#1 Mistake Applying for 501c3 Status

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everybody so today I want to talk about

the number one mistake organizations

make when they are applying for

tax-exempt status


together I have a lot of materials that

can help you I have a non-profit startup

checklist and also a workbook that you

can purchase to help guide you through

that checklist so check out those links

below but today I want to talk to you

about the mistake I see people make all

the time when applying for tax-exempt

status and how to correct it so a lot of

people who want to start their

nonprofits are do it yourselfers so

they're the type of people who are

willing to Google and figure out what

they have to do to get their vision to

the next level right so a lot of people

just know inherently well I probably

have to be a 501 C 3 organization if I

want to get donations and I want to get

grants a lot of people just know that

and so they automatically Google that

and they look for the forms and all of

that so I have videos that help guide

you through that but as people start to

fill out those forms for the IRS there

are some common mistakes that they make

that really have implications for years

to come so the first thing I'll say is

if you are a do-it-yourselfer and you

want to apply for tax exempt status

please consult a tax professional or an

attorney as you go through that process

this is not something you should take

lightly and the investment that you do

right now will pay off later so you

don't want to make a mistake being a

newbie and not know what it means for

your organization okay so I really

recommend that if your at least you're

gonna do it yourself you have someone

look it over to make sure you didn't

miss anything or you didn't

mischaracterize anything okay

so I want to talk to you about the

mistake I see do-it-yourselfers do and

how to correct it so the biggest mistake

I know you're like Tiffany

come or what is it it is when people are

designated as a private foundation and

not a public charity so in a previous

video I talked about the differences

between that when you're applying using

your 10:23 easy or your 10:23 but I'm

just gonna go through it a little bit

more in this video so most people don't

realize that there are different types

of 501 C 3 organizations there are two

main types there is a public charity and

then there's a private foundation now

there's also a private operating

foundation but we're not gonna get into

the weeds when that we're just gonna

like keep it simple and we're gonna just

talk about public charities and private

foundations so most people who want to

operate a traditional non-profit meaning

they want to do direct services or they

want to serve their community most of

those people are really public charities

and public charities are organizations

that get the majority of their support

from a broad range of people or

organizations so you may get it from

government grants you may get it from

individual donations you may get it for

fees that you charge for services from

members membership income all of that so

those are public charities private

foundations are different private

foundations typically get their funding

from one source or a small amount of

sources a small number of sources and

those people can really direct how that

funding is used so foundations are

typically run by families or they're

typically run by corporations you do

have some Community Foundation's but a

lot of foundations are run by small

groups of people right so the IRS wants

to avoid that for nonprofits so if

you're not getting your money from a

broad range of people that means it's

easily it's easy to be controlled by the

motives or objectives of a small group

of people you're not technically a

public organization and they consider

you a private foundation and the way

they determine that is how you bring in

your money so there are a couple of

different calculations that the IRS does

to test whether or not you are a public


or a private foundation but that test

really doesn't come in until years after

you get your taxes and status so you

have to declare when you're applying for

your status right away

whether or not you're going to be a

public charity or a private foundation

and the biggest mistake people make is

not realizing number one that there is a

difference number two not realizing that

they're really a public charity and not

a private foundation and number three

not declaring that not making that clear

on the forms and thus being

automatically determined as a private

foundation and it will screw you up

moving forward and a lot of people don't

even realize it until it's time to

submit their tax form and they see wait

a minute they're asking me for the

990-pf and not the 990 postcard or the

990-n why and then they realize oh crap

I messed up I am a private foundation

I'm not actually a public charity so I

want to talk to you about what to look

out for when you're filling out your

application to make sure you don't make

this mistake

and if you didn't hear me say it earlier

I will say it again please get a tax

professional or an attorney to walk this

through with you so you don't make

common mistakes that people make and if

you're going to fill out the form

yourself have somebody review it to make

sure you captured everything correctly

there's a section of IRS code which

designates you as a public charity it is

section 509 a I really recommend that

you look at it you read it make sure

you're aware of what it is so there are

four sections within that a one two

three and four and those types of

organizations that basically describes

the type of organizations that can be

recognized as public charities for most

people if you are operating a

traditional non-profit you're going to

qualify under 509 a 1 and 509 a - okay

so look at those study those to make

sure you fit first of all within those

categories and to figure out which

category and it really again has to do

with how you're bringing in money or

you plan to bring in money it's mostly

your money coming from public funding

from government support then you will be

on one section if you're getting a lot

of your money from service income or

from fees that you charge then you're

going to be a different section but

there are calculations and things you

need to do to determine that that I

can't do that for you in this video I

can just guide you to where you should

look to help make that determination and

again have someone else look at it for

you if you don't designate that you

qualify under section 509 a in your

forms the IRS is going to automatically

designate you as a private foundation

they're just period they're just gonna

make you a private foundation and a lot

of people aren't savvy enough to realize

when they get their determination letter

that they have been designated as a

private foundation because people get

confused from the words Foundation

charity it just seems like it's all the

same but when it comes to the IRS it's

really different as I explained so again

just make sure you read that section to

make sure you're clear on where you fit

and when you then apply for your status

you're making sure you're declaring that

you're actually a public charity if

that's what you decide to be now some of

you watching this video may be like oh

my goodness Tiffany I did not realize

that I'm a private foundation what do I

do and so this happens people make these

mistakes so what you need to do is first

of all go to the IRS website and read up

on what it takes to reclassify your

status okay and you're gonna use form

8949 fix basically so they can change

you from a private foundation to a

public charity and you're gonna have to

prove to the IRS that you made a mistake

and that you actually operate like a

public charity you never meant to

operate as a private foundation so

they're gonna want to see your tax form

from the previous year they're gonna

want to see your finances to make sure

that your money actually came from a

broad range of sources so it's a process

and there's a fee so if you want to

avoid all of that all of that mess then

I really recommend that before you even

and apply you do your research you read

the IRS code if you're going to fill out

the form yourself what is the lesson of

the day everyone consult a tax authority

or a professional who can review all of

your information and to make sure it's

correct so the reason why I do these

videos is because I want to help you

avoid these situations I want to make

sure you are on the up-and-up so that

your nonprofit can win I just want to

see everybody win and I'm here to serve

so if you have any questions for me

please visit me at my website at