Keep in mind as you read the native and linked-to content on this page that a nonprofit and tax-exempt entity are not synonymous.
National Advocacy on Serious Neurobehavioral Illness, A Nonprofit LLC is a standalone nonprofit LLC. This page provides important information about this entity type and the current policy of the IRS.
Most nonprofits are incorporated and governed by boards of directors. Directors of incorporated entities serve an important function in the governance of corporations and have well-defined responsibilities.
Nonprofit corporations are a distinct type of incorporated entity among corporations. Most nonprofits incorporate for reasons of eligibility for IRS tax exemption and liability concerns. A corporation is separate from the individuals who manage or organize it, which relates to liability matters. The nonprofit corporation also continues to exist beyond the lifetime or involvement of the people who began it or who have managed it. Another reason relates to IRS Requirements. Naturally, a charitable organization will not want to have revenues in the form or donations and grants dedicated to the benefit of the public good to be subjected to taxation. In order to seek exemption from the IRS, nonprofit organizations must meet IRS requirements:
To be organized exclusively for a charitable purpose, the organization must be a corporation (or unincorporated association), community chest, fund, or foundation. Essentially, the IRS dictates the organizational structure and governance for exempt nonprofits.
An LLC is owned by its members, and while there is such a thing as a “nonprofit LLC”, the IRS dictates that all nonprofit LLC members must be 501c3 (tax exempt) organizations. That means that the LLC is a subsidiary of a 501c3 entity or “owned” by a 501c3 entity.
Why A Nonprofit LLC?
The founder of NASNIcares (the “dba” name for National Advocacy on Serious Neurobehavioral Illness, a Nonprofit LLC) disagrees with these policies but supports the underlying principles pertaining to the ethics of nonprofit governance and compensation. There is also a need to protect donors and society from the malfeasance of individuals who may misuse funds intended for charitable purposes.
These are links to what can be called ‘white papers’ on the topic of the IRS and Nonprofit LLCs:
A founder of a nonprofit initiative may set out on a well-defined mission with a keen focus on effecting change to the good of society. Once the organization incorporates, the founder does not own the entity. It can be said that the public “owns” an incorporated nonprofit entity. The possibility exists that the founder’s original mission can be subverted, succumb to mission creep, or discharge the founder from the entity’s affairs altogether. This is a real risk especially when the central cause is subject to fractiousness, ideological controversies, and intrusive forces of many kinds. In fact, many advocates lament that perhaps the most well-known nonprofit that was originally founded to focus on serious “mental illness” succumbed to mission creep to the point that it would be more fitting to define that organization’s mission as advocating for Mental Health rather than serious “Mental Illness”.
Even among advocates who are striving against the conflation of Mental Health and “Mental Illness”, there is a lack of clarity in vision for the type of unified action that is needed to affect change. The founder of NASNIcares has a very clear vision and some strong sentiments about the IRS’ dictates on organizational form and governance as a means to steer organizations into compliance with certain ideals where inurement is concerned.
There is a question of the IRS’ rationale for imposing an incorporation model that, to fledgling nonprofit startups can be onerous – and to others a potent risk factor for mission derailment. The IRS’ policies have also given rise to the proliferation of and fiscal sponsorship. Fiscal sponsorship is promoted as a solution for nonprofit startups facing the challenges of dealing with these policies.
The founder of NASNIcares views fiscal sponsorship as symptomatic of a problem created by unenlightened and regressive IRS policies. Perhaps some fiscal sponsorships may even be viewed as parasitic ventures. Many fiscal sponsors, maybe even most are not looking to hold the hand of a fledgling startup or project, they are looking for a project that is viable in the sense that it is likely to produce revenues (given that the sponsor typically takes a percentage of those revenues). That said, fiscal sponsorship can be beneficial to missions that do not find view this option as disadvantageous. At this, time, NASNIcares has chosen to become a legal entity over the option of fiscal sponsorship – mainly for the purpose of mission control and preservation.
NASNIcares was formed as a sole-member LLC for reasons of mission control and lean fiscal governance. Some states, including PA permit a sole-director nonprofit corporation. NASNIcares has strict internally imposed controls that enforce constraints on member compensation – if at some time in the future, the founder elects to take compensation. This entity will not become a bloated, top-heavy, nonprofit organization becoming increasingly preoccupied with and geared toward cultivating and preserving funding streams. The goal of this mission is to be so successful in reforming the system that there is no longer a need to exist.
NASNIcares self-imposes some of the requirements that apply to nonprofit entities and also complies with any dictates of PA state laws. For example, no distribution of assets/revenues to members or any other individuals is permitted, and upon dissolution, all net assets shall be transferred to a 501c3 entity (that must be aligned to the goals of NASNIcares) regardless of the tax exemption status of National Advocacy on Serious Neurobehavioral Illness, A Nonprofit LLC (as this page explains, the IRS does not recognize or grant tax exemption to a nonprofit LLC unless all of its members have 501c3 status).
Currently only a few states permit the formation of standalone nonprofit LLCs and as of 2017, when ACT 170 of 2016 took effect, the State of Pennsylvania, with an eye toward modernizing its business laws, joined that very short list.
You must contribute to a qualified tax-exempt organization (501c3) for donations to be tax deductible.