Memorandum
TO: All MAARC Membership
FROM: MAARC Board
SUBJECT: Registering as a 501(c)(3)
DATE: December 21, 2009
In order to increase ham radio's unique contributions to our local community, the MAARC board has studied its option of registering as a 501(c)(3) organization. As such, we could solicit donations that are currently unavailable to us, as a 501(c)(7) club.
Background
501(c) is a
provision of the United States Internal Revenue, including 26 types of
nonprofit organizations, exempt from some federal income taxes.
Organizations
recognized as 501(c)(3) include those whose primary function is educational,
charitable, scientific in nature, or is to test for public safety. Donations to
these groups are tax deductible.
501(c)(7) is a designation for social or recreational clubs. These include gun and knife clubs and drinking clubs. Donations to these groups are not tax deductible.
MAARC is currently a Michigan nonprofit corporation, as it has been since 1956. MAARC also registered and was recognized in 1957 as an IRS 501(c)(7) organization.
501(c)(7) organizations are exempt from real property taxes, so MAARC pays no taxes on its property. 501(c)(3) organizations are also exempt from property taxes, so this would not change if MAARC were registered as a 501(c)(3).
MAARC qualifies as 501(c)(3) organization simply due to its status as because it is an
amateur radio club. MAARC is affiliated with the American Radio Relay League
(ARRL). The ARRL is a 501(c)(3) organization.
Amateur Radio operators are federally licensed by the Federal Communications Commission (FCC) to provide a radio service having a fundamental purpose as expressed in the following principles:
i. Recognition and enhancement of the value of the amateur service to the public as a voluntary noncommercial communication service, particularly with respect to providing emergency communications.
ii. Continuation and extension of the amateur's proven ability to contribute to the advancement of the radio art.
iii. Encouragement and improvement of the amateur service through rules that provide for advancing skills in both the communications and technical phases of the art.
iv. Expansion of the existing reservoir within the amateur radio service of trained operators, technicians, and electronics experts.
v. Continuation and extension of the amateur's unique ability to enhance international goodwill.
In studying this matter, the Board has had two meetings with Frank Cox of Cox Accounting and Tax Services, at the recommendation of our former Resident Agent, Jeff Vanderstelt, NV8B.
Other discussions with several
501(c)(3) amateur radio clubs, and with knowledgeable individuals included the
following. In 2008, email exchanged with ARRL Regulatory Information Manager: Dan Henderson, ARRL Volunteer Counsels: Jeffery M.
Bauer, Rich Douglas, Rudy Marcelletti, Bruce Block, and with GRARA's Dave
Devos. 501(c)(3) club representatives included the
treasurer from Kalamazoo KARC in 2008, and W8SV from PCARC, WB8ICU from Bay
Area ARC, KB8VIM from BARA, and KC8NKA from GRARA in 2009.
Additionally,
the Board has held two special meetings at the clubhouse, has provided web
based communication tools, and has made announcements at regular membership
meetings and on the repeater, in order to solicit and to answer questions on
the matter.
Opinion
As the result of this research, the
Board has determined that the MAARC would be recognized as a 501(c)(3) organization if we applied. In appraising our
current standing and the commitments we wish to fulfill, we have decided that
MAARC should apply for 501(c)(3) status.
Below, we have listed the concerns that we received, and our attempts to address these concerns.
Concerns and our
Considered Response
Would the assets of the club be part of the 501?
The club assets are part of the 501, have been part of the 501, and
would continue to be part of the 501. The only change we would make is in
the designation: (c)(3) rather than (c)(7).
What happens to the club's property in the event that we
no longer "meet the qualifications of a 501(c)(3) organization and get
shut down"?
a) If such an event did occur the club would not be “shut down”. It would continue just as before, but without the 501(c)(3) status.
b) This concern arose out of a requirement that the organization's articles of incorporation must provide that its assets, upon dissolution, would be distributed for exempt purposes to another 501(c)(3) organization, or to the federal, state or local government for a public purpose. A similar requirement exists for 501(c)(7) organizations. However, our bylaws are currently deficient in this regard.
c) “Dissolution”, in this case, means that the club would cease to exist, which would be by a decision made by the membership. "Dissolution" does not mean “failure to meet qualifications”
d) There is some question as to whether such distribution would affect all property or just the property obtained through donations. One way to handle this unlikely situation is to provide for it in the articles of incorporation. KD8YL reports that the Muskegon Motorcycle Club has done that in regards to their Mt. Garfield property.
e)
Mr. Cox could not imagine what might occur to cause our ham club to loose
its (c)(3) status as long as the required filings are completed.
f)
ARRL Volunteer
Counsel Jeffry M. Bauer said in 2008, "I have never heard of any group
that has been accorded 501(c)(3) status losing their property". Attorney Douglas wrote, "I really do not believe there are any negatives when
you become a 501(c)(3) corporation".
a)
Our recent discussions with other amateur radio clubs officers, (name a fewfor
example W8DC
Treasurer, Rich, KC8NKA) and with Frank Cox of Cox Accounting
and Tax Services indicates that there is really no limit to the kinds of things
that can be bought or supported with donations as long as they (the donations)
support the club and don't go to the benefit of individual members. This is
largely taken care of through the grant request process, because grants are
generally made for specific purposes.
b) If the club used money for purposes other than those specified by the grantor, they would need to return that money. The club would not be "shut down" for a mistake or an error.
a)
Whatever is agreed upon between the grantor and the grantee
(club) based on the grant request is allowed., Aas long as they go to support the goals of
the club and do not enureinure to individuals.
b) According to Mr. Cox, the government pays no attention to the operating details of organizations that they recognize as tax-exempt, until the organization reports annual revenues that exceed $25,000. In that case, a form 990 must be filed. Mr. Cox advised us to fill out the new 990(N) form next year, regardless of our (c)(3) or (c)(7) status. This is a simple form and needs to be filed each year.
a) There are club management software sources, for example see: http://www.alpinesoft.com/ashamcluborganizer.html
b) There is no additional burden in the bookkeeping associated with this change in status over what we should already be doing. However, our hope is that we will have more revenues to account for.
In actuality
the bookkeeping is not difficult and minimal, as long as the annual income is
less than $25,000 per year.The bottom line is that the result is only as good
as the quality of leadership.
a)
It tunsturns out that this is not a real issue for us. It came up in the
context of a document from LawMart.com that was written by an attorney for a
slightly different purpose, from a slightly different viewpoint. It was in
answer to FAQs about organizations supporting private foundations whichfoundations, which is not
applicable to the MAARC situation.
a) No. These payments are already deductible by businesses as a business expense and would continue as such.
b) As long as total revenue received by the 501(c)(3) organization is less than $25,000 no report of income is required. Advertising revenues are immaterial. See 3(b) above.
a) According to W8DC Treasurer, Rich KC8NKA, Frank Cox, and others, "Why complicate things? Keep it simple!”
b) There are examples of amateur radio organizations that have set up separate 501(c)(3) entities. The ARRL has set up a 501(c)(3) to conduct most of its business while leaving part of the organization to do the legislative work. Is this right for us? The answer is, probably not. The ARRL does significant lobbying which is prohibited for 501(c)(3) organizations. This situation does not fit MAARC.
a)
a) According to Frank Cox, W8DC Treasurer, Rich
KC8NKA, and others, No. We
should simply
review/revise our bylaws as we fill out the pertinent fields in the Form 1023,
and submit that form. This filing is a
one-time affair.
b)
Yearly, we would file a form 990N. We should already be filing this form.
a)
Mr. Cox indicated that we qualify
for an exemption
from paying sales tax
based on our Michigan nonprofit corporation and 501(c)(7) status, and that
this
would continue to be so as a (c)(3) organization.
a) We are not. None of what we are proposing is for the primary benefit of individuals.
b) The goals of the club are set out in the preamble to our bylaws as follows:
PREAMBLE
“We, the undersigned, wishing to secure the pleasures and benefits of an association of persons commonly interested in Amateur Radio constitute ourselves the Muskegon Area Amateur Radio Council and enact this constitution as our governing law. It shall be our purpose to further the exchange of information and cooperation between members, to promote radio knowledge, fraternalism and operating efficiency, and to so conduct club programs and activities as to advance the general interest and welfare of Amateur Radio in the community”.
c) It is possible that we may want to strengthen this preamble prior to submitting our application, but it clearly has a community focus.
a)
We are interested in increasing and improving our community
communications assets, which include equipment and personnel. For example, we
may wish to install complete stations at the local
ship
museums, conduct excursions with scouts to
interesting locations, or even add an ATV repeater in this county. These
projects are
not proposed to offer individual members an opportunity
to simply
play,
but are to build
communication assets in our
community and to
benefit our society. These efforts would facilitate education in the amateur
radio art and science and provide better service to the community during times of need.
d)
They
would also enhance the status of amateur radio operators in our community,
whether or not they are associated with MAARC.
Conclusion
It is the Board of Director's intention to file an application for recognition by the IRS as a 501(c)(3) organization. With new opportunities to raise the level of our contribution to the Muskegon area, we wish to continue building upon our proud legacy. The Board hopes you will support this effort.
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