|Legal Status of Chapters|
Sisters in Crime chapters frequently ask questions regarding legal status and tax-exemption. This document will provide some definitions and information for chapters in the US. Chapters outside the US should research your country’s non-profit requirements and regulations.
Below are some basic definitions. Starting points for additional research are the website http://uslegal.com and your Secretary of State’s website. The IRS publishes useful references for non-profits on its website, irs.gov.
Legal entity. A legal entity can enter into contracts and sue or be sued in its own name. There are many types of legal entities, including corporations and unincorporated associations. A legal entity is responsible for filing its own reports with state and federal authorities, including information and tax returns with the IRS.
SinC chapters are separate legal entities from SinC (National). Chapters must determine their own organizational structure. Two questions typically guide decisions about legal form: (1) legal liability and (2) taxes. SinC (National) is not responsible for chapter debts or for filing IRS tax or informational returns.
Non-profit. SinC chapters are non-profit, as declared in their bylaws. Nonprofits, contrary to their name, can make a profit but can't be designed primarily for profit-making. The major difference between a profit and nonprofit business deals with the treatment of the profits. With a for-profit business, the owners and shareholders generally receive the profits. With a nonprofit, any money that's left after the organization has paid its bills is put back into the organization.
Incorporation. A non-profit can choose to be incorporated or not. A corporation is a separate legal entity, with continuing existence independent of its officers and members. A corporation is formed by filing articles of incorporation with a state government under the state's corporation laws.
If a chapter is not incorporated, it is known as an “unincorporated association,” a type of legal entity that can enter into contracts in its own name and can sue and be sued in its own name. It is responsible for filing reports with governmental authorities.
The main difference between an unincorporated association and an incorporated chapter is that of ultimate liability of the members of the chapter for any debts or other legal obligations. A plaintiff suing an unincorporated association will name each member individually and if the plaintiff wins, the plaintiff will be entitled to look to the personal assets of individual members for recompense.
Tax-exempt status. This section will highlight some of the IRS requirements that affect SinC chapters. We recommend reading IRS Publication 557 , Tax Exempt Status for Your Organization and consulting a non-profit tax expert if you need more answers and assistance. In addition, the IRS is very helpful on the phone.
To obtain official tax exemption status, the chapter must file the appropriate form and pay a User Fee, currently $400.
However, some 501(c) organizations (4, 5, 6 and 7) are not required to apply for official tax exemption; they can “self-declare” that they are tax exempt. They will not receive an official status letter from the IRS.
IRS Requirements. If your chapter has revenues of less than $50,000, you should file form 990N with the IRS each year, no later than five months after the end of the chapter’s accounting year. It is an informational form, not a tax return.
If your chapter has revenues of more than $50,000 a year, you must file an annual report (Form 990) with the IRS. Form 990-EZ is a shortened version of 990 and is designed for use by small exempt organizations with total assets at the end of the year of less than $25,000. Form 990 asks you to provide information on the organization's income, expenses and staff salaries that exceed $50,000.
You also may have to comply with a similar state requirement.
EIN Employer Identification Number. Applying for an EIN does not mean that your chapter anticipates having employees. Rather, an EIN is required by banks to open a bank account. It is also the means by which the IRS tracks the non-profit. Each chapter should have its own EIN.
1. Apply for an EIN.
2. Open a bank account.
3. Register as a non-profit with your Secretary of State.
4. Each chapter should consider incorporating, but it is not mandated. For each chapter, the paperwork and expense must be balanced against the protection from liability afforded members. Each chapter should examine its own activities and issues to determine what is in its own best interest. Seek legal advice if you have questions.
5. Review the criteria for tax-exempt status, determine which status best fits the chapter's needs, and contact the IRS.
6. File Form 990N every year. If gross receipts exceed $50,000/year, file 990 or 990EZ.
7. Research and comply with your state’s requirements for non-profits and tax exemption.
8. If incorporated, keep up with your state’s annual filing requirements.