Based on what you did, its pretty obvious that you did not consult a lawyer, because what you did is illegal under US tax law.
Nonprofits are required to meet specific requirements to get tax-exempt treatment before engaging in income-generating activity. 501(c)(3) status is not granted automatically (IOW, it is not granted "statutorily"). It is a legal status specifically granted by the IRS after a review.
Income raised prior to receiving the exemption is almost always treated as income earned through non-exempt (i.e., for-profit) activities. There are exceptions, of course, but you need to consult a tax lawyer (specializing in non-profit/charitable tax law) to figure out if you qualify for those exceptions. There are very important reasons behind this (including, but not limited to, the deductibility of transactions).
State tax law may be more permissive, but that only affects your state tax status. Federal tax law governs your federal tax status. It may be possible to be a non-profit for state taxation but a for-profit for federal taxation.
Also, to address inaccuracies in your blog post:
1) There are no age restrictions in any state on incorporation. However, few businesses will enter into contracts with minors unless their parents guarantee the contracts because minors have very special rights under American contract law.
2) There is no need to incorporate a solo operation. Incorporation is intended to simplify accounting for collaborative efforts. Individuals can simply register a DBA (if they're making up a "company" name"). In your case, incorporating is proper: you claim to be founding a charitable organization, so incorporation is a necessary step to receiving tax-exempt status.
3) It's humorous to see that you believe that a non-profit only needs to file 2 forms, online, once a year. Those two forms are just the start. There's a lot more paperwork involved.
You need to consult a lawyer, immediately, because you may receive a call from the IRS in the near future.
Thanks for the heads up. You're probably right that filling out 2 forms is humorous, but it is the bare minimum and I did get away with it for the 2009 tax year (which we had no activity because we incorporated late in the year). I'm eventually going to have to file the W-9 with Apple and some other forms if I plan on sending money abroad.
After I was done incorporating and everything was ready, I did consult an accountant and he did say there might be some issues down the road, but only if I was planning on taking money out of the country (which I kind of am). I also did have to make a phone call to one of the IRSs numbers to have them add the organization to the list of tax-exempt organizations, so I could file my 990N online. They did make me verify that my gross receipts were less than $5,000/year.
Regarding age restrictions: In New Jersey and a lot of other states, the law specifically states that you need to be 18 years or older to incorporate and/or be a board member of the organization. This isn't true in some other states, depending how lenient their laws are. I ended up incorporating in Rhode Island, because they didn't have any age restriction and you are automatically tax exempt at the state level if you are at the federal level.
Thanks for the advice. I'll probably contact you or someone else if I do have any issues.
Comments
Based on what you did, its pretty obvious that you did not consult a lawyer, because what you did is illegal under US tax law.
Nonprofits are required to meet specific requirements to get tax-exempt treatment before engaging in income-generating activity. 501(c)(3) status is not granted automatically (IOW, it is not granted "statutorily"). It is a legal status specifically granted by the IRS after a review.
Income raised prior to receiving the exemption is almost always treated as income earned through non-exempt (i.e., for-profit) activities. There are exceptions, of course, but you need to consult a tax lawyer (specializing in non-profit/charitable tax law) to figure out if you qualify for those exceptions. There are very important reasons behind this (including, but not limited to, the deductibility of transactions).
State tax law may be more permissive, but that only affects your state tax status. Federal tax law governs your federal tax status. It may be possible to be a non-profit for state taxation but a for-profit for federal taxation.
Also, to address inaccuracies in your blog post: 1) There are no age restrictions in any state on incorporation. However, few businesses will enter into contracts with minors unless their parents guarantee the contracts because minors have very special rights under American contract law.
2) There is no need to incorporate a solo operation. Incorporation is intended to simplify accounting for collaborative efforts. Individuals can simply register a DBA (if they're making up a "company" name"). In your case, incorporating is proper: you claim to be founding a charitable organization, so incorporation is a necessary step to receiving tax-exempt status.
3) It's humorous to see that you believe that a non-profit only needs to file 2 forms, online, once a year. Those two forms are just the start. There's a lot more paperwork involved.
You need to consult a lawyer, immediately, because you may receive a call from the IRS in the near future.
Thanks for the heads up. You're probably right that filling out 2 forms is humorous, but it is the bare minimum and I did get away with it for the 2009 tax year (which we had no activity because we incorporated late in the year). I'm eventually going to have to file the W-9 with Apple and some other forms if I plan on sending money abroad.
After I was done incorporating and everything was ready, I did consult an accountant and he did say there might be some issues down the road, but only if I was planning on taking money out of the country (which I kind of am). I also did have to make a phone call to one of the IRSs numbers to have them add the organization to the list of tax-exempt organizations, so I could file my 990N online. They did make me verify that my gross receipts were less than $5,000/year.
Regarding age restrictions: In New Jersey and a lot of other states, the law specifically states that you need to be 18 years or older to incorporate and/or be a board member of the organization. This isn't true in some other states, depending how lenient their laws are. I ended up incorporating in Rhode Island, because they didn't have any age restriction and you are automatically tax exempt at the state level if you are at the federal level.
Thanks for the advice. I'll probably contact you or someone else if I do have any issues.