I start more than a dozen new nonprofits of various types at the request of clients each year. It has become a specialization niche. Last week I received a referral from as far as rural Kentucky. A few of these startups have wound up as multimillion transformative organizations. One was cited by the president on national television in a Covid briefing. Others stay as a personal hobby for the founder. I wind up staying on the board of some of them, serve as controller of some, or just process the startup paperwork of others. The startup process is more than getting tax-exempt status. There are legal and state business filing requirements, required and recommended provisions, internal controls, business plannning, and, perhaps most important, cash flow management.
Most nonprofits are defined as Section 501 organizations under the Internal Revenue Code, but not all. Our latest nonprofit startup project is a Section 527 Political Action Committee where I finished the initial federal tax filing yesterday. They require quarterly filing updates. There are only about 1,500 independent PACs in the whole United States. I am accountant for two of them.
A side note: IRS does seem to be scrutinizing the applications of new nonprofit organizations that do not seem to be well organized, funded or have a clear business plan. An IRS agent from the tax-exempt processing unit called yesterday to ask for additional documentation of a startup charity. My client doesn’t want to hear this this news, but accounting startup costs are increasing from the $1,000 to the $2,000 range because of this increased scrutiny.
There is a new article in Bloomberg Tax with an interesting twist: https://news.bloombergtax.com/tax-insights-and-commentary/bored-in-retirement-start-a-501c-charity-for-fun-and-profit