Watch the Tom Carson's explainer video about the conversion process on our YouTube Channel

 

To help you understand the Who, What, and Why please review the following information which provides you with an overview of the conversion process, timeline, and goals for our League. If you would like to save and/or print a copy of this information, PDFs are attached at the bottom of this page.

 

We will provide you with more information and discussion opportunities over the next few months. If you have questions, please email our Treasurer, Judy Potter at LWVSolano [at] gmail.com Att: 501c3

 

Being “tax exempt” under either §501(c)(4) or (c)(3) (and the applicable state tax provisions) means that a League organization is exempt from federal and state income taxes.  However, they typically are still subject to other kinds of taxes, such as payroll taxes, personal property taxes, sales or use taxes, etc., unless the applicable taxing jurisdictions provide an exemption.

 

Historically, Leagues have qualified as tax exempt under §501(c)(4) as a “social welfare” organization.  Over the years, LWVUS, most state Leagues and larger local Leagues have formed a “sister” Education Fund entity which is qualified as tax exempt under §501(c)(3).

 

There are only a few significant differences between the two subsections, not all of which have relevance for Leagues considering a change in tax status:

 

1. A §501(c)(4) organization can support or oppose candidates for elected office and political parties, while a §501(c)(3) organization cannot.  However, this difference is irrelevant for League organizations, as our own internal LWV rules prohibit this kind of political activity.
2. There is no limit on the lobbying activities of a §501(c)(4) organization, whereas a §501(c)(3) organization’s lobbying activities cannot constitute a “substantial part” of its overall activities.  As further discussed below, the latter limitation should not impact in any way the operations of a typical League which converts to §501(c)(3) status.
3. Contributions and member dues are deductible for donors and members of a §501(c)(3) organization, provided that the contributor/member does not receive anything of value in return and the contribution or dues are not specifically designated for use by the recipient for lobbying expenditures.  Neither contributions nor dues are deductible for donors and members of a §501(c)(4) organization.

In summary, conversion to §501(c)(3) status provides a significant tax benefit for donors and members without imposing any practical restrictions or limitations on a League’s typical operations.

 

Clearly, the most certain long term benefit is that donors and members who itemize deductions for tax purposes will achieve a tax benefit from donations and member dues. This can include in-kind contribution such as occurs when members attend the LWVUS or state League conventions or councils and absorb some or all of the cost of attendance

 

It is also certain that if a League is a dual-entity organization, conversion into a single §501(c)(3) organization will materially reduce administrative work and expenses.  If a League is currently a

single organization, it will have reduced administrative work from not having to maintain the traditional form of Ed Fund account at its state League or LWVUS, although some types of financial relationships with a state League or LWVUS may continue for other purposes.

 

It is expected that donations, in general, should increase, although this may be difficult to measure because of all of the things which can impact donation levels. Also, League advocacy efforts might be more easily supportable by tax deductible donations or possibly grant funding. 

With respect to a League’s general advocacy activities, where there is no reference to specific legislation or ballot measure and thus no “lobbying,” there is no limitation at all under §501(c)(3). “Lobbying” for tax purposes is closer to the League concept of “action” rather than “advocacy.”  Activities are classified as lobbying if they are related to acts, bills, resolutions, or similar items (a) at the federal, state or local legislative level, or (b) in ballot measures, e.g., a referendum, initiative, constitutional amendment, etc.   They must involve communication with a member or employee of a legislative body, or with any other government official or employee who may participate in the formulation of the legislation.  It also includes “grass roots” lobbying, or communication with members of the organization or members of the public to urge them to contact their legislator, etc., or to vote for or against a ballot proposition, etc.  With respect to ballot measures, communications to voters would qualify as lobbying.

 

A §501(c)(3) League organization really should elect under §501(h) to measure its lobbying by dollars spent rather than time spent, or else all its members will have to keep detailed time records for all their League work, not just the time for lobbying activities.  In the state or local League context, “action” or lobbying normally involves members’ time rather than much staff time, and little or no out of pocket expenditures.  So with the §501(h) election in place, Leagues will almost never realize any restrictions on their activities in the broad field of advocacy/lobbying.

 

There is an intangible “cost” of achieving this change due to (a) the time necessary to make the required analysis and planning, and then (b) to actually implement the conversion, but all of this time should be easily manageable with the resources available from LWVUS. If a League has to apply to the IRS as part of the conversion process, there is a $600 application fee.

 

It is possible that annually a League will have a few additional tax forms to be filed, but overall the incremental work is very minimal.

 

LWVUS does not “recommend” that a League pursue this conversion because it has concern that a League could have very specific individual factors which might make such a conversion impractical.  However, LWVUS is providing substantial support to all Leagues wishing to consider this change through the services of LWVUS consultants Tom Carson (tpcarson [at] outlook.com) and Toni Larson (toni.larson [at] gmail.com), and highly recommends that all League consult with them during their planning and certainly before making a final decision,  Under certain local circumstances, the services of attorney may also be beneficial.  

 

 

1.  Form Study Committee to consider all consequences of the League possibly converting from §501(c) (4) to §501(c)(3), and then report to the Board of Directors. (Completed November-December 2021)

2.  The Board of Directors thoroughly discusses the information and recommendations presented by the Committee; solicits advice of available consultant(s). (Completed November-December 2021)

3.  Share League Bylaws with consultant to determine amendments needed to qualify under §501(c)(3).  Also consider amendments needed for the League’s Articles of Incorporation.  Draft resolution for Board of Directors to approve the required amendments. (January 20, 2022)

4.  Hold meeting of the Board of Directors to approve the foregoing resolution. (January 20, 2022)

5.  Prepare and deliver information outreach to the League members on the conversion process and consequences through monthly VOTER(s) and other mailings.  Also possibly hold one or more meetings of the members to discuss the topic and answer questions. (February 3, 2022 – meeting and through monthly e-blast, board updates and newsletters.  I suggest we highlight the conversion at each event and meeting we hold between February and May)

6.  During this time period the Treasurer may begin to gather the information needed for the preparation of the Form 1023 Application to the IRS, to be completed and reviewed by consultant prior to the date of the League’s Annual Meeting. (Judy and Finance Committee to complete February – April 2022)

7.  The Board should send its recommendations and resolution to the League members are part of the Annual Meeting kit. (By May 1, 2022)

8.  At the Annual Meeting, have the Board’s resolution approved by the members. (June 2, 2022)

9.  File the amendments to the Articles of Incorporation with the California Secretary of State, with the required filing fees; in the cover letter, request that the SOS return a “certified” copy of the amendments.

10.  Treasurer may submit the online Form 1023 to the IRS, including copies of the original Article of Incorporation and both Amendments to the Articles, together with a copy of the League’s Bylaws, together with the filing fee of $600.

11.  Treasurer will respond to any questions raised by the IRS during their review of the Form 1023, with the assistance of consultant.

12.  Upon receipt of the IRS’ approval of the Form 1023 application, file Form 3500A with the Franchise Tax Board to obtain California’s equivalent of §501(c)(3).

13.  Change the League’s website to reflect your new tax status.  (There is a box to check on the website’s administration page.)

14.  Spread the word through social media and other communications.