Tax-Exempt, Charity, and Nonprofit Lawyers Near You in Lancaster, PA
Nonprofit organizations (such as 501(c)(3)s) face additional complications not encountered in the “for-profit” business world. At May Herr & Grosh, our attorneys understand the particular needs of our nonprofit clients and help them protect their tax-exempt status while fulfilling their mission. Our nonprofit lawyers near you in Lancaster, PA, assist clients in many areas:
- Forming a Nonprofit Organization
- Obtaining or Reestablishing Tax-Exempt Status
- Determining Appropriate Compensation for Key Employees
- Governance and Compliance with the Internal Revenue Code
- Recruiting, Vetting, and Maintaining a Quality Board of Directors
- Day to Day Business Operations
WHAT IS A NONPROFIT ORGANIZATION?
A nonprofit organization, foundation, or association is a non-business organization dedicated to operation for something other than profit, usually social or public good. Each state has its laws that determine what defines an organization as a nonprofit. Many nonprofits are charity operations dedicated to helping relieve poverty in the community, introducing more educational opportunities to the area, or preventing disease, among other things.
Your state has an official government website that can provide more specific information about what an organization must do to be considered a nonprofit. For Pennsylvania residents, more information can be found on the Department of State website. The United States Internal Revenue Service (IRS) has over 30 classifications for nonprofit organizations, mostly tax-exempt. Nonprofit organizations operate under the premise that all their revenue goes back into their programs to benefit the common good. Any extra money earned by the nonprofit may not be distributed for the benefit of an individual, corporation, or other entity.
WHAT DOES APPROPRIATE COMPENSATION FOR A NONPROFIT MEAN?
Nonprofit employees can be compensated for their work at the organization, but it should be appropriate and not an excessive amount. When a person makes more than deemed appropriate for the nonprofit, it may be investigated, and the status can be lost.
By definition, a nonprofit cannot be used for individual gains or is no longer a nonprofit. This distinction does not mean you and your employees cannot make a livable salary, however. Some roles within a nonprofit require compensation to be carried out beneficially to the organization.
Some organizations have paid staff that maintains the mission and volunteers that carry it out. For example, a nonprofit animal shelter may have paid staff to support the day-to-day operations and volunteers to help feed the cats or walk the dogs. Paid employees are just as crucial to the nonprofit as the volunteers.
The nonprofit lawyers near you at our law office are well-versed in the laws surrounding nonprofits. We can help you determine appropriate salaries for your current employees and future planned roles within the organization.
WHAT DOES TAX-EXEMPT STATUS MEAN?
When an organization or association has tax-exempt status, it is exempted from paying taxes on a specific type of income or a certain amount of income. It does not mean the organization is exempt from all taxes. Unrelated Business Income (UBI), or income earned for the organization that does not directly benefit the mission of the tax-exempt organization, is still taxed.
NONPROFIT VS TAX-EXEMPT: WHAT’S THE DIFFERENCE?
The two terms are used interchangeably, but that is incorrect because a federal or state definition determines each. An organization is deemed a nonprofit by the state, and the IRS determines tax exemption on a national level.
A nonprofit organization is not automatically qualified for tax exemption—it must be applied for. You may also have both statuses and lose one while still maintaining the other status. If your business is tax-exempt and a nonprofit, you may lose your tax-exempt status and still be a nonprofit according to your state’s requirements.
Navigating the nuances of the two distinctions can be difficult to understand. Get an expert to review your unique circumstances and help you know your status as a nonprofit, tax-exempt entity, or both. Schedule a consultation with our nonprofit lawyers near you today.
WHAT HAPPENS AFTER AN ORGANIZATION HAS BEEN GRANTED TAX-EXEMPT STATUS?
Once an organization has been granted tax-exempt status, they become tax-exempt on a federal level. Some states allow the organization to qualify for both federal and state tax exemptions. However, the state tax exemptions are often contingent on the organization maintaining their federal tax exemption.
When an entity is deemed tax-exempt, it is crucial that they continue to file their Form 990s each tax season, especially if they have a revenue of over $25,000. If an organization fails to file this form for three consecutive years, it will lose its tax-exempt status automatically and may have to pay corporate taxes on all annual income.
You can avoid this unnecessary headache by getting in touch with our charity lawyers near you. Let our nonprofit law experts review your documents and help you manage your tax-exempt status.
HOW DOES A NONPROFIT ORGANIZATION REESTABLISH TAX-EXEMPT STATUS?
When tax-exempt status has been revoked, it means the nonprofit or other entity is no longer exempt from federal income tax. Unfortunately, this reversal may also suggest that any state tax exemptions the organization qualified for may be revoked if they were dependent on the organization qualifying for federal tax exemption.
In most cases, if your nonprofit lost tax-exempt status, you will need to refile for tax exemption. Refiling can be a complex process if you have never done it before. Reestablishing tax-exempt status should not be attempted by someone unfamiliar with the laws. It is best to consult with nonprofit lawyers near Lancaster who have experience helping nonprofit organizations reestablish their tax-exempt status. We can review your situation if you schedule a consultation with our charity lawyers near you today.
READY TO TALK WITH A NONPROFIT/TAX-EXEMPT ATTORNEY?
Being a nonprofit or tax-exempt organization requires keeping track of many pieces of paperwork. If you are not a professional, it is easy to be overwhelmed by the legal information needed to keep these organizations running. Our attorneys are well versed in the tax-exempt and nonprofit laws local to you, so schedule a consultation with us today.