How to Form a Club in California
|The benefits of incorporating a nonprofit are mainly derived from receiving tax-exempt status and the IRS will determine your status. Initially, the IRS assumes a nonprofit corporation is a private foundation until the organization receives a determination letter giving it tax-exempt status.
You need the following to file for Federal tax-exempt status
You will need your EIN, Employer Identification Number, for all applications.
Form 1023 is used to apply for federal tax-exempt status that qualify under Section 501(c)(3). The purpose of these organizations must be religious, educational, scientific, charitable or literary.
Form 1024 is used to apply for federal tax-exempt status qualify under Section 501(c)(7). The purpose of these clubs should be for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities must be for these purposes. An organization will not be recognized as tax exempt if its charter, by laws, or other governing instrument, or any written policy statement provides for discrimination against any person based on race, color, or religion. However, a club that in good faith limits its membership to members of a particular religion, to further the teachings or principles of that religion and not to exclude individuals of a particular race or color, does not discriminate based on religion. Members must be bound together by a common objective directed toward pleasure, recreation, and other nonprofitable purposes.
The membership in a social club must be limited. A club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Evidence that a club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption.
In general, a club should be supported solely by membership fees, dues, and assessments. A section 501(c)(7) organization may receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Of the 35%, not more than 15% of the gross receipts may be derived from the use of the club's facilities or services by the general public or from other activities not furthering social or recreational purposes for members. If an organization has non-member income that exceeds these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status.
No part of the organization's net earnings may inure to the benefit of any person having a personal and private interest in the activities of the organization. For these purposes, net earnings need not be actually distributed, since even undistributed earnings may benefit members, by decreasing membership dues or increasing the services the club makes available to its members without a corresponding increase in dues or other fees paid for club support. However, fixed fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performing necessary administrative service.
You must include the appropriate user fee in a check or money order made payable to the Internal Revenue Service with your Form 8718, User Fee for Exempt Organization Determination Letter. The correct fee is $500 or, in certain limited circumstances, $150 (see Form 8718 for further details). Congress mandates that the IRS collect a fee for this application. Accordingly, the IRS cannot waive the user fee).
Conformed documents consist of copies of the organizing documents (i.e., Articles of Incorporation) that agree with the original and all amendments to it. If the original required a signature, the copy should be signed. A certificate of incorporation should be approved and dated by the appropriate state official. While not an organizing document, a copy of the by-laws should be attached.Existing organizations now incorporating must give financial statements for the past three years. New organizations must give financial statements for the current year and proposed budgets for the next two years, including a detailed breakdown of revenue and expenses. A section 501(c)(3) or 501(c)(7) organization provides this information on Part IV, Form 1023 or Form 1024, respectively.
You are now ready to submit the organization's completed application to the following address:
Applications shipped by express mail or delivery service should be sent to:
This information is provided courtesty Pacific Rim Alliance,