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In April 2005, the the Burning Man organization
dropped a bomb on the staff of the Black Rock Gazette,
which had chronicled the goings-on in Black Rock City
for a dozen years. Funding for the five or six
on-playa issues of our daily newspaper was cut to
zero, leaving only a prefabricated “Gate Edition” that
is handed to every person arriving for the festival.
The official word was that there would be no official
newspaper for the yearly desert experiment in art,
community, and radical self-expression. But many of
those who had produced that newspaper still had some
radical self-expression left in them and so The Black
Rock Beacon was born.
Saying and doing are two separate things. Having said
that we were going to start our own newspaper, we had
to plan one. One of the first hurdles was to decide
whether we wanted to be an informal collection of
publishing nuts in the desert, a profit-making
business or a charitable organization. There are
plusses and minuses to each approach the Burning Man
organization, notably, is a for-profit limited
liability corporation but in the end we decided to
form a not-for-profit corporation under section
501(c)(3) of the Internal Revenue Code. A key
advantage was that we could elicit tax-deductible
donations while still having a corporate shield
against personal liability should anything terrible
like a libel or liability suit -- befall our
organization.
We decided to start out small. Most of us kicked in
several hundred dollars of cash and lent or gifted the
organization equipment and supplies to create a
newspaper and a camp at Black Rock City. But we’d
still need about $5,000 in donations to be able to
print enough copies to provide a meaningful service to
the Burning Man community. Offering that community a
tax-deductible way to support our enterprise seemed
the logical thing to do.
Under the Internal Revenue Code’s 501(c)(3)
provisions, tax-exempt organizations include:
“Corporations, and any community chest, fund, or
foundation, organized and operated exclusively for
religious, charitable, scientific, testing for public
safety, literary, or educational purposes, or to
foster national or international amateur sports
competition (but only if no part of its activities
involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to
children or animals, no part of the net earnings of
which inures to the benefit of any private shareholder
or individual, no substantial part of the activities
of which is carrying on propaganda, or otherwise
attempting, to influence legislation (except as
otherwise provided in subsection (h)), and which does
not participate in, or intervene in (including the
publishing or distributing of statements), any
political campaign on behalf of (or in opposition to)
any candidate for public office.”
We figured, and our research indicated, that we would
fit under the literary provision in the code. It is
not too far of a stretch to believe that we (and other
artistic endeavors) could also be considered
educational undertakings.
At first, we thought we would use an outside service
to incorporate. It is pretty easy to form a
corporation in most (unaltered) states. We Googled
plenty of companies that could satisfy the formalities
(Articles of Incorporation, Bylaws, registered agent,
etc.) for a fee of around $100, but the additional
charges for a tax-exempt organization made the total
much higher. In some states, there are also specific
forms that need to be filled out correctly to get an
exemption from state taxes. In California, one of our
early candidates for incorporation, the form that
really sucks is the FTB-3500. If you get it wrong, the
alternate minimum corporate tax is $800. Yowch! There
are some states that have no corporate income tax
(notably Delaware), and others where the requirements
to get exemption for a qualified corporation are less
oppressive.
It helped us in our formation that we were going to be
entirely volunteer staffed. That meant that we did not
have to deal with payroll taxes. It also helped that
we had people residing in the State of Washington that
would be directors of our organization, where the
formation laws are more straight-forward than the
other states we considered. We decided that the Black
Rock Beacon would be formed as a Washington nonprofit
corporation.
A hurdle to nonprofit formation is the granddaddy of
all forms The IRS 1023. It is more than 40 pages
long. It asks for great detail on the corporation’s
operations and directors. The application fee is as
much as $500, and we were unable to find form
preparation assistance for less than $395. Before
asking all of the directors their shoe sizes we looked
for a work around. Because we were such a small
endeavor, we hoped there might be a loophole for the
small nonprofit. Fortunately, there is a way to
avoiding filing Form 1023: stay small. Nonprofits with
gross receipts of less than $15,000 in any three years
of operation are not required to file the form. The
reference we found was in IRS Publication 557, and a
call to the IRS confirmed this “loophole.”
Of course if we do get donations greater than $7,500
in our first year, we will need to file the Form 1023.
But, at that point, we would have the resources
available to get the assistance we need to fill it out
properly. This is a kind of Catch two and twenty (a
sort of opposite to the Catch-22) which means that you
get an oppressive result from a beneficial occurrence,
but no consequence if the beneficial occurrence does
not occur.
Before we could get any donations, we needed a bank
account. The bank we picked wanted to see our approved
Form 1023 before they’d give us nonprofit status. It
took a bit of explaining and cajoling, but we finally
convinced them to open our account. In the end, our
total cost of incorporating was $100 and about 50
hours of research, form filling and angst.
At this writing we are poised to make a foray into the
world of literary endeavors that should shock some.
All it took was a dream, some research, a lot of
coffee and a few rashers of bacon. Oh, and the
dedication of a group of friends from all over who
weren’t about to cede their one week in the sun each
year to the slings and arrows of outrageous fortune.
Disclaimer: Free legal advice is worth every penny.
The above is not intended as legal advice. You should
always consult a qualified attorney if you have any
questions regarding any legal undertaking upon which
you embark.
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