Private Team Funding

Hey everyone,

I have a few questions about funding for private teams. I have seen multiple different threads on this topic, but none covering the specific questions I have, so here I go:

Some advice I see is making the team a non-profit organization to allow you to get sponsorships. However, my question is on what basis do we request the creation of a non-profit? How will we be benefiting other people. If we try something like promoting STEM, how are we doing this? Who are we promoting STEM to? Ourselves? How does that justify the creation of a non-profit organization?

Other advice I have seen is using sites such as Edco and GoFundMe. However, when doing this, what do we need to document the money as? If there is no organization, who does the payment go to, and what is it considered as? Income? If so, do taxes have to be payed on this “income?” Even if there is an organization, how would the preceding issues be solved?

I would really appreciate some advice on this because we are really looking forward to getting V5 next year and need to start fundraising to do so. Thanks

Assuming your private team allows members to join, then you are “promoting STEM to your community.”

Creating a 501c3 nonprofit is not cheap, you’ll need a lawyer or use a service like legalzoom. There is a fee to the IRS too.

In some states, founding a nonprofit can be as simple as filling out a form online and paying a small processing fee. I would encourage you to investigate your jurisdiction for more information

Standard disclaimer: I am neither a lawyer nor an account. My views are solely my views and do not necessarily represent reality. You really shouldn’t listen to my opinions.

It appears to me that crowd funding sites are basically a way to get a personal gift of money. For a private team without not-for-profit status there should be no problem receiving money that way. The giver, however, must know that the gift is not tax deductible like a donation. Also, if they give too much (see IRS gift tax limits) they have to file and pay not you.

That’s true, but to get 501©(3) status, you need to file with the Internal Revenue Service using Form 1023. Typically the state stuff is super easy, but the IRS stuff is more complex.

Not quite. You can get 501c3 status by filing the right paperwork with your state and getting a federal tax id number. There is another step, though, to be officially recognized by the IRS as a 501c3. This process does cost several hundred dollars, can take several months, and includes a lot of paperwork. Once approved your organization can then be verified by other organizations through the IRS as being a 501c3. This official recognition is what is needed to get sponsorship from most larger businesses or to qualify for company matching funds for donations or hours of service. I have formed one of each type for the organizations I run. In Indiana a new non-profit can be set up in a couple hours for about $75. I did all the research and paperwork myself which saved a lot of money, but cost a lot of time.

Do you not need to fill out IRS Form 1023 or 1023-EZ to do this? If so, I didn’t know about that.

From what I understand, any way you try to do it, will be expensive and time consuming. F1023 costs hundreds to file. The state fee is usually pretty low (45-90 depending on location). Unfortunately, many companies (and @JayM would know this better than I would) require you to have 501©(3) status in order to accept sponsorship money.

Small Nonprofits: Qualifying for Tax-Exempt Status Without Filing an IRS Application
If your nonprofit organization makes less than $5,000 per year, you may be able to obtain tax-exempt status from the IRS without filing a Form 1023 application.
Link to more information.

Thanks for sharing. Honestly had no idea.

I looked for a date on the information you linked and couldn’t find it, but I think this is outdated. Back when I formed my first non-profit about 8 years ago the limit was $5,000, but I think it is now $50,000. Make sure to research your state and federal guidelines. Form 1023 does take a while to prepare and I believe the cost was $400 just to file it 4-5 years ago when I went through the process. Filing Form 1023 does not in any way ensure that your organization will be approved. Before forming your organization make sure the founding documents for your organization are set up appropriately. Nolo has some great resources for this and your local library probably will as well.

As I mentioned before, filing From 1023 and getting recognized through the IRS opened up opportunities for some of my teams to get funding through larger corporations, company matching funds, and educational institutions. If you can get most of your funding through families, friends, and local small businesses then filing Form 1023 probably won’t be needed.

You are probably right. I do recall hearing about a small non-profit status that was easier to establish but I think it still required a 1023-EZ application for exemption and an annual report submitted by a CPA.

The path that we took was to nestle our organization underneath the umbrella of a larger non-profit which is our school system. We are still an independent group but they handle the finances and have a General Ledger account just for us. There are advantages (its free) and disadvantages (we don’t have our own bank account or debit cards) but it made the most sense for now.

You may be able to link yourself to a non-profit community, school, or religious organization to allow your sponsors to take advantage of the tax savings.

Here is the info straight from the IRS.

Unless you are a church or a small organization with normally gross receipts of $5,000 or less per year, you will need to file and pay the fees to the IRS.

Here is a link explaining the gross receipts test:

The $50,000 maximum threshold is one of the qualifiers to file the 1023EZ form rather than the 1023 form. Here is a link to the IRS worksheet to see if you are eligible for the EZ form: (look at page 13 and following)

The fee to get your determination letter is currently $600. It used to be a little more for most organizations and a little less if it was a very small organization with low annual receipts. Now it is just $600.00 under nearly all situations.

It is amazing what can be found with simple searches.