How non-profit corporations work

oooOIOooo via pbs pbs@lists.pacificbulbsociety.net
Sat, 12 Aug 2023 13:06:15 PDT
I've served on the boards of several local to national non-profit, tax-exempt educational organizations. Some time ago I started trying to write an explanation to send here of how they function for people not familiar with US non-profit tax law, or perhaps any US laws. I got derailed by life events. It's complex, so difficult to be brief.

States in the US charter corporations. State law governs this. They may be for-profit or non-profit. Non-profits generally must have an educational or charitable purpose. PBS is chartered in California as an educational charitable corporation and must follow California law.

Money taken in by non-profit corporations must be used for supporting the activities of the corporation and not for the individual benefit of individuals or businesses. Non-profit corporations can pay for regular expenses like bank fees, mailing, Web sites, consultants for business purposes, buying stuff to resell, and even salaries for employees and board members. If salaries are paid those people must report that as income. Most plant group non-profits, including PBS, do not pay board members any salary, but do reimburse related expenses, like any mailing costs.

Many nationwide plant groups pay a business manager hired by but not serving on the board. PBS does not. If a corporation begins sending money to individuals without receiving normal goods or services in exchange, it violates the law.

Tax status in the US is governed by the US Internal Revenue Service. A non-profit corporation can petition the IRS for tax-exempt status by filling out a complicated form. There are several types of such organizations, mentioned in IRS regulations, section 501. PBS is a 501(c)3 tax-exempt organization, governed by regulations in that section. There are other types of tax-exempt organizations; for example, agricultural trade groups are recognized under section 501(c)4. We are not one of those.

Donations to tax-exempt organizations in the US may be deducted from income reported by individuals or for-profit businesses on their annual tax return. Such deductions cannot be taken if anything is received in return. For example, the payments to the BX/SX or for membership cannot be deducted as charitable contributions, because something is received in return. Donations with no expectation of return may be deducted as charitable contributions.

Such corporations must follow a detailed set of rules, including filing an annual report describing the financial activity. This report is publicly available on the IRS Web site. If the corporation does not file proper reports and does not follow regulations its tax-exempt status may be revoked.

There are several kinds of corporations in the US. Our PBS is a California non-profit, charitable 501(c)3 corporation as defined by the IRS, and is governed by a board elected by members. The board makes all decisions and is responsible for ensuring all laws are followed, and all government reports are filed on time. The board may delegate duties but retains responsibility. In some States (like Arizona) a person or business to whom such duties are delegated is called a trustee.

How a board is selected is governed by the corporation founding documents, or Articles of Incorporation, which are filed with the State when the corporation is formed. The PBS board is elected by vote of the members. How individuals who run for election wind up on the ballot is not specified.

Most organizations have various board members seek out people to run - the nominating committee. Because running a corporation is complex, laws must be followed, and individual board members are financially and legally responsible for ensuring it is run properly, it can be difficult to find people willing to devote the time and attention to doing so. That's why boards of established tax-exempt corporations generally like to vet candidates fully. The board is all in this together.

The nominating committee usually presents its slate to the membership at a general meeting. Nominations are usually open from the general membership. Then the election is held.

A nominating committee spends most of its time begging people to serve. It's not an insular clique; it's difficult to find people to run.

Unfortunately my life is still too disrupted with work and family issues to consider serving on the board. I feel badly about this because I would like to give back.

Leo Martin
Phoenix Arizona USA
Zone 9?

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