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Unincorporated Associations

The law of the sea.

Unincorporated Associations

Postby Rider » Tue Nov 29, 2016 3:22 pm

we have a very small group(25) of photographers who meet monthly in MD for educational purposes.  dues 25/year, about 2 k of accum funds. We don't charge anything above actual expenses for outings or trainings.  Our current treasurer wants us to be a 501(c)(7) to keep him from liability with the bank account, but this seems overkill to several of us.  Can we be an unincorporated assoc, get a determination letter with a simpler, cheaper structure?

ANSWER: You could incorporate and may be qualified for either(c)(7) or(c)(3) status. Some organizations would qualify for 501(c)(3) organization

status whereas others would not, but could be 501(c)(7)

organizations.  See:

www.irs.gov/pub/irs-tege/rr67-139.pdf in which the IRS discusses

a gemological organization and the two options.

Then you could obtain an EIN for the new corporation.  That should satisfy the treasurer as to the bank account. If you don't' want donors to be able to deduct donations(as they would to a 501(c)(3) organization), then you could be a club and incorporate without a reference to the U.S. tax code. Then you could apply for EIN online at the IRS SS-4 site:

www.irs.gov/businesses/small/article/0,,id=102767,00.html

Instructions for Form SS-4

www.irs.gov/pub/irs-pdf/iss4.pdf

The IRS explains that, when applying for the Employer

Identification Number, the club may check the line for "banking

purposes only" and gives the examples, "a bowling league for

depositing dues or an investment club for dividend and interest

reporting)."http://www.irs.gov/pub/irs-pdf/iss4.pdf on page 4 on the right

column near the bottom

From their online EIN application page

https://sa2.www4.irs.gov/modiein/individual/index.jsp

and hitting "begin application" and then on the next screen we

hit "View Additional Types, Including Tax-Exempt and Governmental

Organizations" and then on the next page is a list of different

associations, such as PTA/PTO or School Organization, Social or

Savings Club, Sports Teams(community).  When we choose Sports

Teams(community) the next screen has information.

---Start of Excerpt--    * These organizations are comprised of sports teams or clubs

primarily participating in live sporting events before a non-

paying audience.    * Examples of sports teams include bowling leagues, little

leagues, soccer teams, basketball teams, etc.    * These groups generally need an EIN for banking purposes or

to satisfy local law.

What it is not...    * They are not engaged in an activity that is for profit.    * They are not incorporated.    * These teams or leagues are not professional teams or

franchises.    * Sports team participants are not paid for playing in the

sporting activity.

---End of Excerpt--

Also they could not give salaries or wages. If they follow those

rules above then the organization will not have any federal

income tax liabilities.

Any entity that acquires an EIN should consider that the IRS

could at some point in time contact them and request valid

financial activity information. This is one reason that groups

will want to maintain detailed records, including treasurer's

records, bank statements, receipts and any other documentation of

their financial activities. The records should be kept for at

least 3 years. Care should be taken when assigning responsibility

for storage of the records, so that they remain available to the

group if needed.  Certainly if the group takes in less than $5000

in a year the IRS would not be concerned, but if the annual

amount is much greater then the IRS would more likely become

concerned, even if it registered with the IRS by obtaining a EIN

number "only for banking purposes".

www.irs.gov/pub/irs-pdf/p4221pc.pdf at pdf page 24.

Please note, however, that, when families sell baked goods or

other items regularly, engage in work to gain funds or, act like

a normal business, they are engaging in a taxable business.

Now if you want to remain as an unincorporated association you would need to pay the IRS filing fee to obtain a determination letter. organization. The IRS minimum filing fee for such a

determination letter is $400 and goes up to $850.

www.irs.gov/irb/2010-01_IRB/ar13.html#d0e15340 Thank you.

Harvey Mechanic, Attorney at Law - [email protected]

---------- FOLLOW-UP ----------

In regards to the above, could we go along without asking for the determination letter - and without incurring the fee - and just get an EIN for banking purposes? And just keep all the appropriate records and club documents?

Is there a downside to skipping the formal documentation from the IRS? All of our members understand that each member participates in any activities as an individual and that our responsibilities to them is limited to that

year's dues.

Thanks,
Rider
 
Posts: 44
Joined: Sat Jan 18, 2014 2:39 pm

Unincorporated Associations

Postby Obadiah » Fri Dec 02, 2016 5:58 am

we have a very small group(25) of photographers who meet monthly in MD for educational purposes.  dues 25/year, about 2 k of accum funds. We don't charge anything above actual expenses for outings or trainings.  Our current treasurer wants us to be a 501(c)(7) to keep him from liability with the bank account, but this seems overkill to several of us.  Can we be an unincorporated assoc, get a determination letter with a simpler, cheaper structure?

ANSWER: You could incorporate and may be qualified for either(c)(7) or(c)(3) status. Some organizations would qualify for 501(c)(3) organization

status whereas others would not, but could be 501(c)(7)

organizations.  See:

www.irs.gov/pub/irs-tege/rr67-139.pdf in which the IRS discusses

a gemological organization and the two options.

Then you could obtain an EIN for the new corporation.  That should satisfy the treasurer as to the bank account. If you don't' want donors to be able to deduct donations(as they would to a 501(c)(3) organization), then you could be a club and incorporate without a reference to the U.S. tax code. Then you could apply for EIN online at the IRS SS-4 site:

www.irs.gov/businesses/small/article/0,,id=102767,00.html

Instructions for Form SS-4

www.irs.gov/pub/irs-pdf/iss4.pdf

The IRS explains that, when applying for the Employer

Identification Number, the club may check the line for "banking

purposes only" and gives the examples, "a bowling league for

depositing dues or an investment club for dividend and interest

reporting)."http://www.irs.gov/pub/irs-pdf/iss4.pdf on page 4 on the right

column near the bottom

From their online EIN application page

https://sa2.www4.irs.gov/modiein/individual/index.jsp

and hitting "begin application" and then on the next screen we

hit "View Additional Types, Including Tax-Exempt and Governmental

Organizations" and then on the next page is a list of different

associations, such as PTA/PTO or School Organization, Social or

Savings Club, Sports Teams(community).  When we choose Sports

Teams(community) the next screen has information.

---Start of Excerpt--    * These organizations are comprised of sports teams or clubs

primarily participating in live sporting events before a non-

paying audience.    * Examples of sports teams include bowling leagues, little

leagues, soccer teams, basketball teams, etc.    * These groups generally need an EIN for banking purposes or

to satisfy local law.

What it is not...    * They are not engaged in an activity that is for profit.    * They are not incorporated.    * These teams or leagues are not professional teams or

franchises.    * Sports team participants are not paid for playing in the

sporting activity.

---End of Excerpt--

Also they could not give salaries or wages. If they follow those

rules above then the organization will not have any federal

income tax liabilities.

Any entity that acquires an EIN should consider that the IRS

could at some point in time contact them and request valid

financial activity information. This is one reason that groups

will want to maintain detailed records, including treasurer's

records, bank statements, receipts and any other documentation of

their financial activities. The records should be kept for at

least 3 years. Care should be taken when assigning responsibility

for storage of the records, so that they remain available to the

group if needed.  Certainly if the group takes in less than $5000

in a year the IRS would not be concerned, but if the annual

amount is much greater then the IRS would more likely become

concerned, even if it registered with the IRS by obtaining a EIN

number "only for banking purposes".

www.irs.gov/pub/irs-pdf/p4221pc.pdf at pdf page 24.

Please note, however, that, when families sell baked goods or

other items regularly, engage in work to gain funds or, act like

a normal business, they are engaging in a taxable business.

Now if you want to remain as an unincorporated association you would need to pay the IRS filing fee to obtain a determination letter. organization. The IRS minimum filing fee for such a

determination letter is $400 and goes up to $850.

www.irs.gov/irb/2010-01_IRB/ar13.html#d0e15340 Thank you.

Harvey Mechanic, Attorney at Law - [email protected]

---------- FOLLOW-UP ----------

In regards to the above, could we go along without asking for the determination letter - and without incurring the fee - and just get an EIN for banking purposes? And just keep all the appropriate records and club documents?

Is there a downside to skipping the formal documentation from the IRS? All of our members understand that each member participates in any activities as an individual and that our responsibilities to them is limited to that

year's dues.

Thanks,
Obadiah
 
Posts: 43
Joined: Sat Jan 04, 2014 6:40 am

Unincorporated Associations

Postby Laefertun » Fri Dec 02, 2016 11:35 pm

Yes, you can avoid filing for the determination letter as long as you do not have any income other then from dues. The main downside to not having a determination letter is that potential members may think the organization is not set up correctly. Thank you.

Harvey Mechanic, Attorney at Law - [email protected]
Laefertun
 
Posts: 33
Joined: Sat Mar 01, 2014 10:02 pm


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