Academic journal article ABA Banking Journal

Don't Get Lax When Opening Accounts for a "Charity"

Academic journal article ABA Banking Journal

Don't Get Lax When Opening Accounts for a "Charity"

Article excerpt

Q. We have been asked to open accounts by individuals (not established entities such as the Red Cross) that would enable them to collect funds for disaster relief, such as money for the families of the Boston Marathon victims. Is there anything we need to consider when establishing such accounts?

A. Yes. The customer would need to comply with relevant IRS requirements and also need to incorporate under a state's nonprofit corporation law, or set up an unincorporated nonprofit association. The organizing document would need to state that it is organizing under Internal Revenue Code Section 501 (c)(3). After the initial set-up, the customer would need to apply for a EIN (tax ID number) and then could apply for the IRS exemption determination letter which could be effective retroactively to the date the organization was established. (See the IRS Publication 557 Tax Exempt Status forYour Organization at www.irs.gov/pub/irs-pdftp557.pdf).

Note that size plays a part in the requirements. The right column on page 22 under "Organizations Not Required to File Form 1023" discusses who does not need to file and among those is: "Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000. These organizations are exempt automatically if they meet the requirements of section 501(c)(3)."

Tax laws may allow you to establish such an account and allow the customer to apply for non-profit status following the account opening, and organizations can fundraise prior to receiving 501(c)(3) tax-exempt status. …

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