP wrote:This seemed like the only significant difference maintaining a C3 would do for us. Are any of us wealthy?
You don't have to be "wealthy" to be in a 34% combined Fed & State tax bracket. Saving a third of any contribution is significant and would likely be appreciated by anyone willing to open their checkbook.
