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Qualifying as a 501(c)(3) not for profit with a social networking component in business model

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Posted Thu, 09/02/2010 - 7:39am by Elizabeth Weiner (CPA)

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I am working with a company that plans to help entrepreneurs start and grow companies by getting advice from others through a social network as well as providing an educational database to people starting and operating small businesses.  Other programs may be added as well.  The IRS will not grant 501(c)(3) status to social networks.  The educational/charitable component of the business needs to be large enough so that the IRS does not consider it a social network.  Can anyone advise on or link me to information on how the business model can be balanced so that it will qualify as a not for profit?  Thanks.

  • Entity Planning & Legal Structure
  • Social Media
  • 1037 reads

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There are lots of sites that

by Jeff Taylor (CFO) - 09/08/2010 - 6:03pm

There are lots of sites that tell you how to form a 501c3, but I recommend going straight to the authority: http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html. As for how you turn an entity that seems entirely like a social network (or so you describe it) into something that would otherwise qualify for tax exempt status, I do not know. However, a place to start may be to determine how the IRS would go about splitting up any receipts that would come in. How would they determine what was educational/charitable vs. what is not. I have had good luck calling my local IRS office in the past - just don't give them your intended business name :). If it turns out that you can make money via educational events in your genre (entrepreneurial education) then perhaps you simply need to make those revenues greater than x% of the entity's total revenues. But again i would suggest calling your IRS office and asking them directly.

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Non-Profit social networking

by Laurence Jadrych (CPA) - 09/10/2010 - 5:41am

IRS Sec. 501 defines how an entity qualifies for tax exempt status. As a CPA and Treasurer of my community organization, we filed for tax exemption under 501(c)4. Visit IRS.GOV AND contact a CPA with start-up tax experience to assist you with all of the Organizational documentation that you will need. It is not necessary to contact an expensive lawyer to do work that you can do yourself with some assistance. Don't confuse 501(c)3 (think "church") with social networks. Seek advise from a reputable CPA. How you construct your Articles and Bylaws with your Mission and Purpose, will define your entities. Perhaps more than one business entity and/or subsidiary may be necessary. Contact your State's CPA Society for CPA recommendations, if you don't have a CPA. As for timing, IRS takes about 90 to 120 days to reply to a properly completed application for tax exemption. Hope this helps.

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