IS IT A REQUIREMENT THAT A nonprofit corporation BE FORMED FIRST?

Yes.  Other entity types, such as sole proprietors (even with dbas) and LLCs are not eligible to become a 501(c)(3).

What is a group ruling?

A central or ‘parent’ organization with a group ruling provides subordinates the ability to operate with all of the rights, privileges, and responsibilities of a 501(c)(3) organization (such as eligibility to receive tax-deductible contributions), without having to file for exemption separately.

Why should I obtain tax exemption for my nonprofit corporation?

There are absolutely zero benefits in becoming a nonprofit corporation without then obtaining tax exemption, and can even have negative consequences.   Failure to do so results in the organization being required to file any state returns (such as those for franchise tax, in Texas), as well as a standard corporate federal income tax return, which is more expensive and time-consuming, just to name two.

Who can become a subordinate?

A nonprofit corporation wishing to join NFM must be organized and operate in accordance with both the Nonprofit Corporation Act of their state as well as organized and operated exclusively for exempt purposes as set forth in section 501(c)(3) of the Internal Revenue Code.  Nonprofit Corporations that have been formally recognized by their state and are faith-based in nature can generally become a subordinate - this can include Churches, Ministries, and many other types of Charitable, Religious, and Educational Organizations. 

When should tax exemption be obtained?

Nonprofit corporations should immediately obtain federal tax exemption (501c3 status) as well as any state tax exemptions that apply as soon as they receive confirmation that they are formally recognized by their state.  Organizations that wish to obtain 501c3 status as a subordinate must apply before the end of the 15th month after it was formed to avoid complications.

If federal tax exemption is obtained, are state exemptions (if any) automatically granted?

No.  Many states have requirements for a nonprofit corporation that can be exempted with 501c3 status.  For example, Texas nonprofit corporations can be granted exemption from sales and franchise taxes (otherwise required).  All state-level exemptions must be applied for separately and done after federal exemption is granted – included with NFM registration (some state exclusions may apply).

How do I know which method is right for my organization?

Most startups and smaller organizations choose to join a group ruling.  An organization planning to support their organization mainly through government grants/funding or who may decide to operate as a private foundation instead of a public charity may prefer independent exemption.

What are the advantages and disadvantages of subordinate membership vs. independent exemption?

The advantages of subordinate membership are that it is:

a)    More convenient (a 1023 application, necessary to apply for independent exemption, is a 21-page document)

b)    Less time-consuming (1023 applications can take up to 24 months to be approved)

c)    Less expensive (paying a professional to assist with the preparation of a 1023 application, as well as the IRS user fee, can easily cost around $5000.00)

The disadvantages (to some) are the annual requirements and renewal dues, and that verification of a subordinate’s exempt status requires an additional step.

What are my obligations as a subordinate?

Subordinates are required to keep all required filings (on both the state and federal levels, such as 990 reporting) and renewal dues current, and provide copies to NFM along with any completed member forms requested during the annual renewal period.

When is the annual renewal period?

NFM will usually begin sending out the necessary renewal forms by mid-August, and the annual renewal period ends in mid- September, in accordance with the IRS due date of our annual report.

Where can tax exemption for subordinates be verified?

Anyone hoping to verify a subordinate’s tax-exempt status should be able to use the paperwork provided by NFM at the acceptance of membership.  Otherwise, they would go to the same webpage on the IRS website as they would to perform a regular EO Select Check.  However, instead of choosing the EO Select Check Tool, they would choose the EO Business Master File Extract (the EO BMF link listed beneath it), then choose the state the subordinate is registered with for an Excel list of all state-registered subordinates.  They would then search for a specific organization by EIN.

Would NFM help me obtain independent exemption at a later date, if necessary?

Absolutely!  Many organizations join NFM to get started and choose to obtain independent exemption at a later date.

We are happy to assist with that transition whenever you are ready.

What other services are INCLUDED WITH MEMBERSHIP?

NFM exists primarily to provide tax-exempt status but can assist with many other services that are hugely beneficial for nonprofit organizations.

*All other available services are by request, and billable separately (please see below).

*What other services are available?

Please contact us for any additional service offerings available

*all additional services available are billed separately and provided by a trusted service provider

How do I join?

Please complete and submit a message on the Contact Us page and we will gladly respond to your request!