Frequently asked questions about becoming a 501(c)(3) foundation
Why Should Our Club Become a 501(c)(3) foundation?
I have recently had the pleasure of both incorporating and applying for 501(c)(3) non-profit status for a New York Lions and a New York Kiwanis Club. One club had been in existence for more than 50 years but had just recently chosen to apply for not-for-profit status. The Club realized that in order to attract large donations and grants, it would need to create a foundation and apply for 501(c)(3) status.
But Our Club Already is a Non-Profit, Isn’t it?
When a New York Lions or Kiwanis or Rotary Club receives its charter from the parent organization, it is granted 501(c)(4) status under the parent clubs’ group exemption. All 501(c)(4) organizations are also non-profits.
What is the difference between a 501(c)(3) and a 501(c)(4)?
Both kinds of 501(c) entities are tax exempt, which means that they are exempt from paying federal and New York (and even local Long Island) taxes. However, 501(C)(4) organizations do not allow for tax deductible donations. When people give money to charity, while they love being charitable, they also love taking the donations as deductions on their tax returns. Unless your Kiwanis or Rotary or Lions Club has applied for 501(c)(3) status, donors cannot deduct their donations to your organization.
What is the next step?
Once a New York Kiwanis or Lions or Rotary Club decides to establish its club as a charitable entity, it must do so by creating a foundation, then incorporating in New York as a not-for-profit corporation, then applying to the IRS for a determination letter by filing Form 1023.