Charitable org/Private Foundation maybe?

[LCP]

Client thinks he may be able to turn his hobby into a money making/tax deductible venture.

He's a civil war nut....... travels extensively, reads constantly..... so those are the main costs of his "hobby"

How hard is it to become a 501c3? If he needed to promote a "civil war to civil rights" social cause type of thing how closely would he really have to focus on that subject?

Is it a problem if most of the expenses are for travel, reference books, office supplies etc.? Does he need to produce and distribute a product or service of some kind? How about holding himself out as an expert to give talks....whether he is ever hired or not.

Does obtaining grants or even contributions from other individuals raise the compliance bar?

What kind of legal/tax costs is he looking at ......... and would he need someone significantly more knowledgeable in those areas than little old me. I'm also interested in the topic so I'd be willing to do as much of the paperwork as I could for him

[Burke]

Numerous code sections apply to such a venture. You can start with IRS Pub 557, Page 32 - Public Charities and Private Foundations for information and references.

[AZ-Tax]

Received a call on something similar

I received a call from a taxpayer who wants to start a non profit. The TP's goal is donate his professional services. There will expenses for material or raw product then with his donated professional services he plans to convert the raw product into a completed product. Sell the product and donate the profits to a Church building fund. He does not plan to be compensated in anyway. He is concerned with liability so he was inquiring if he should incorporate or just become an LLC. Based on the "Org Reference Chart" in pub 557, he wouldnt fall under a religious org, more like a Charitable 501(c)3. Thoughts and comments are appreciated.

[JohnH]

Over the years I've been approached on several occasions by a church member or a client who decides they want to start a non-profit org of some sort to support the latest good cause that has caught their attention. They're just absolutely convinced that everybody else is ready to get on the bandwagon with them - if they can arrange to offer a tax deduction, they just know the money will come pouring in.

I usually tell them about the accounting & legal pitfalls of non-profits and that I don't do any work in that area. I also suggest that they start it out as a for-profit corp if they want to limit liability and since it won't be making any money anyhow, there probably won't be any tax issues. They can always set up a non-profit later if they see it's getting traction and people want to give to it in any meaningful way. Funny thing about this - nobody has ever followed through, and usually within six months they've moved on and are excited about some other good cause.

There are non-profit organizations already out there for almost any good cause someone wants to support. Sometimes it's hard to find the good ones, but doing thorough research and studying 990's will usually be less arduous than firing up a new non-profit org to duplicate what someone else is already doing very well. No reason to reinvent the wheel. Besides, if it's really a good cause then their existing church can usually adopt it as a part of its benevolence ministry or some other ministry. If they can convince people to give to their own NPO, they should be able to convince their existing church to support that same cause through its existing structure.

I think in many cases there's an issue of control - the person feels that somehow they can do a better job than existing NPO's, or better than their church is doing or can do. It's usually a noble but misguided notion.

[ATSMAN]

I agree with JohnH. Sometimes people get this bright idea to start a non profit because of the tax benefit (sales tax exemption in my state) and being able to pursue a hobby.

I had a lady client who inherited 10 acres of land and a 100 year old large house. She wanted to run a food pantry/co-op farming. I hooked her up with an attorney and they took care of all the applications and zoning regulation issues. I did the 990 for a few years and then she got sick and her daughter got involved. She was in a relationship with another accountant so lost that account finally.

[AJsTax]

501(c)3

The be qualified as a 501(c)3 the entity must be a corporation first. A person can not be a charity. The next question would be what type of service for the common good would he be providing.
There are several non-profit organization types that are not charitable, ( 501(c)3.) He may better fit one of those. Most likely just having a hobby that is interesting to a few others like many of us will be all that he will ever be able to do. The non profit section of IRS.gov has a wealth of information on the subject.