Create a 501(c)(3)?

[GodFather]

Clients daughter is a college level junior.  Her and group of students have created a club affiliated with a local hospital, providing non-monetary contributions to the pediatric oncology unit (small gift bags, other requested items).  I have little knowledge of what is needed to "recognize" this club and how it can solicit contributions.  I assume they would need to obtain an EIN and also apply for 501(c)(3) status?  Can anyone lend some advice on this?  Consultation with an attorney suggested?

It's a small group...less than 20 members.  They have terrific intentions and I personally plan on contributing but would like to know the best advice I can offer to ensure they have all they need administratively to properly "exist".  

Thank you. 

[Jim-from-Ohio]

I have done several of these. you may want to get assistance or outsource this but here is how it is done, at least in Ohio

1. File with Secretary of state, setting up the non-profit corporation

2. Obtain an EIN

3. File Form 1023, online: https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status

Then annually

- File Form 990, 990-EZ or 990N

- In Ohio, there is also annual Ohio Attorney General Charitable Law filing

[IRonMaN]

Just to back up for a second, what EIN did they use to open a bank account to buy the stuff they are donating?

As a side note, it's nice to see some young folks actually caring about other folks.  Maybe there is hope for this world after all. 😀

[GodFather]

Hello, Iron...at this time, they do not have a bank account or an EIN.  Some of the parent's have provided funds to "open" the club.  

I agree, I think it's a great concept and I'm happy to see young folks going down this road.  

[IRonMaN]

That's good news.  Sometimes someone will create an EIN without thinking things through because they need it to open a bank account.  Other times someone will use their own Social Security number to open the account.  And still other times someone will "borrow" another entity's EIN to open up the account.  So the good news is they will be starting from a clean slate.

[qbteachmt]

This right here: "And still other times someone will "borrow" another entity's EIN to open up the account."

I've done a few of these, and not only 501(c)(3), but (4), (6) and even (7). In FL, the Department of Agriculture oversees this sort of thing. It's pretty weird. I helped a library support organization, for instance. Supporting public institutions (friends of the library, friends of the national park, friends on the fairgrounds, etc) are even easier. I've also gotten involved when someone needed to reactivate an organization, understand if they were under a group exemption, and when they lost their classification.

For right now, they would likely be better off finding an entity they want to support, then sponsoring the fundraiser event or program under that umbrella. For example, some 501(c)(3) can have a 501(c)(4) arm. I can hold a Toys For Tots event, without being a NFP organization separately. That allows them to avoid all the organizational efforts and requirements, because they likely don't have the resources to get bogged down in all of that. And it costs to start the filing, which might be as big a drain as what they wanted to achieve.

For donations, this also solves the problem, if you mean Cash. But, also consider that items and anything In kind from businesses is not really a donation. The business considers it as part of marketing and advertising, or it is unused inventory or photocopy services or free labor (thinking about our skate parks from Jeff Ament) or even K-Mart used to offer a bunch of kids bikes and child safety seats, if you asked.

People should only rush to form an organization when they have a significant need. Example: An entity is offering a large grant, or a facility requires you to be NFP before allowing you to use the place (like the food booths at the fair). We have the Band Parents, the Sons of Norway, the Sweet Adelines, all selling food at the fair. The fairgrounds will contract with you for security at the demolition derby or the horse racing or pay your organization for clean up, too.

[GodFather]

Thanks very much for this reply.  Appreciate all the points and I will pass them along.  

[Taxes-by-Rocky]

Just adding a few suggestions:

1.  Regulated by the AGO's office in many states and state filings may be required (you might check there first to see what the state's requirements are - see below).

2.  Some states allow formation as corporation, or as a trust, but they will require organization documents to match (which means needing legal counsel to draft same) since nonprofits require unique language in their organization documents.

3.  If state's filing requirements are nominal (e.g., they look only to the Federal filings having been completed) then perhaps only a small fee each year to the AGO's office, if any, for solicitation license.  Otherwise, some states require a full state filing (e.g., Form 990 or 990-EZ) even when the IRS only requires a Form 990-N postcard. [Not a good combination as you end up doing a 990 just to attach to the state filing.]

4.  Don't underestimate the amount of work (and parties) involved in filing a Form 1023 as it is not a simple process.  [I have not completed a Form 1023-EZ so I really can't speak to that one.  It may be easier.]

5.  Probably the biggest issue you are going to face is who's going to take over when the kids graduate from college and disperse in two year's time?  Are you going to become the director, trustee, officer and accountant for the organization going forward?  Liquidation usually requires a request and the approval from the AGO's office/court to withdraw (or merge) since the assets, if any, must go to another nonprofit (i.e., no private inurement of benefits) and counsel will likely be required again.

Not to discourage the kids from the process, but the suggestion above was a good one.  See if the girls can host one or two annual fund-raisers through another, existing nonprofit (i.e., where the donations will be deductible, and the wine & cheese gala/auction will be fun for all).  Often times the hospital can facilitate (or has a nonprofit entity that can facilitate) such a process or event for them.  It removes the administrative headaches.  Just from experience, the MDA used to do exactly that for a group of friends who ran an annual fundraiser/auction for them hosted at a nice restaurant each year.  Fundraise Your Way for MDA | Muscular Dystrophy Association.  I'm thinking the hospital might do the same if it has such programs.  Hope it helps.

[GodFather]

Appreciate everyone chiming in on this.  Complicated, to some degree, for a university club.  Spoke to the client and their daughter is looking to partner with the charity they are supporting and see if that charity will allow them to be an umbrella as @qbteachmt suggested.  

Thanks again for everyone taking the time to offer their opinions...in many cases, very detailed information.