Non-Profit Status for Your Judo Club
by Gerald Lafon
It's not very often that the Internal Revenue Service does something nice for everyone so when it does, jump on it! Non profit status, 501 (c) 3, is a gift from the U.S. government. Every Judo club should take advantage of that largesse. Surprisingly, small entities that can really use the non-profit status are the last to find out about it. When they do find out about the 501 (c) 3 status, several misconceptions cloud the reality and prevent many from even applying. Hopefully what follows will shed some light on this wonderful tool and encourage many clubs to become a non-profit corporation.
What is a Non-Profit Agency?
Non-profit agencies are typically set up "to provide the public with charitable, educational and recreational services." Furthermore, non-profits are "not set up for the private gain of any person."
How to Achieve Non-Profit Status?
In filing for the 501 (c) 3 status, you are dealing with both the federal government (IRS) and the state government (Secretary of State) in which your club is located. All non-profit agencies are first of all corporations incorporated in any one of the fifty states. Judo America is a California non-profit corporation. To complete the non-profit status, all corporations must be recognized by the Internal Revenue Service.
Organization of a Non-Profit Corporation
All non-profit corporations are governed by two documents: the Articles of Incorporation and the Bylaws. A board of directors that meets typically two to four times a year to discuss major issues and directions controls the corporation. States vary on how many directors a board must have. California required a minimal board of one person when Judo America first incorporated. Day to day running of the corporation is placed in the hands of officers who may or may not be paid. These officers are usually a president, treasurer, secretary, executive director, marketing director, etc.
Misconceptions
The biggest misconception about the 501 (c) 3 status is that a non-profit organization can't charge for its services and workers can't be financially rewarded for their efforts. This is simply not true. Non-profit agencies may or may not have paid employees. The larger agencies such as United Way, Red Cross and the American Cancer Society pay their employees. Many are paid salaries commensurate with those paid by for profit companies. Many non-profits are run by a large corps of volunteers with only one or two paid employees, usually an executive director and a marketing director. For the Judo club, non-profit status means that an officer or coaches are entitled to a salary. Any profits generated through dues, fees, donations and grants must remain with the agency to provide the services for which the corporation was created. There is no rule that prevents a non-profit from charging for services rendered. However, some agencies opt to not charge for their services but are consequently always raising funds through donations and grants to pay for program overhead and wages. Another problem that is frequently brought up is the perceived loss of control because the corporation is controlled by a Board of Directors and not by an owner as in sole proprietorships. In this case, selection of the initial members of the board and of future new members to the board is critical. It is my opinion, however, that true power will always reside with the person that makes the program go round and round, and that remains the head coach.
The Benefits of the Non-Profit Status
The benefits far outweigh the negatives. In fact, I can't think of a single reason for not filing for the 501 (c) 3 status. The public in general just feels more comfortable dealing with a non-profit organization than with a business. It's definitely a door opener and it puts people you are dealing with at ease. Unquestionably, the greatest benefit of non-profit status is that you are now in a position to raise funds through donations and grants. Quite frankly, if you are not a non-profit, you won't find too many individuals, foundations, government agencies or businesses willing to support your cause. Donations to non-profits are tax deductible; donations to for profits are not! There are many, many sources for grants and donations for your competitive teams, your Olympic hopefuls or your gang diversion programs. With the 501 (c) 3 in hand, you can go after them.
Passing out literature (flyers, brochures, etc.) is much easier when you are a non-profit. In San Diego County, our schools will accept Judo America flyers but not those from the karate guy who runs a business in the mall. Non-profits also don't pay federal income tax and may be exempt from some of the local business taxes or requirements. The business license that the City of San Diego requires is waived for Judo America thus saving us $150 per year. Non-profits will still usually have to pay sales tax on all merchandise that it sells. Filing of DBAs is no longer an issue because your non-profit organization is now a corporation. Since it is a corporation, your corporate name is duly registered with and protected by the state. Finally, there is the corporate veil that offers some degree of protection from legal hassles.
How to Get Started
You can go through a lawyer and pay several thousand dollars or you can file yourself for a few hundred dollars.
To file on your own, have the IRS send you the forms and booklets that pertain to the "Application for Recognition of Exemption under section 501 (c) 3 of the Internal Revenue Code." From your state's Secretary of State, request all forms pertaining to incorporating as a non-profit organization. Don't panic when you get the forms. They look worse than they really are. Make copies of the forms and practice writing down your answers before submitting the final version.
Although I did say that the IRS is doing something nice for us for a change, I didn't say that the process is a speedy one. From start to finish, it will take approximately one year to complete the IRS portion. The state portion is usually completed in less time. Both the state and feds require specific application forms and detailed information including bylaws, articles of incorporation, initial board members, proposed budgets, purposes, services rendered, etc.
Help
If you get stuck while going through the process, contact us at info@judoamerica.com and we'll see if we can help you.
