Page 97 - Washington Nonprofit Handbook 2018 Edition

organizations, it makes more sense to start with projected income when budgeting.
For instance, a membership group can estimate the number of people who might
join, as well as the amount in dues members might be willing to pay, and then
decide how much of the available money will be spent on planned programs. Make
sure that the description of the organization’s programs in Part IV of the Form 1023
is consistent with the financial information presented here.

When completing the Statement of Revenues and Expenses, be sure to watch
for the lines that request schedules and to provide such schedules as attachments.

y B. Balance Sheet

The Statement of Revenues and Expenses is a summary of the organization’s
financial activity over a period of time, while the Balance Sheet is a snapshot of
what the organization owns and owes on a given date. The IRS prefers that an
organization’s Balance Sheet reflect its assets and liabilities at of the end of its most
recently completed tax year. If the organization has not completed a tax year,
provide information that is effective as of the last day of the most recent month
before filing the Form 1023 with the IRS.

Part X. Public Charity Status

When the IRS issues a favorable 501(c)(3) determination letter, it is actually
two rulings in one. In addition to recognition of 501(c)(3) status, the IRS rules on
“Foundation Status,” a sort of subcategory under section 501(c)(3). As discussed
above in Chapter 22, all 501(c)(3) organizations fall into one of two broad
categories—public charities or private foundations.

An organization that cannot show that it qualifies for public charity status will
be considered a private foundation. Generally, private foundations receive most of
their support from a limited number of sources, such as one family, one
corporation, or investments. It is generally less favorable to be a 501(c)(3) private
foundation, which must pay tax on income from interest, dividends, capital gains
and other passive income and subject to a wide variety of investment and
operating restrictions. For a more detailed discussion of this distinction, see “Public
Charities and Private Foundations” in Chapter 22. Also, Chapter 3 of IRS Publication
557 and the instructions to Part IX of the Form 1023 provide useful information to
help you determine the appropriate category for your organization.

WASHINGTON NONPROFIT HANDBOOK -86- 2018