Legal Question in Business Law in California

If a US citizen makes a donation to a "proposed" non-profit corporation BEFORE I incorporate the business and get the legal designation from the US government, can the donation still be used as a tax write off for the person who made the donation?

In essence, I'm selling an idea to the public and if I reach a certain specified amount (disclosed to the public), we're going to take the donations, incorporate as a non-profit and implement our idea.

If we don't reach our financial goal, the citizens aren't charged.

Thanks


Asked on 9/12/11, 10:49 am

2 Answers from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

I'm pretty sure the IRS would want you to obtain your 501(c)(3) (or whatever) tax-exempt status before accepting donations. Remember, it's rather easy to FORM a California not-for-profit corporation, but rather difficult to obtain Federal (IRS) tax-exempt status for it. Formation of the non-profit must precede the IRS exemption application.

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Answered on 9/12/11, 11:48 am

Mr. Whipple is correct. I have formed a couple of non-profits and served on the boards of several more. You must form the corporation or unincorporated association, get a federal TIN, and apply for 501(c)3 status. The IRS will then (perhaps after some discussion and amendments to your application) issue a provisional approval. At that point, and only at that point, can you solicit tax deductible donations. Even then, however, the donors will only be able to deduct the donations if the provisional approval becomes final.

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Answered on 9/13/11, 12:50 am


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