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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29569
Experience:  Taxes, Immigration, Labor Relations
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I'm trying to set up a memorial scholarship fund and I'm

Customer Question

Hi, I'm trying to set up a memorial scholarship fund and I'm not sure how to go about creating a bank account for the donations received. I spoke with someone at the bank who said I should speak with a tax expert on whether that needs to be set up as an incorporated business or a nonprofit but I have no idea.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to our site!When you personally will solicit donations for the memorial scholarship fund - that will be your taxable income.If you establish a separated incorporated business entity - that would be taxable income for that entity.To avoid tax liability - that business entity should have a status of qualified charitable organization.That woudl also allow to issue tax deductible receipts for donors.
Customer: replied 2 years ago.
Which would be the best option for me and what would that entail?
Expert:  Lev replied 2 years ago.
The benefits of having 501(c)(3) status include exemption from federal income tax and eligibility to receive tax-deductible charitable contributions. To qualify for these benefits, most organizations must file an application with, and be recognized by, the IRS.Individual and corporate donors are more likely to support organizations with 501(c)(3) status because their donations can be tax deductible. Recognition of exemption under section 501(c)(3) of the IRC assures foundations and other grant-making institutions that they are issuing grants or sponsorships to permitted beneficiaries.An IRS determination of 501(c)(3) status is recognized and accepted for otherpurposes. For example, state and local officials may grant exemption from income, sales or property taxes. In addition, the U.S. Postal Service offers reduced postal rates to certain organizations.
Expert:  Lev replied 2 years ago.
To be tax exempt, an organization must have one or more exempt purposes, stated in its organizing document. Section 501(c)(3) of the IRC lists the following exempt purposes: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety.Organizations that want to apply for 501(c)(3) status should be aware of the forms required, the user fee, the filing deadline, and the processing procedures.Complete Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and mail to the address indicated in the instructions. The required user fee must accompany Form 1023. The IRS will not process an application until the user fee is paid.
Customer: replied 2 years ago.
What is needed for an organizing document? I don't have one. I just set up a website.
Expert:  Lev replied 2 years ago.
You may simply register the LLC in your state - and after that file form 1023 for that LLC to be a qualified charitable organization.When you register the LLC - that will be an organizing document.
Expert:  Lev replied 2 years ago.
You may start the organization as an LLC - that should be a separate organization and there should not be unrelated business activities.After the organization is formed and there are bylaws in order to get tax exempt status from the IRS you will have to file Form 1023 to apply.
Here is the form
Extensive information is available at the IRS site.
If you want to see an in-depth discussion of exemption requirements under section 501(a) of the Code of an organization's eligibility to apply for recognition of exemption from federal income taxation, see
IRS Publication 557, Tax Exempt Status For Your Organization -
IRS Publication 4220, Applying for 501(c)(3) Tax-Exempt Status -
When no additional information required - processing time takes 6-10 weeks. About half of 501c3 application are completed within that period.
In other cases - the IRS sends an inquiry letter (form 1312) - and that delays the processing especially if applicants do not respond promptly.
In any case - it would be reasonable to expect to complete processing and receive a determination letter within 9 months.
The IRS published Top Ten Reasons for Delays in Processing Exempt Organization Applications -
Let me know if you need any help.