Understanding 501(c)(3) Regulations in Los Angeles
The United States was founded on principles of charitable giving and volunteerism3 min read
The United States was founded on principles of charitable giving and volunteerism. To encourage these missions, the IRS has granted nonprofits in the form of 501(c)(3) corporations a unique set of tax exemptions and benefits. Nonprofits not only provide essential services to their local communities, but they also benefit the economy by keeping money in the pockets of its citizens. But with any unique tax categorization comes a unique set of regulations. Things can get confusing and for those businesses in Los Angeles, the challenge is even greater. So what should those filing for 501(c)(3) status in the City of Angels consider before submitting their applications?
A 501(c)(3) corporation is a nonprofit organization that the IRS recognizes as having qualifying charitable, educational, religious, literary, or scientific goals. The organization must be organized and operated exclusively for those purposes in order to be eligible for tax exemptions, donor deductions, government grants, and funding. A 501(c)(3) may also serve as a charity, like the Salvation Army, or an institution of higher education, like UCLA. However, the status has restrictions, such as prohibitions on political activity and lobbying.
The first step for those considering applying for 501(c)(3) status is to ensure they adhere to the laws and regulations specific to Los Angeles. California recognizes 501(c)(3) status, but sets many of its own standards in addition to the more stringent federal regulations. Those must all be met before an organization is approved as a 501(c)(3).
The most important qualifications to check are total gross income and purposes of the corporation. In California, if an organization’s total gross annual income exceeds $2,500, the organization must file with the IRS at least its Articles of Incorporation and a Special Application. Additionally, the organization must serve a purpose which the LAPD (Los Angeles Police Department) deems revenue-producing activities, merchandising, and operating a hotel or a motel as unacceptable.
The next step for those looking to gain 501(c)(3) status is to file with the IRS in the form of a 1023 or 1023-EZ. Organizations in Los Angeles may experience additional challenges in the form of providing proof of tax-exempt purpose, as the analysis of that documentation requires a greater capacity of knowledge. As the IRMC (Internal Revenue Manual Code) suggests, any organization considering submitting for 501(c)(3) status should look to the expertise of a counsel versed in federal and state regulations in order to ensure the application is complete and accurate.
Organizations in Los Angeles with 501(c)(3) status must also recognize the ongoing responsibilities that come with the status, particularly when it comes to reporting. Both the federal and state governments require filing their own returns which help organizations comply with taxing and budgeting regulations. It’s also important to note that nonprofits in Los Angeles must also file an annual form 990 in order to retain their tax exempt status, even if no income or business is conducted during the year.
Understanding how to file for 501(c)(3) status in Los Angeles can be overwhelming, especially for those without the appropriate legal expertise to carry them through. UpCounsel provides on-demand counsel to those organizations looking to gain 501(c)(3) approval, guiding them through the complex legal landscape in-state and navigating heavy federal regulations. By ensuring correct filing both at the state and federal level, UpCounsel provides a streamlined route for those aspiring to gain 501(c)(3) status in Los Angeles.
For those considering pursuing 501(c)(3) approval in Los Angeles, UpCounsel’s team of experienced attorneys can provide the expertise needed to lay out an actionable plan of success.
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