State Incorporation & Federal Tax Exemption

Chapters of the National Audubon Society share membership with the national organization, but the management and legal structure of the Chapter is separate and controlled by its Board of Directors. Because they are autonomous local organizations, local Chapters do not fall under the National Audubon Society's tax-exempt status.

Regardless of Chapter size, incorporation provides liability protection for board members. Federal tax exempt status provides additional benefits. Chapters that are tax-exempt under Section 501(c)(3) can offer donors the opportunity to deduct donations as a charitable contribution on their tax returns, and every Chapter has projects and activities that would benefit from donations. Tax-exempt Chapters do not have to pay tax on income generated by Chapter-related activities and they may also qualify for special bulk mailing rates.

Each state has different incorporation processes and requirements. Please browse the links below regarding incorporation/tax exemption and related issues. We recommend that you find a local attorney who can guide you through the processes of incorporating in your state (thereby assuring that your Certificate of Incorporation and Bylaws are in compliance with your particular state's rules) and of applying to the IRS for 501(c)(3) tax-exempt status.

After your Chapter has been incorporated, please send a copy of your certificate of incorporation, bylaws and IRS tax-exempt determination letter to your State Office and to the Chapter Services Office. When changes to these documents are made, please send copies of the new versions to these same offices.

Local Counsel

Because of the variations between states in the incorporation process, sales tax and property tax laws, and state solicitation statutes, and the ongoing requirements for annual tax and solicitation filings, it is important for each Chapter to find experienced and knowledgeable local counsel (an attorney and/or accountant) to guide the Chapter through the incorporation and exemption process and to provide ongoing service to ensure that the Chapter is in compliance with all applicable laws and regulations.

In addition, it is equally important for each Chapter to establish an internal process to ensure that filings are completed and regulations adhered to. The creation of a manual to hold charter documents, annual filings and the applicable rules and regulations would aid new Chapter officers in complying with these requirements.

Federal 501(c)(3) tax-exempt status

Incorporation on the state level as a non-profit corporation does not alone result in a Chapter becoming a tax-exempt entity to which donations are tax deductible. Chapters must subsequently file an application with the IRS for tax exempt status as a 501 (c) (3) charitable organization.  If a Chapter incorporates but does not obtain a federal tax exemption, it will be subject to both federal and state corporate tax.

501(c) (3) organizations enjoy a number of advantages.  They do not pay federal income tax (except on unrelated business income) and contributions to them entitle donors to federal income, estate and gift tax deductions.  In addition, most foundations and governmental entities will only make grants to 501(c)(3) organizations.

The tax-exempt status of National Audubon Society does not extend to its Chapters.  Chapters are autonomous organizations.

While the following discussion serves as a guideline for obtaining tax-exempt status, Chapters should also consult an attorney with regard to filing the exemption application.

Applicants for tax exemption must use IRS Form 1023.

The IRS also issues numerous publications addressing the requirements for tax exempt status and the application process for such status, including the Tax-Exempt Organizations Tax Kit, which contains federal forms and publications pertinent to tax-exempt organizations, and a detailed review of what an organization must know and do to apply for tax exempt status.  These publications may also be obtained by calling the IRS or by downloading them from the website.

Generally organizations should file for tax exemption no later than twenty-seven months after the date of their incorporation. This is especially important because, if this deadline is met, and the IRS approves the application, the exemption will be retroactive to the date of the Chapter's incorporation.  Although, it is difficult to predict, it may take up to six to nine months for the IRS to act on an exemption application. 

If more than twenty-seven months have elapsed since the date of incorporation tax exemption will not be retroactive and the organization will be subject to state for-profit corporate and tax laws.  A Chapter in this situation should seek local counsel prior to applying for tax exemption

After incorporating and prior to filing an exemption application, an organization should obtain an Employer Identification Number, even if it does not have and never expects to have employees.  This number is the Chapter's identification number, akin to an individual's Social Security number.  To apply for an Employer Identification Number file a completed Form SS-4 with the IRS.

Once the IRS approves the exemption application, it will issue a Letter of Determination.  The Letter of Determination establishes your Chapter as an organization exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code.

However, for the first three to five years it is exempt, your organization will be given provisional status as a "publicly supported" organization.  Within Section 501(c)(3), organizations are subclassified as public charities or private foundations.  For many reasons, it is advantageous to be classified as a public charity and not as a private foundation. The IRS will specify a date when you will have to certify that your organization has met the "public support" test- namely that during this period, at least one-third of your total income was derived from support by the general public, which includes the Chapter's membership dues.   If the support test has been met, the IRS will then issue a definitive ruling, establishing your Chapter as a publicly- supported 501(c)(3) organization for as long as it meets the requirements. 

You will often be asked to provide a copy of the Letter of Determination to prospective donors (especially foundations and corporations) as evidence of your exempt status.  If you have misplaced your Letter you may obtain a replacement by calling or writing the IRS's Exempt Organizations Customer Service Division (877-829-5500; Internal Revenue Service, EP/EO Division, Customer Service, PO Box 2508, Cincinnati, Ohio 45201) with the name of your Chapter and its Employer ID number.

State Incorporation

Incorporation as a not-for-profit corporation generally relieves members, officers, and directors from individual liability arising out of accidents or other unforeseen events.  Incorporation also results in a more orderly organizational structure, which can be particularly important when it comes to ownership or leasing of real estate and opening of bank accounts.  Incorporation is governed by state law and varies somewhat from state to state.  It is best handled by a local attorney.  Incorporation is also required by the Internal Revenue Service when a chapter seeks tax exempt status under the Internal Revenue Code. Check with your Secretary of State's office to determine the procedure for incorporation in your State.

State Sales & Property Tax Exemptions

Upon receiving your Letter of Determination from the IRS you should proceed to take advantage of your exempt status by applying within your state for a state sales tax exemption. In general, this is done through the Department of Taxation in your state. This exemption will allow you to purchase items for your organization free of local and state sales tax. If your organization owns land and uses it for your charitable purposes, you may also be able to take advantage of local property tax exemptions. Property tax laws differ considerably from state to state and by locality, therefore, local counsel should be used to guide you through such an application.

Federal & State Tax Returns

Audubon Chapters that qualify as 501(c)(3) non-profit public charities must file an annual information return using Form 990 or 990-EZ. If annual gross receipts do not normally exceed $25,000, an annual electronic notice (e-Postcard) Form 990-N (http://epostcard.form990.org/) generally may be filed instead. The deadline to file is May 15th for all organizations whose tax year ends on December 31. Organizations whose tax year is different from the calendar year must file by the 15th day of the 5th month after the close of their tax year. 

Learn more and download IRS forms at http://www.irs.gov/charities/index.html. Please consult your tax advisor to determine the application of these requirements to your Chapter.

The IRS has often dropped 501(c)(3) entities in good standing from its comprehensive list of 501(c)(3) exempt organizations--Publication 78--because they have not filed their annual return. Inclusion in Publication 78 is important because it is often used by corporate and foundation donors to confirm an organization's exempt status.

Most states also require exempt organizations to file annual returns (most often with the Secretary of State or State Attorney General and, in many cases, even if the organization's annual gross receipts are less than $25,000) and many accept Form 990 in lieu of their own forms. 

Federal law requires that exempt organizations send a copy of Form 990 (and make it available on their premises) to all members of the public requesting it.

Bulk Mailing

Upon receiving your Letter of Determination, you may apply for a third-class, nonprofit bulk mailing permit from the U.S. Post Office from which mailings will be sent. The postmaster can tell you the price of the annual fee and of the special per-item mailing rate. The permit holder is required to separate all bulk mailings by zip code and organize them to certain specifications. Despite this extra burden, third-class bulk mailing is quite economical for large mailings such as newsletters and notices of meetings.

Learn more about non-profit bulk mailing at http://pe.usps.com/businessmail101/getstarted/bulkMail.htm.

USPS Move Update Standards FAQ

What is Move Update?

Move Update involves the periodic matching of a mailer's address records with Postal Service customer-filed change-of-address orders, and is used to reduce the number of mail pieces that require forwarding or return due to incorrect addresses. Non-profits using bulk mail must certify on the postage statement submitted with each mailing that the address on each mail piece has been updated within the previous 95 days. If it is the first time the Chapter has gone through an address update process, a pre-mailing method method must be used. A pre-mailing method must also be used if it is been more than 95 days since the addresses have been updated. Otherwise, a post-mailing method may be used.

Can Audubon provide Chapters with a Certification of Move Update Compliance for the addresses on monthly Chapter membership rosters or mailing labels?

Unfortunately, it is not possible for Audubon to provide that certification. Once the roster or mailing labels are downloaded from the Chapter Reporting System website, Audubon no longer retains control of the membership list. The mailing method must be certified by the owner of the mailing (i.e. the Chapter).

How can a Chapter comply with the new Move Update standards?

There are several different ways to comply with the USPS bulk mail Move Update requirements. You can read more on these methods at https://ribbs.usps.gov/index.cfm?page=moveupdate.

Alternatively, one can bypass the Move Update standard, and avoid any fees, by including "OR CURRENT RESIDENT" or "OR CURRENT OCCUPANT" on the address. However, if the resident or business has moved, that mail piece will not be forwarded or returned to the Post Office. Read more at http://bulkmail.info/moveupdate.html.

How much does Move Update cost?

Cost varies depending on the method you choose for updating addresses. If you need to do a pre-mailing, please contact one of your local mailing houses (i.e., direct mail services). As of fall 2011, it cost about $25 to update 1,000 addresses. Ancillary service endorsements have small fees associated for each mailpiece, for example, the "return service requested" endorsement will cost first-class stamp postage for USPS to return the mailpiece to you with either an address update or an explanation of a bad address, and if you choose to resend the maipiece to the member, it will cost you first-class postage.

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Definitions

Pre-mailing is when you perform Move Update processing on your address list before you mail. Contact your local mailing house (i.e., direct mail service) for more information.

Post-mailing is when you mail to the existing addresses that you have on file and, after the mailing, the Postal Service will notify you about the new addresses of any customers who have moved.

Fundraising Regulations

The primary reason many organizations seek and obtain a tax exemption is to be able to compete with other charitable organizations for donor dollars. Individuals are far less likely to donate (while living or under a will) to an organization if they can not obtain an income or estate tax deduction for their contribution. Foundations, corporations and governmental entities often will only make grants to organizations with 501(c)(3) status. 

State regulations governing fundraising by exempt organizations have grown more numerous and complex. Virtually every state now requires exempt organizations that intend to fundraise in that state to register with the state prior to conducting fundraising activity and to file annual reports documenting their activity. 

In addition, most states require companies and individuals that provide fundraising solicitation and consulting services to exempt organizations to register prior to providing such services. Many states require the organizations to enter into a written contract with solicitors and consultants and to file the contract with the state prior to the provision of services. In many cases, organizations are subject to penalties if they hire a solicitor or consultant who is not properly registered. Finally, many states require that certain written information (or oral statements) be included in all fundraising materials sent into that state or as part of telephone solicitations within that state. The IRS website provides a portal where you can review the requirements for the states in which your organization solicits funds: http://www.irs.gov/charities/article/0,,id=129028,00.html.

Non-profit organizations must also comply with the IRS acknowledgement and disclosure requirements when receiving certain contributions. The IRS website provides a publication aimed at the general public that provides more information on these requirements: http://www.irs.gov/pub/irs-pdf/p1771.pdf. Chapters are encouraged to consult with their legal and financial advisors on these and any other applicable requirements.

Lobbying

Federal law permits publicly supported 501(c)(3) organizations to "lobby" (as defined in the Internal Revenue Code) so long as lobbying activities do not constitute more than an insubstantial amount of the organization's total activities.  Such organizations may elect to be covered under Section 4911 of the Internal Revenue Code which prescribes specific dollar limitation safe harbors on lobbying based on an organization's annual revenues (National Audubon Society is an electing organization). 

Lobbying, as defined in the Code, is further subclassified into "direct" and "grassroots" lobbying; and the dollar limitations referred to above are broken down by these two categories.  Organizations exceeding the prescribed amounts are subject to taxes, penalties and, ultimately, possible loss of tax exempt status. Learn more through the IRS website.