501(c)(3) for your Rugby Club
by Wes "Brigham" Clark
For years, now, the officers and members of my rugby club - Western Suburbs RFC - have considered incorporation to gain certain benefits to our club and its members. (Namely, legal protection as a corporation and the tax deduction benefits of tax-exempt status with the Internal Revenue Service.) This hasn't been done because of a belief that filing the paperwork requires several thousands of dollars and assistance from a lawyer.
The fact is, the appropriate paperwork can be filed using the forms and guides provided by online sites maintained by your state government and the Internal Revenue Service. In our case, the state agency was the Virginia State Corporation Commission. For your state, you need to find your state's web site, and then do a search under an appropriate term, say "incorporation." My guess that you'll find the information you need there.
I learned an interesting fact in the process of getting our club incorporated: did you know that something like a third of all US corporations are incorporated through the state of Delaware? As it turns out, the laws there are favorable for that sort of thing. Anyway, the likelihood is that unless you plan to sell shares of stock or employ people you can just as easily incorporate with your own state, so you should start by investigating there.
For us, the first step was to incorporate Western Suburbs as a domestic, not-for-profit corporation in the State of Virginia. Then, I filled out the necessary paperwork to be granted tax-exempt status under section 501(c)(3) of the Internal Revenue Code. (The IRS publication 557, "Tax-Exempt Status for your Organization" describes the process and paperwork. You can obtain a copy of this online by going to the IRS site and doing a search.)
There are a number of direct benefits for a rugby club to become a 501(c)(3) corporation:
- In the case of legal action involving the club, individual members may not be sued. The corporation is the legal entity that would have to be sued. This protects the members.
- Any money donated to the 501(c)(3) corporation is tax-deductible. This should enable us to raise money for operating funds more easily, and perhaps help us to find sponsorship. (Possibly a corporate sponsor.)
- Allowed expenses (donations, kit, etc.) and the mileage you drive to take part in rugby activities may be deducted at income tax time, if you file the long forms and deduct expenses. The value of your time, however, is not deductible. (Note: I am not a professional tax preparer and this is not to be taken as tax advice. Consult your own tax preparer or do your own research!)
- Incorporation brings with it a certain amount of credibility and prestige with the public who is not familiar with rugby (or is content to accept the negative stereotypes).
Benefits bring responsibilities. Your club treasurer should give you a receipt for any donation you make to the club for your tax records. Also, as a corporation, your club should prepare income tax forms every April. While this is not currently necessary until it manages to raise more than $25,000 in the previous taxable year, it is a good idea. So the treasurer the club elects every December is an important person, and must be responsible. Also, your club may need to pay a yearly fee to the state in order to maintain a corporate status. (In Virginia it's a nominal $25 fee to the State Corporation Commission. See the notice.)
So what kind of experience was this, and do you need to possess a keen, legal mind to get through it all? No. Persistence and an ability to read directions are basically what's required. The text below describes the process as I experienced it.
By the way, all forms and correspondence become public. This is not a big deal as far as the official paperwork is concerned, but if you don't like junk mail, beware. As the incorporator I get all sorts of small-business-related mail, which, after it annoys my wife, goes directly into the circular file.
Incorporation and 501(c)(3) Journal
On 2 December 1999 we received Western Suburbs' employer identification number from the IRS: 54-1964457. (Click here for the original paperwork.)
On 7 January 2000 I mailed the incorporation paperwork to the State Corporation Commission in Richmond.
I received a letter from the SCC indicating that article three of the SCC form was incomplete. So I corrected it to mention that the club members elect the incoming Board of Directors and remailed the paperwork on 1/21/00.
On the 4th of February I received the incorporation paperwork back from the State Corporation Commission - as of 2/2/2000 we are now Western Suburbs Rugby Football Club, Inc. The corporation paperwork is stored in a subdirectory here. The next step is to create the paperwork for the IRS for 501(c)(3) status.
I prepared the forms and mailed the paperwork (forms 1023, 8718 and two copies of 872-C along with copies of the articles of incorporation from the state) to the IRS on 8 March. The IRS paperwork is stored in the 501(c)(3)subdirectory here.
On March 27th I received this form from the IRS, which indicates they're received our application and are working on it.
On April 22nd I got a letter from the IRS requesting additional information about Western Suburbs; I have until 10 May to provide this information.
8 May 2000: Mailed off the response to the letter I received from the IRS. You can read it here. Now the ball is back in the IRS's court...
18 July 2000: Growing curious at the delay, I gave the IRS a call to learn that the person they had working on our case left the IRS, and a replacement hadn't been named yet. So, I talked to the manager and got the name of the person who would be taking over the case. Maybe we'll see some action.
19 July 2000: Talked to the IRS guy in charge of making a ruling on our application. He needs to see evidence that WSRFC, Inc. is a sanctioned member of a national organization and that the sanction is necessary to play rugby. Talking it over with him, I have agreed to FAX him: 1) A copy of my current CIPP card (good thing I have one!), 2) A blank CIPP application form from US Rugby, 3) A statement from me indicating that members must have CIPP registration in order to play with WSRFC, and 4) A letter from US Rugby on US Rugby letterhead indicating that WSRFC is a sanctioned member of the national organization, and that clubs and members must be sanctioned to play rugby union in the US. (Note that none of this is described as being necessary in any previous communications with the IRS.) I am assembling this information now, and will FAX it out probably tomorrow, depending upon how quickly I get the faxed letter from US Rugby.
21 July 2000: After getting the letter I needed from US Rugby FAX'ed to me, I sent the items above to the IRS. The ball is back in their court. I will make some phone calls this time to keep the pressure on them.
29 July 2000: Done at last! I got the letter from the IRS indicating that our 501(c)(3) status is approved. The letter is here: page 1, page 2, page 3, page 4, signed form 872-c. All the incorporation and IRS paperwork is posted as links on this page, but I will make paper copies to give to the current officers and selected Old Boys who have a long history with the club, so that the information isn't lost.
Brigham's rugby web site is "the Rugby Reader's Review."