Class, today we're going to have a refresher course on charitable nonprofits. Our case study will be everyone's favorite nonprofit incorporated in Colorado, Tenacious Unicorn Ranch.
As we
previously learned, this is a separate entity from The Tenacious Unicorn Ranch, LLC. Unlike the LLC, the nonprofit corporation has articles that limit it to charitable purposes compliant with Internal Revenue Code section 501(c)(3). Filing the articles is what establishes the entity under Colorado law.
Nonprofit corporations are not automatically tax-exempt, though. Besides being correctly organized, most organizations have to
apply to the IRS for a determination that they are exempt. We can tell they have not been determined exempt because they do not appear in the IRS
database for tax-exempt organizations (current as of April 13). But, since the incorporation happened in May 2021, the deadline for this is by the end of the 27th month after, which is August 31, 2023. So they need not filed the application yet, or if they did, it's reasonable that they would not have gotten a reply yet as the IRS has been very slow. If you would like a copy of their application for exemption (if any), you can request it in writing and they must provide it. The regulations allow them to avoid having to provide individual copies by posting it on the Internet.
Exempt organizations still have to file a tax return. It's not entirely clear which form they have to file because it depends on how much revenue the organization has—where is their GoFundMe and Patreon revenue going, to the LLC or nonprofit corporation? Donors should probably ask themselves that question. Either way, Tenacious Unicorn Ranch does not appear in the Form 990-N and Form 990 datasets. (Current as of April 18 and April 20, respectively.) If they use the calendar year for their accounting like you'd expect, their return was due on April 15. Still, they might have applied for a six-month extension, or if they use a fiscal year then the return is not due until October 1. Failing to file a return can lead to automatic revocation of exempt status. Like the exemption application, you can request a copy of an exempt organization's last three tax returns in writing and they must provide it to you.
There's more an exempt organization has to do to be legally compliant. Like many organizations, Tenacious Unicorn Ranch solicits donations from the general public. State law requires organizations wishing to solicit charitable donations to register with the Colorado Secretary of State, unless the organization's revenue was less than $25,000. They
have not registered (as of June 10). Depending on exactly what their solicitation activity to out-of-state donors is, an organization might be required to register in other states as well. Potential donors might want to review the Secretary of State's
Wise Giving Tips, such as "Be wary if the charity fails to provide detailed information about its identity, mission, and finances and how the donation will be used," or "If you believe that you have been solicited by a fraudulent charity, please
file a complaint with the Secretary of State or the Attorney General." An unregistered organization that continues to solicit after being notified by the Secretary could be
fined $300.
Still, despite such pitfalls, the potential benefits for charities are many. A determination letter opens doors not only to income tax exemption, but
sales tax exemption as well. With a bit more work, it could even qualify for
property tax exemption. The owners could grant the land to the corporation. Then it could be exempt from property tax if it rented units at low-income-housing rates, or to at least some residents who have a disability, such as a terminal lack of spoons. And the rent would be received by the corporation tax-free, of course. Taking the rent received out of their personal income would also help them qualify for government benifits. Meanwhile, paying residents for work done on the ranch could be a legal way of redistributing charitable income to them, and while being taxable to them, could be structured in a way that maximizes benifits eligibility per person. In law as much as in ranching, careful planning and attention to detail can produce a good harvest.
