Communities

LAS Tax Exemption & Incorporation FAQ

The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion.
In the context of this information, MSA refers to the Microscopy Society of America, and LAS refers to the MSA Local Affiliated Societies.

 

Topic sections:



MSA-LAS Relationship

Is MSA legally responsible for Local Affiliated Societies (LAS)?

No, each LAS is a separate legal entity. That means it is separate and apart from MSA. MSA is not responsible for the debts and obligations of any and all LAS, and vice-versa.

Does MSA’s 501(c)3 status extend to the LAS?

No. Each LAS needs its own federal tax exemption.

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Incorporation

Are LAS required to incorporate?

No. Unincorporated entities may exist, and may enter into contracts. However, these entities have no legal protection. Officers and members of an LAS are equally liable for anything that happens, if the group is not incorporated.

MEMBERS CAN BE PERSONALLY LIABLE FOR THE DEBTS AND OBLIGATIONS OF AN UNICORPORATED ENTITY!

Is there a good reference for tax information for Non-Profits? How do we incorporate?

IRS Resources for Charities and other Non-Profits

Most states have web resources describing the process to be followed for incorporation as a non-profit in that state. There are also numerous non-governmental web resources describing the incorporation process.

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Benefits of Incorporation

What are the benefits of incorporation?

Corporate status protects officers, directors and volunteers (all members) from most personal liability.
State volunteer protection statutes only apply to entities incorporated in the state.
Non-profit corporations generally do not have to pay taxes on most income to either the state or the IRS.

MEMBERS CAN BE PERSONALLY LIABLE FOR THE DEBTS AND OBLIGATIONS OF AN UNICORPORATED ENTITY!

What if our LAS is not incorporated?

Unincorporated entities are legal entities and may enter into contracts, but are not entitled to the protection of state non-profit statutes.

In what geographic area should an LAS incorporate?

LAS should typically incorporate in the state in which their members reside. If members reside in more than one state, they can choose in which to incorporate.
Most states have web resources describing the process to be followed for incorporation as a non-profit in that state.

Is there an advantage to incorporation in Delaware?

Generally, there is no benefit to incorporating in Delaware.

Where can I find template language for Documents of Incorporation?

There are multiple websites that offer examples of boilerplate language for documents of incorporation for non-profit organizations. We suggest that you use language from an LAS that has already incorporated successfully.

The IRS website www.irs.gov/charities-non-profits has specific recommendations for items that must be included in the documents of incorporation and example statements that are acceptable to the IRS.

Should these steps be performed in a specific order?

It is recommended that an LAS incorporates first, then apply for an EIN, then apply for Federal income tax exemption.

Does an LAS need an attorney to incorporate and request tax exemption?

There is no requirement to have an attorney as part of the process; however, this should be determined by each LAS on a case-by-case basis.

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Determining Non-profit Status

Where can we start to determine if our LAS needs tax exempt status?

www.irs.gov/charities-non-profits/before-applying-for-tax-exempt-status
If you do not obtain exemption status, you must file tax returns and pay taxes for the LAS just like any other business.

What is the definition of 'non-profit'? Is it the same as 'not-for-profit'?

'Non-profit' refers to state corporate status. There is no legal distinction between the two terms; some states use the term 'non-profit' while others use 'not-for-profit'. The two terms are interchangeable.

What constitutes State non-profit status?

State non-profit status is only relevant to incorporated entities. It means that the LAS has incorporated under and is subject to the non-profit status in the state of incorporation.

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Employer Identification Number (EIN)

What is an Employer Identification Number (EIN)?

According to the Internal Revenue Service (IRS), an Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is used to identify a business entity. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service and you can get your EIN immediately. You must check with your state to make sure you need a state number or charter.
www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers-eins

Is it legally necessary to incorporate to get an Employer Identification Number (EIN) or federal tax exemption?

How do we acquire an EIN?

The online application for an EIN requires a person’s name and Social Security number. Whose name should be used? Is there any liability involved?

Any director or officer of the LAS can enter their name and Social Security number.
There is no liability attached to that entry. The information just goes into the IRS database, and the IRS already has your information.

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Sales Tax Exemption

What are the criteria for State sales tax exemption?

State sales tax exemptions are determined by each state’s laws, and are completely separate from federal income tax exemption. Each LAS must pursue this independently in their state. Federal tax exemption is often a prerequisite. Check with your State Department of Revenue or other appropriate government department for rules for charitable organizations.

Federal income tax exemption does not apply to state sales tax. Each state has different rules for what kind of entities can be exempt from state sales tax. Most do not grant blanket exemptions to charitable and educational organizations.

What does the Federal income tax exemption do for an LAS?

LAS must apply for and obtain tax-exempt status from the Federal government to avoid paying Federal income tax.
Most states honor Federal tax exemption and exempt entities from state income tax.
Federal tax exemption does not prevent all income taxation. Certain types of income, such as advertising income, may be taxable even for tax-exempt organizations.

If you have to pay Federal income tax, then it’s likely that you owe state tax too.

Are all revenue streams exempt from Federal tax?

No.
Some examples of exemptions and non-exemptions include:

  • If you rent a booth to a vendor, you don’t have to pay tax on the rental fee
  • If you “sell” meals to attendees, you don’t have to pay tax
  • Sponsorship income may be taxable or non-taxable, depending on what benefits are given to the sponsor
  • If you provide advertising to a sponsor, at least a portion of the sponsorship fee may be taxable

See IRS Resources for Charities and other Non-Profits: www.irs.gov/Charities-Non-Profits

Does Federal income tax exemption apply to state sales tax?

No. Each state has different rules for what kind of entities can be exempt from state sales tax. Most do not grant blanket exemptions to charitable and educational organizations.

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Annual Tax Filing

What tax forms do we need to file yearly?

Each LAS must file some type of IRS Form 990, Return of Organization Exempt from Income Tax, each year: www.irs.gov/pub/irs-pdf/f990.pdf. If gross receipts are under $50,000, the LAS may file an e-postcard, Form 990-N: www.irs.gov/pub/irs-pdf/p5248.pdf.

What is the tax filing deadline?

The filing deadline for Form 990/990-N/990-EZ is May 15 every year for a calendar year LAS.

NOTE: If you do not file for 3 years, your LAS will lose its tax-exempt status.

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Contracts

Can LAS sign contracts?

Yes, LAS may enter into contracts in their own name.
If the LAS is incorporated, a member, including officers and directors, will not be personally liable for amounts due under the contract.
Contracts should be approved by the Board. No individual Board member should enter into a contract without Board approval.

Caveat: DO NOT sign a contract if the LAS is unincorporated! Members, including officers and directors, can be personally liable for the debts and obligations of an unincorporated entity!

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Additional Information

This is a list of many of the instructions and forms referenced in the FAQ information above.


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