A foundation in the United States is a type of charitable organization. However, the Internal Revenue Code distinguishes between private foundations (usually funded by an individual, family, or corporation) and public charities (community foundations and other nonprofit groups that raise money from the general public). Private foundations have more restrictions and fewer tax benefits than public charities like community foundations.
The corporate name ending must contain the word “Foundation,” “Association,” “Company,” Corporation,” “Club,” “Fund,” “Incorporated,” “Institute,” “Society,” “Union,” “Syndicate,” “Limited,” or the abbreviation “Co.,” “Corp.,” “Inc.,” “Ltd.,” or words or abbreviations of like import in other languages.The name must be distinguishable from the names of other corporations organized, reserved or registered as a foreign corporation under the laws of Delaware.Use of word “Trust” is prohibited except for corporations under supervision of the Bank Commissioner.
In the United States, an entity with “Foundation” in its name would generally be expected in most cases to be a charitable foundation. However, an organization may have the word “foundation” in its name and not be a charitable foundation of any sort. However, state law may impose restrictions. For example, Michigan permits its use only for non-profits with “the purpose of receiving and administering funds for perpetuation of the memory of persons, preservation of objects of historical or natural interest, educational, charitable, or religious purposes, or public welfare. The distinction between charitable organizations and non-profit organizations elaborates on this point.
The Internal Revenue Code defines many kinds of non-profit organizations which do not pay income tax. However, only charitable organizations can receive tax-deductible contributions and avoid paying property and sales tax. For instance, a donor would receive a tax deduction for money given to a local soup kitchen if the organization was classified as a 501(c)(3) organization, but not for giving money to the National Football League, even though the NFL is a 501(c)(6) non-profit association.[2] Neither a public charity nor a foundation can pay for or participate in partisan political activity, unless they surrender tax-exempt status including voiding the deductibility of any tax deductions for donors after the surrender or revocation date.
Tax-exempt charitable organizations fall into two categories: public charities and private foundations. A community foundation is a public charity. The US Tax Code in 26 USCA 509 governs private foundations. Meanwhile 26 USCA 501(c)(3) governs public charities.
Articles of Incorporation must contain the following information:
The purposes for which the – name of organization – is organized are exclusively religious, charitable, scientific, literary, and educational within the meaning of section 501(c)(3) of the Internal Revenue Code of 1986 or the corresponding provision of any future United States Internal Revenue law.
Notwithstanding any other provision of these articles, this organization shall not carry on any activities not permitted to be carried on by an organization exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1986 or the corresponding provision of any future United States Internal Revenue law.
Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by the Court of Common Pleas of the county in which the principal office of the corporation is then located exclusively for such purposes or to such organization or organizations, as said Court shall determine which are organized and operated exclusively for such purposes.
Special exemptions from all U.S. Federal income tax are granted for companies that qualify under the IRC. Section 501(c). The company must have a qualified charitable or religious mission and a specific non-stock structure. Within 15 months of formation, the company must file IRS form# 1023 to qualify.
Forming a “Non Profit Corporation” is a two-step process.
First, you form a Non-Stock Non-Profit Company and then, within 15 months (which means it can be immediately afterwards the incorporation), you must apply to the IRS for non-profit Status. This is accomplished by submitting form # 1023.In order to qualify for non-profit status with the IRS, your Delaware Certificate of Incorporation must include the proper and appropriate clauses that declare your mission and identify the IRS subsection under which you intend to apply.We can handle all this for you in the correct manner.
The State of Delaware is a leading domicile for U.S. and international corporations. More than 500,000 business entities have made Delaware their legal home including 300,000 corporations and 200,000 limited liability companies and partnerships. More than 50% of all publicly-traded companies in the United States including 60% of the Fortune 500 have chosen Delaware as their legal home. You too can capitalize on the instant credibility that a Delaware corporation provides.
If your corporation is granted an exemption by the Internal Revenue Service as a non-profit organization under Section 501(c), your corporation will be exempt from corporate income tax in Delaware as provided for in Section 1902(b)(6) of Title 30 of the State Code.
Some non-profit organizations include, but are not limited to:
The net profit of these organizations cannot benefit any private stockholder or member.Additionally, organizations exempt under Section 501(c) of the Internal Revenue Code are exempt from obtaining a business license and paying the accompanying gross receipts tax on the sales of most goods and services. Some services such as leasing tangible personal property or providing accommodations are taxable regardless of the entity providing such services.Non-profits corporations are required to register with The Division of Revenue and withhold Delaware State income taxes on employees performing services within Delaware. Registration is also required with the Department of Labour.Additionally if the non-profits activities are conducted in Delaware a copy of Federal Form 990 PF must be filed with the State of Delaware, Attorney General.
Delaware currently has no State statute requiring registration of charitable solicitations or fund raisers with the Department of Justice or another state agency. However, when soliciting donations, there are now specific disclosure requirements mandated prior to asking for donations. These include identification of the solicitor, and the agency for which the funds are solicited. Donors are entitled to question how the funds are allocated between administrative costs and actual charitable use.Further, all state laws applicable to fraud and fraudulent transactions are required to be observed.
Should you require additional information, request a quotation or clarify any related matter, please contact one of our Consultants who will be happy to assist with your enquiries.
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COI strongly recommends that each potential user of its services seek tax and legal advice before deciding on implementing a solution employing international financial structures. COI will not be liable for any damages, costs and expenses resulting from or incurred as a result of any action taken or omitted based upon any such information provided by COI.