Author Topic: Not for profit, ein, or nothing?  (Read 3489 times)

Offline 801albio

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Not for profit, ein, or nothing?
« on: March 09, 2015, 09:54:14 PM »
Our newly found brew club would like to get input on getting not for profit status, or an EIN and being a "for profit", or not getting an EIN and just collecting dues and selling merch to pay for club needs. We have considered going not for profit but we wanted to get some insight first. Thanks!

Offline reverseapachemaster

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Re: Not for profit, ein, or nothing?
« Reply #1 on: March 11, 2015, 02:53:25 PM »
You probably need an EIN no matter what direction you choose. You don't want to have the club filing taxes and other government documents under somebody's SSN.
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Offline Jimmy K

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Re: Not for profit, ein, or nothing?
« Reply #2 on: March 11, 2015, 03:39:53 PM »
I think you can become a 501c7 'not for profit' social organization without too much trouble. That would give you the liability protection of having a corporation, but the requirements are not too difficult. It's basically set up for clubs - like ski clubs, running clubs, etc - that want to organize events for members but are not trying to make money at it. The main requirement is that your expenses equal revenue each year so that you are actually not making money.
 
A 501c3 'non-profit' charity or foundation is much different. It would allow donations to be deducted from donor's taxes, but requires the organization to have a charitable main purpose. It also means the IRS will scrutinize how you raise and spend your money, how the organization makes decisions (ie- you'll need a board of directors). It's a major PITA and unless you want to do a lot of charity fundraising or education, it's not worth the time.
 
But if you're just a small group of folks that know each other and are not organizing big events, simply getting an EIN may be enough. It will let you get a bank account. Make sure you spend all of the clubs money every year so that you don't have to pay taxes.
Delmarva United Homebrewers - President by inverse coup - former president ousted himself.
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Offline yso191

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Re: Not for profit, ein, or nothing?
« Reply #3 on: March 11, 2015, 04:13:13 PM »
I think you can become a 501c7 'not for profit' social organization without too much trouble. That would give you the liability protection of having a corporation, but the requirements are not too difficult. It's basically set up for clubs - like ski clubs, running clubs, etc - that want to organize events for members but are not trying to make money at it. The main requirement is that your expenses equal revenue each year so that you are actually not making money.
 
A 501c3 'non-profit' charity or foundation is much different. It would allow donations to be deducted from donor's taxes, but requires the organization to have a charitable main purpose. It also means the IRS will scrutinize how you raise and spend your money, how the organization makes decisions (ie- you'll need a board of directors). It's a major PITA and unless you want to do a lot of charity fundraising or education, it's not worth the time.
 
But if you're just a small group of folks that know each other and are not organizing big events, simply getting an EIN may be enough. It will let you get a bank account. Make sure you spend all of the clubs money every year so that you don't have to pay taxes.

This is such great information.  I hope I can find it again when I need it.
Steve
All Hands Brewing
BJCP #D1667

Offline SiameseMoose

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Re: Not for profit, ein, or nothing?
« Reply #4 on: March 11, 2015, 07:51:29 PM »
My club is a 501c7, and while it's the right call for us, it's not without potential issues. First and foremost, your revenue needs to come only from members. Outside income cannot exceed 5% of your annual amount. In practice this means you can't raise any money from public events, or sell merchandise outside of your membership. If you run a competition, entry fees from non-members are"outside income". Sponsorship is also. It's brutal staying under that 5% limit.
You're probably going to need a lawyer to draft all of the documents you need to satisfy the IRS. I don't remember them all but there's about half a dozen. We spent just over $1000 in legal fees.
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Offline dbeechum

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Re: Not for profit, ein, or nothing?
« Reply #5 on: March 11, 2015, 09:47:55 PM »
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Offline reverseapachemaster

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Re: Not for profit, ein, or nothing?
« Reply #6 on: March 13, 2015, 03:20:04 PM »
I think you can become a 501c7 'not for profit' social organization without too much trouble. That would give you the liability protection of having a corporation, but the requirements are not too difficult. It's basically set up for clubs - like ski clubs, running clubs, etc - that want to organize events for members but are not trying to make money at it. The main requirement is that your expenses equal revenue each year so that you are actually not making money.

You will still need to incorporate or elect another limited liability organization through your state. The IRS does not and cannot create limited liability entities.
Heck yeah I blog about homebrewing: Brain Sparging on Brewing

Offline Jimmy K

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Re: Not for profit, ein, or nothing?
« Reply #7 on: March 13, 2015, 03:46:23 PM »
I think you can become a 501c7 'not for profit' social organization without too much trouble. That would give you the liability protection of having a corporation, but the requirements are not too difficult. It's basically set up for clubs - like ski clubs, running clubs, etc - that want to organize events for members but are not trying to make money at it. The main requirement is that your expenses equal revenue each year so that you are actually not making money.

You will still need to incorporate or elect another limited liability organization through your state. The IRS does not and cannot create limited liability entities.
Forgot about that.
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AHA Member since 2006
BJCP Certified: B0958

Offline 801albio

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Re: Not for profit, ein, or nothing?
« Reply #8 on: March 16, 2015, 06:35:49 AM »
Thanks for the info!


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Offline 801albio

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Not for profit, ein, or nothing?
« Reply #9 on: March 16, 2015, 06:38:26 AM »
My club is a 501c7, and while it's the right call for us, it's not without potential issues. First and foremost, your revenue needs to come only from members. Outside income cannot exceed 5% of your annual amount. In practice this means you can't raise any money from public events, or sell merchandise outside of your membership. If you run a competition, entry fees from non-members are"outside income". Sponsorship is also. It's brutal staying under that 5% limit.
You're probably going to need a lawyer to draft all of the documents you need to satisfy the IRS. I don't remember them all but there's about half a dozen. We spent just over $1000 in legal fees.
Thank you for sharing the information.

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Offline 801albio

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Re: Not for profit, ein, or nothing?
« Reply #10 on: March 16, 2015, 06:39:48 AM »

Offline phunhog

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Re: Not for profit, ein, or nothing?
« Reply #11 on: March 19, 2015, 04:13:10 AM »
In CA the homebrewing law was changed so you could run a non profit members only brewery/brew club.  I am actually surprised the law is as liberal as it is .  Basically 2x a year your non profit brew club can host an event where you can legally sell your beer.  Now the caveat is that only "bona fide members" can attend but as long someone pays their seperate membership dues.....they are a "bona fide member".  There are some other minor stipulations as well.  It would be a great way to raise money for your non profit brewery/ brew club.

Offline kramerog

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Re: Not for profit, ein, or nothing?
« Reply #12 on: June 16, 2015, 06:25:15 PM »
My club is a 501c7, and while it's the right call for us, it's not without potential issues. First and foremost, your revenue needs to come only from members. Outside income cannot exceed 5% of your annual amount. In practice this means you can't raise any money from public events, or sell merchandise outside of your membership. If you run a competition, entry fees from non-members are"outside income". Sponsorship is also. It's brutal staying under that 5% limit.
You're probably going to need a lawyer to draft all of the documents you need to satisfy the IRS. I don't remember them all but there's about half a dozen. We spent just over $1000 in legal fees.

I think you meant 35%, not 5%. Below is a quote from IRS Pub 557 on 501(c)(7).

A section 501(c)(7) organization can
receive up to 35% of its gross receipts, including
investment income, from sources outside of
its membership without losing its tax-exempt
status. Income from nontraditional business activity
with members is not exempt function income,
and thus is included as income from
sources outside of the membership. Of the 35%
gross receipts listed above, up to 15% of the
gross receipts can be derived from the use of
the club's facilities or services by the general
public.

Offline SiameseMoose

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Re: Not for profit, ein, or nothing?
« Reply #13 on: June 16, 2015, 06:54:35 PM »

I think you meant 35%, not 5%. Below is a quote from IRS Pub 557 on 501(c)(7).

A section 501(c)(7) organization can
receive up to 35% of its gross receipts, including
investment income, from sources outside of
its membership without losing its tax-exempt
status. Income from nontraditional business activity
with members is not exempt function income,
and thus is included as income from
sources outside of the membership. Of the 35%
gross receipts listed above, up to 15% of the
gross receipts can be derived from the use of
the club's facilities or services by the general
public.

No, I absolutely meant 5%. I'm not the guy who dealt with the lawyer, but I was club president during that time, so I was in all the Board discussions. There are multiple, conflicting, IRS rules and publications on the matter. We were advised by our lawyer that the 5% limit is what applies, and that the IRS had pursued and won cases against organizations that had relied on that 35% figure. I'm not a lawyer, and no matter how hard they tried to explain it to me I never understood it, so I'm obviously incapable of trying to explain it to anyone else.
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Rob
I named my brewery after my cat, Moose. He's Siamese.

Offline kramerog

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Re: Not for profit, ein, or nothing?
« Reply #14 on: June 16, 2015, 08:06:36 PM »
OK, I see the soft 5% "limit" for nontraditional income, i.e., activities that are not in furtherance of a social club's exempt purpose, in some IRS webpages.  Depending on what the club does and owns, I can see how that could be an issue.  However, I am not concerned about that limit for the clubs I'm in.