Group homes are very important to communities since they provide a safe place for those with medical or emotional issues to live, socialize and feel accepted. Note that there are many types of group homes, including homes for the elderly, children and teens, those with disabilities, and those who need supervision and care during the day.
If your intention is to start a group home, you will have to first consider the needs of your community and how a group home would improve the quality of life of those who live or stay there. If you plan to operate the group home for profit, register the business as a sole proprietorship, S corporation, limited liability corporation or partnership. But if you plan to run it as a charitable or non – profit organization, then you will have to register the home under “non – profit status” and file a 501© (3).
Section 501© (3) is the part of the US Internal Revenue Code that allows for federal tax exemption for non – profit organizations. A 501©(3) organization is a corporation, trust, unincorporated association, or other type of organization exempt from federal income tax under section 501©(3) of Title 26 of the United States Code.
Note that a group home or other charitable organisations can apply for 501© (3) tax exemption by filing IRS Form 1023. There is a filing fee involved depending on the yearly gross receipts of the organization. The organisation will also be expected to submit financial statements and budgets. It is always advisable to hire an attorney who has experience of obtaining this status for nonprofits.
Obtaining 501© (3) status in United States can open up many doors of opportunities for your group home. But before beginning the process, it is imperative to understand the whole process, prepare for the process after consulting an attorney, and perhaps even hire an attorney.
You will also need to consider the costs of obtaining this status as per your group home gross receipts. If all the requirements are fulfilled, you are good to go, and this can be a boost to the growth of your organization. Typically, IRS 501© (3) approval takes between 2 and 12 months, inclusive of likely written follow-up questions. Sometimes it takes a little less; sometimes a little more.
Expedited review can be requested if a new organization is being formed to provide immediate disaster relief or if a promised grant is both 1) substantial relative to the organization’s budget and 2) the grant has a specifically – defined expiration date. There is no guarantee the IRS will grant expedited review requests.
Also have it in mind that one of the key reasons for the long review period is the amount of time it takes for a particular case to be assigned to a review agent. Depending upon the volume of applications being received by the IRS at any given time, “inventory” periods might be as short as 30 days and as long as 8 months.
Step by Step Guide on How to File a 501C3 for a Group Home in the United States
To enable you understand the processes and motions of establishing your group home as a non – profit, here is a detailed a guide with a special focus on how to file a 501© (3) non – profit organization.
Table of Content
Name your non-profit
Have it in mind that every state in the United States has different rules and regulations when it comes to creating a non – profit. However, it’s pertinent to choose a name that’s unique and somehow related to the main activities of your group home.
Note that this decision will set the tone of your group home for years to come. So it’s imperative to take some time to think through this decision. Ensure your group home’s name is easy to say and remember. Use descriptive words, but try not to overdo it or make it too long.
File articles of incorporation
You are also expected to file “articles of incorporation” with your state’s corporate filing office. In this document, you will have to fill out some basic information such as your group home name and address. Preparing this document isn’t so hard, and you do need to include specific language to make sure that you’ll receive tax – exempt status. Your state’s non – profit formation packet, if available, may include the required information.
Apply for IRS tax exemption
You will have to apply for exempt status with the Internal Revenue Service (IRS) for recognition of tax exemption by filing IRS Form 1023. To get the most out of your tax – exempt status, file your Form 1023 within 27 months of the date you file your non – profit articles of incorporation.
Have it in mind that the user fee will be $275 or $600, depending on your application method. You are expected to register an account at pay.gov and pay a registration fee with a credit or debit card. It also can take 3 – 12 months for the IRS to return its decision, depending on how many questions the IRS has about your application.
Note that the Form 1023 itself is up to 28 pages long. With the required attachments, schedules, and other materials that may be needed, it is not uncommon for these submissions to the IRS to be up to 100 pages.
Consider the Form 1023 an audit of proposed (and/or previous) activity and a thorough examination of your group home governing structure, purpose, and planned programs. The IRS is looking to make sure that the organization is formed for exclusively 501C (3) purposes and that its programs are designed to fulfil these stated purposes.
Apply for state tax exemption
First and foremost, this step does not apply to nonprofits in all states. In a few states, you are expected to complete a separate application to get a state tax exemption. In most states, once you file non – profit articles of incorporation and obtain your federal 501© (3) tax – exempt status, your state tax exemption will be automatically granted. While in others, to get your state exemption you are expected to send in a copy of the IRS determination letter that granted your federal exemption. Contact your state tax agency to find out what steps you must take.
Write up your bylaws
The bylaws more or less contain the operating rules and provide a framework for your management procedures. They are the tools of internal accountability and they explicitly state the inner workings of your non – profit. The power to adopt, amend or repeal bylaws is vested in the Board of Directors.
This is unless otherwise provided in the articles of incorporation or in the bylaws. Bylaws contain the rules and procedures for things like holding meetings, electing directors, appointing officers, and taking care of other formalities.
Have it in mind that an organization that is exempt from federal income tax, as described in Internal Revenue Code 501©(3), is required to report changes to its bylaws and other governing documents annually to the IRS on the organization’s IRS Form 990 – which is part of ensuring ongoing compliance.
Ensure ongoing compliance
Once you’ve obtained the 501© (3) status, you do not need to file any kind of document to renew the application. Moreover, there is no expiration date on a 501© (3) organization. However, there are other actions that need to be taken to maintain tax – exempt status. Once the state approves everything, you should prepare for annual reporting requirements.
In most cases, an exempt organization is expected to file some version of Form 990 with the IRS, depending on its financial activity. Note that Form 990 shows your finances, activities, governance processes, directors, and key staff, and it is open to public inspection.
Also ensure to keep adequate accounting records of income, expenses, assets, and liabilities. You also need to keep appropriate records for employees, such as payroll records and payment of withholding taxes, workers’ compensation, unemployment taxes, etc.
If you hire any independent contractors, you need to keep copies of any Miscellaneous Income (Form 1099 – MISC) documents that are provided to them. Also note that states have their own reporting and renewal requirements too. So, consider tracking your organization’s finances and activities throughout the year. This will help the reporting happen smoothly.
To run a successful group home, focus on maintaining steady revenue while providing quality care to residents. A clear and focused business plan that outlines all the steps necessary to meet these two goals increases your chances for success.
It’s also advisable that you consult with local expertise (an attorney, accountant, or someone familiar with the tax – exempt law and how non – profit organizations operate in your state) to ensure that your new group home complies with state and federal laws and requirements.
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