1. Why are Civitan Clubs 501(c)(4) nonprofit organizations and not 501(c)(3) nonprofit organizations?

A: Membership club organizations are accurately defined as 501(c)(4) organizations according to the IRS. “To be tax-exempt as a social welfare organization described in Internal Revenue Code (IRC) section 501(c)(4), an organization must not be organized for profit and must be operated exclusively to promote social welfare.” Civitan clubs are considered social welfare organizations because of the community service members provide.  Other service organizations’ clubs are also organized as 501(c)(4) organizations.

Furthermore, the IRS defines 501(c)(3) organizations as “Organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes and that meet certain other requirements are tax exempt under Internal Revenue Code Section 501(c)(3).” Although these organizations provide similar services, they receive funding from donations, grants and sponsorships. These organizations are not allowed to influence legislation or participate in any campaign activity for or against political candidates.

Reference:

https://www.irs.gov/charities-non-profits/other-non-profits/social-welfare-organizations 501c4-organizations

https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations

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2. Didn’t Civitan International work with the IRS to get all clubs recognized as a 501(c)(3) nonprofit organization?

Yes, years ago the board and staff worked for many years requesting the IRS to consider clubs as 501(c)(3) entities and unfortunately the IRS did not approve. This same IRS response was received by other organizations making the same request.

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3. What is the Fiscal Agent program with Civitan International?

Some Civitan clubs utilize the Fiscal Agent program at Civitan International to allow clubs to receive donations and then to disburse those funds to 501(c)(3) as donations or to reimburse club’s service projects that have an acceptable purpose. There is a nominal fee and a recommendation to donate a portion of the proceeds to Civitan International for this program. Contact civitan@civitan.org for more information.

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4. Can’t the club just use Civitan International’s tax ID number and name to give tax deductible credit to donors?

No! Tax ID numbers are specific to the organization and the IRS does not allow other entities to use their tax ID or EIN number and name. This would be similar to asking someone to borrow their driver’s license or social security number.

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5. Can our club change to a 501(c)(3) status?

A club can’t change to a 501(c)(3), but we do have a policy that allows clubs to create a separate organization/entity and then apply for that entity to be a 501(c)(3) nonprofit organization. (Please see excerpt of Policy #0307 below.)

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6. How would a separate entity from our club qualify as a 501(c)(3) nonprofit organization?

There are specific guidelines to qualify as a 501(c)(3) and if approved, requirements for additional accounting, reporting and donation acknowledgement letters.

_________________________________________________________________________________________________________________________________ 7. How does a club create a separate entity and apply to the IRS? Are there costs associated with these steps?

• Each state has different requirements and processes for forming a new entity, please refer to the Secretary of State website for your state. Costs vary state by state.
• The IRS has Form 1023 EZ that can be filed by organizations that expect less than $50,000 in annual earnings for $295. Otherwise, the Form 1023 costs $600 as a filing fee.

Due to the difficulty of the state filing and IRS forms, we recommend consulting a CPA/accountant or tax lawyer for further direction. This also may be costly to arrange.

Usually a new entity requires less work than trying to justify a long-standing club changing to a 501(c)(3)

See highlighted section of Policy #0307 recently adopted by our board of directors.

0307 Internal Revenue Service Designation of United States Clubs
Adopted: 10/23

All Civitan clubs in the United States must obtain and maintain tax-exempt status under Code Section 501(c)(4), as well as be included under Civitan International’s group exemption with the Internal Revenue Service, to be in good standing and be able to utilize the Civitan brand. Civitan clubs in the United States must operate in accordance with the requirements of Code Section 501(c)(4) and must timely file annual information return with the IRS.

An exception to this requirement will be made for Civitan clubs that are tax-exempt under Code Section 501(c)(3) and in good standing as of the date this policy is adopted, provided they timely file with IRS. U.S. clubs that are tax-exempt under Code Section 501(c)(4) that desire to engage in fundraising for charitable purposes following the adoption of this policy will be permitted to create a separate organization that is tax-exempt under Code Section 501(c)(3). The expenses associated with the creation of a Code Section 501(c)(3) organization, obtaining IRS approval of its tax-exempt status, and its ongoing operations and IRS compliance will be the responsibility of the club.