The Restriction of Political Campaign
Intervention by Section 501(c)(3) Tax-
Exempt Organizations


Under the Internal Revenue Code, all section
501(c)(3) organizations are absolutely
prohibited from directly or indirectly participating
in, or intervening in, any political campaign on
behalf of (or in opposition to) any candidate for
elective public office. Contributions to political
campaign funds or public statements of
position (verbal or written) made on behalf of
the organization in favor of or in opposition to
any candidate for public office clearly violate the
prohibition against political campaign activity.  
Violating this prohibition may result in denial or
revocation of tax-exempt status and the
imposition of certain excise taxes.

Certain activities or expenditures may not be
prohibited depending on the facts and
circumstances.  For example, certain voter
education activities (including presenting public
forums and publishing voter education guides)
conducted in a non-partisan manner do not
constitute prohibited political campaign activity.
In addition, other activities intended to
encourage people to participate in the electoral
process, such as voter registration and get-out-
the-vote drives, would not be prohibited political
campaign activity if conducted in a non-partisan
manner.

On the other hand, voter education or
registration activities with evidence of bias that
(a) would favor one candidate over another; (b)
oppose a candidate in some manner; or (c)
have the effect of favoring a candidate or group
of candidates, will constitute prohibited
participation or intervention.

The Internal Revenue Service provides
resources  to exempt organizations and the
public to help them understand the prohibition.  
As part of its examination program, the IRS also
monitors whether organizations are complying
with the prohibition.

Updated:  April 17, 2008
   
How to Start a 501c3 Nonprofit
Organization

Have you always wanted to leave the world a
better place than you found it by starting a
nonprofit corporation? Here's a simple,
straightforward guide on how to successfully
establish a 501(c)(3) nonprofit corporation.
Non-Profit Formation


1. Understand what a nonprofit is: an
organization whose primary objective is to
support some issue or matter of private interest
or public concern (such as the arts, charities,
education, politics, religion, research, or some
other endeavor) for non-commercial purposes.
There are different kinds of nonprofits, one of
them being a 501(c)(3), which is exempt from
income and (sometimes) property tax, and able
to receive tax-deductible charitable
contributions. Before you spend your money, at
least consult with an attorney who is
experienced in the area of nonprofit law so that
you do not make one of the many major
mistakes that people make when they try to
incorporate by themselves.
2. Formulate a mission statement. As a non-
profit organization, you exist to accomplish your
mission, which should be crafted based upon
your purpose, services and values. The
mission statement is a concise expression that
covers in one or two sentences who the
organization is, what it does, for whom and
where. It should also be compelling, as it will
be used in all published materials, funding
requests and public relations. It should also
portray how your organization is distinct from
others. (See Tips for a sample mission
statement.)
3. Form a Board of Directors. Forming a board
requires careful thought and extensive
recruitment efforts. Each state has regulations
that determine the minimum size of the board,
typically three, but the optimum number of
people who sit on the board should be
determined by the needs of the organization.
Based on what your organization would like to
accomplish, you should decide what special
skills and qualities you will require of the
individuals on your board. Identify qualified
individuals who are supportive of your mission
and are willing to give of their talents and time
(see Tips for more information).
4. File Articles of Incorporation. Articles of
Incorporation are official statements of creation
of an organization filed with the appropriate
state agency. They are important to protect both
board and staff from legal liabilities incurred by
the organization, making the corporation the
holder of debts and liabilities, not the
individuals and officers who work for the
organization. The specific requirements
governing how to incorporate are determined by
each state. You can obtain the information you
need to proceed with this step from your state
Attorney General’s office or your state Secretary’
s office. Before you spend your money, at least
consult with an attorney who is experienced in
the area of nonprofit law so that you do not
make one of the many major mistakes that
people make when they try to incorporate by
themselves.
5. Draft bylaws. Bylaws are simply the "rules" of
how the organization operates. Although Bylaws
are not required to file for 501(c)(3) status, they
will help you in governing your organization.
Bylaws should be drafted with the help of an
attorney and approved by the board early in the
organization's development.
6. Develop a budget. Creating a budget is often
one of the most challenging tasks when
creating a nonprofit organization. A budget is
the expression, in financial terms, of the plan of
operation designed to achieve the objectives of
an organization. New organizations may start
the budgeting process by looking at potential
income – figuring out how much money they
have to spend.
7. Develop a record-keeping system. Legally,
you must save all Board documents including
minutes and financial statements. It is
necessary to preserve your important corporate
documents, including board meeting minutes,
bylaws, Articles of Incorporation, financial
reports, and other official records. You should
contact your appropriate state agency for more
information on what records you are required to
keep in the official files.
8. Develop an accounting system. If your board
does not include someone with a financial or
accounting background, it is best to work with
an accountant familiar with non-profit
organizations. Nonprofits are accountable to the
public, their funders, and, in some instances,
government granting bodies, and it is vital to
establish a system of controls (checks and
balances) when establishing the organization’s
accounting practices. Responsible financial
management requires the establishment of an
accounting system that meets both current and
anticipated needs.
9. File for 501(c)(3) status. To apply for
recognition of tax-exempt, public charity status,
obtain Form 1023 (application) and Publication
557 (detailed instructions) from the local IRS
office. The filing fee depends upon the size of
the organization’s budget. The application is an
important legal document, so it is advisable to
seek the assistance of an experienced attorney
when preparing it. Both of these documents can
be downloaded from IRS web site listed below.
10. Apply for a federal employer identification
number. Regardless of whether or not you have
employees, nonprofits are required to obtain a
federal Employer Identification Number (EIN) —
also referred to as the federal ID number.
Available from the IRS, this number is used to
identify the organization when tax documents
are filed and is used not unlike an individual’s
Social Security number. If you received your
number prior to incorporation, you will need to
apply for a new number under the corporate
name. Ask for Form SS-4 when applying for
your EIN.
11. File for state and local tax exemption. In
accordance with state, county, and municipal
law, you may apply for exemption from income,
sales, and property taxes. Contact your state
Department of Revenue, your county or
municipal Department of Revenue, local
Departments of Revenue, and county or
municipal clerk’s offices.
12. Fulfill charitable solicitation law
requirements. If your organization’s plans
include fundraising, be aware that many states
and few local jurisdictions regulate
organizations that solicit funds within that state,
county, or city. Usually compliance involves
obtaining a permit or license and then filing an
annual report and financial statement. Contact
the state Attorney General’s office, the state
Department of Commerce, state and local
Departments of Revenue and county or
municipal clerk’s offices to get more
information.
13. Apply for a nonprofit mailing permit. The
federal government provides further subsidies
for nonprofits with reduced postage rates on
bulk mailings. While first-class postage rates
for nonprofits remain the same as those for the
for-profit sector, second- and third-class rates
are substantially less when nonprofits mail to a
large number of members or constituencies.
For more information on eligibility, contact the U.
S. Postal Service and ask for Publication 417,
Nonprofit Standard Mail Eligibility (also
available at the link below)


[edit] Tips

* Sample mission statement: "The National
Mental Health Association is dedicated to
promoting mental health, preventing mental
disorders and achieving victory over mental
illnesses through advocacy, education,
research and service; The National Consumer
Supporter Technical Assistance Center’s
purpose is to strengthen consumer
organizations by providing technical assistance
in the forms of research, informational
materials, and financial aid. The mission of
Texas Mental Health Consumers is to organize,
encourage, and educate mental health
consumers in Texas. TMHC supports and
promotes the mental health recovery process
through peer directed and operated services,
advocacy, economic development, and
participation in public mental health policy
design."
* What to look for in a board member: Look for
individuals whose values reflect your statement
of purpose. Although it is recommended that
the majority of your board be consumers,
include the community at large, not just your
specific community of focus (e.g. the mental
health community). Consider the religious
community, local service clubs, legal
professionals, and colleges and universities as
sources for prospective a Board of Directors.
Do not overload people who already serve on
many committees – seek a balance between
old and new leadership.
* The organization needs to open a bank
account and ascertain whether to use the
accrual or cash method of accounting. The
difference between the two types of accounting
is when revenues and expenses are recorded.
In cash basis accounting, revenues are
recorded when cash is actually received and
expenses are recorded when they are actually
paid (no matter when they were actually
invoiced). In accrual basis accounting, income
is reported in the fiscal period it is earned,
regardless of when it is received, and expenses
are deducted in the fiscal period they are
incurred, whether they are paid or not.
* Hire an attorney to help you with your
Certificate of Incorporation and the By-Laws.
Hire an attorney or accountant, particularly one
who has experience with 501c3 nonprofit
corporations, to help you file the state and
federal exemption forms. It will save you time
and money in the long run.
* You may want to secure a domain name that
matches the name of your proposed
organization.
* Design a logo and tagline that will help
distinguish your organizations from others and
be representative of what your mission is.
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Legal aid Audit Uncovers Irregularities

EXECUTIVE SUMMARY

The 1997 Grant Activity Report submitted by the Legal Aid Society of San Diego
significantly overstated the number of cases closed during the year and understated
the cases open at year end. The program reported 32,304 cases closed, but only
10,279 cases qualified to be reported as closed. Therefore the reported closed cases

were overstated by 22,025 cases, or 68 percent of the total reported.
A total of
792 cases were reported as open, but the program had 1,076 open cases at year end.

Closed cases were overstated primarily because
14,398 telephone calls were
reported as cases closed, even though the callers were not provided any
legal assistance
and only partial eligibility determinations were made.

Essentially the callers were given the telephone number of a legal service
provider that might have been able to help them.

An additional 4,700 Private Attorney Involvement closed cases, paid for with non-LSC
funds, were reported. LSC reporting requirements allow only cases funded entirely or
partially with LSC funds to be reported. Clerical errors added 2,692 to the total
reported closed cases. We also estimated that 235 cases were reported twice. Open
cases were understated because only cases opened during the year and remaining
open at year end were reported instead of all cases remaining open at year end.

Two other problems, not directly related to case counting, were also disclosed during
our review. Legal Aid Society of San Diego's automated case management system
included
over 1,000 cases without a client name. In addition, we estimate about five
percent of the cases in the case management system data base had incorrect reason
closed codes...