"MAGIC WORDS"

necessary for your organization
to be recognized as "tax exempt" by the IRS

Lisa Nachmias Davis
Davis O'Sullivan & Priest LLC
129 Church Street, Suite 503
New Haven, CT 06510

203-776-4400
Fax 203-774-1060
davis@sharinglaw.net
http://www.sharinglaw.net

Section 501(c)(3):  WHAT YOU ARE TRYING TO SHOW.  In order for your organization to be recognized as "exempt" from paying income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code, it must be "organized and operated" for exclusively "exempt" purposes.  Specifically, you are trying to show that your organization meets the following definition:

Internal Revenue Code Section 501(c)(3).
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

"ORGANIZATIONAL" REQUIREMENT:  YOUR GOVERNING DOCUMENTS -- (1) your "Certificate of Incorporation," if you are a Connecticut organization, "Articles of Organization" elsewhere, and (2) your Bylaws -- must include the following language:

  1. Your organization is . . . 
    "organized and operated exclusively for educational, charitable, and/or religious purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or to any corresponding provision of any future federal tax law, as follows:"
    . . . then go on to describe the organization's purposes.

  2. "No part of the net earnings of the Corporation shall inure to the benefit of any trustee, director, or officer of the Corporation, or any private individual (except that reasonable compensation may be paid for services rendered to or for the Corporation), and no trustee, director or officer shall be entitled to share in the distribution of any of the corporate assets upon dissolution of the Corporation. No substantial part of the activities of the Corporation shall consist of carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided by Section 501(h) of the Code), or participating in, or intervening in (including the publication or distribution of statements), any political campaign on behalf of or in opposition to any candidate for public office."

  3. "Notwithstanding any other provision hereof, the Corporation shall not carry on any other activities not permitted to be carried on (i) by a corporation exempt from federal income tax under Section 501(c)(3) of the Code (or the corresponding provision of any future federal tax code), or (ii) by a corporation, contributions to which are deductible under Section 170(c)(2) of the Code (or the corresponding provision of any future federal tax code)."

  4. "Upon the termination, dissolution or final liquidation of the Corporation in any manner and for any reason, the Board of Directors shall first pay or provide for the payment of all liabilities of the Corporation; all remaining assets shall be distributed for one or more exempt purposes within the meaning of Section 501(c)(3) of the Code (or the corresponding section of any future federal tax code), or shall be distributed to the federal government, or to state or local government, for a public purpose."


    (You MAY specify a particular charity to receive the corporate assets on dissolution, but you must then include the following language to show what happens if the designated recipient does not exist, or is not qualified as 501(c)(3) exempt at the time of dissolution).

  5. If you are a private foundation -- you do not expect to receive at least one-third of your support from government, charities, and the "general public" -- you should include the following language as well:


    "If at any time the Corporation is deemed to be a private foundation as defined in Section 509 of the Internal Revenue Code of 1986, as amended (or the corresponding section of any future federal tax code) (the "Code"), then so long as the Corporation is deemed a private foundation, it shall not, as provided in Section 508(e) of the Code, fail to require its income for each taxable year to be distributed at such time and in such manner as not to subject the Corporation to tax under Section 4942 of the Code, engage in any act of self-dealing as defined in Section 4941(d) of the Code, retain any excess business holdings as defined in Section 4943(c) of the Code, or make any investments or expenditures in such manner as to subject the Corporation to tax under Section 4944 or Section 4945(d) of the Code.

For more detailed information, see IRS Publication 557 and the Instructions to Form 1023

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