PRESENTATION TO THE CALIFORNIA LEAGUE OF CITIES

BY RONALD M. SOMMER, PHD PARTNER

THE SPF PARTNERSHIP 736 LEAVENWORTH ST. #5

SAN FRANCISCO, CA 94109

TEL: 415-474-0715

EMAIL: rmsommer@earthlink.net

MAY 2, 2001 NEWPORT BEACH, CA.

Forming a Not-for-Profit Corporation

I. INTRODUCTION

There are now approximately 1.2 million nonprofit organizations in the United States. This extremely important segment of the economy employs 10.9 million workers in an ever expanding and almost recession proof business of providing for the scientific, educational and charitable needs of the nation.

WHAT IS A NON-PROFIT ORGANIZATION?

There are an incredible number of misconceptions concerning what constitutes a non-profit organization. I would like to start by clarifying the definition that I will be using in this paper and presentation. For all purposes of this presentation, a nonprofit organization will be defined as any organization that has been granted tax exempt and deductible status under section 501(C)(3) of the Internal Revenue Code of the United States or which would be eligible for such status if it sought it. Although incorporation is not required as a prerequisite to attaining this status, it is extremely difficult to obtain tax-exempt status without incorporation. In California this means incorporation as a Public Benefit Corporation.

Our society has determined that some functions are so important that organizations that perform them should be free of tax on their revenues and that those who contribute to the effort should be able to deduct their contribution from gross income for income tax purposes. There are, however, some consequences for those who benefit from this societal generosity. For example, nonprofit corporations may not engage in political activity in support of a particular candidate or party or in "revolutionary' or illegal activity. In some cases organizations may not be granted tax-exempt status if they complete with non­exempt organizations performing the same function. Or, it they do engage in activities that are both competitive with for profit businesses and the activity is not directly related to their nonprofit mission they may be taxed on the income produced by this activity as a nonrelated business activity while the balance of the organization's activities remain tax exempt.

Nonprofit organizations take many forms and serve many purposes. However, all have for charitable, educational or scientific purposes as their basic mission. This may include such organizations as churches or other religious institutions, hospitals, medical research institutes, childcare providers, student aid organizations, homes for the aged and handicapped, schools, private operating foundations and much, much more.

WHY FORM A NONPROFIT ORGANIZATION?

There are only two reasons to form a nonprofit organization. The first is to avoid taxation. However, the motivations are or should be more altruistic than that. . . and they usually are.

The second reason is to provide an incentive to volunteers and donors to provide services and funds to further the mission of the organization.

WHO SHOULD FORM A NON-PROFIT CORPORATION?

There is no special requirement for the founders of a nonprofit corporation except passion for what they are attempting to do. However, if only one person is passionate and is unable to convince enough others of the worthiness of the cause to form a Board of Directors, then perhaps the organization should not be founded.

II. HOW TO FORM A NONPROFIT ORGANIZATION

The steps of forming a non-profit organization are diagrammed in Chart A at the end of this paper. In addition to the formal steps shows there, this paper comments on the informal steps as well, since they are very often more important than the formal.

IDENTIFY A COMMUNITY NEED

The first steps of forming a tax exempt nonprofit is to identify an appropriate charitable, educational or scientific motive. Appropriate motivations for a tax exempt entity could address any of the following needs: the needs of a small number of sufferers of a so-called "orphan disease", the needs of a city to augment some of its services with the assistance of a non-profit, the needs of a corporation or a wealth individual to establish a vehicle to dispense its corporate charity, to the needs of a group of religious adherents to establish a church to further their religion. These are all legitimate needs and thousands more that could be listed.

In determining to establish a nonprofit, it is useful to carefully evaluate available resources. These resources consist of three types. First are organizations that may already serve the need in some way. Second are organizations that might, if approached, adopt the cause. Third is money. If no organization is working with the cause and if no organization can be convinced to adopt the cause, then there will be a need for money and people to form an organization. In my opinion a vast amount in the nonprofit world could be avoided if this last advice were heeded.

GET THE GROUP TOGETHER

If the decision is made to organize around a need, then the next step is to move towards incorporation and tax exempt status. The first step is to organize a

founding Board of Directors. This is somewhat different from selecting members of an ongoing Board of Directors. The most essential part of that difference is that founding Directors are usually selected by the founder rather than going through a formal selection process. There are many reasons to organize the Board of Directors informally before incorporating. These are:

• The need to assure that the Board of Directors can work well together

• The need to establish both formal and informal rules of behavior and communication in order for the Board to operate efficiently and effectively. There is often a need, within the informal and sometimes formal rules of behavior to establish the egalitarian nature of a nonprofit Board of Directors. All Directors are equally liable. Each Director has only one vote on matters before the Board. However, not every Director is equally capable of presenting his/her points. Therefore, it is useful to establish methods that enhance the ability of each Board member to be heard.

• To assure that all members of the Board share the same vision for the organization, have basic agreement on the mission and a common understanding of the programs in which the organization will eventually engage and finally

• To identify and develop leadership before the work of the organization begins.

It is not essential that there be a formal slate of officers or any of the trappings of a corporation at this point. The founding Board of Directors need only be a discussion group to develop policies and programs that will facilitate the implementation of effective organization and programming.

In considering whom to invite to join such a group, consideration should be given to the qualities that the group needs. Philanthropic resources often include grids that cross-reference desirable traits and skills for members of charitable boards. These almost always characterize the choices by occupation and types of contacts. and almost universally identify the need for an attorney and an accountant. These skills are useful, but should not be considered critical. I have never found these grids to be very useful. Instead I advise those who are forming non-profits to bring together a group that shares the characteristics in Chart B, attached at the end of this paper. Personal characteristics such as passion, energy and communication skills are found in many walks of life and are essential to the work of an effective charity.

DEVELOP A MISSION STATEMENT

Once the members of the Founding Board are identified and have agreed to serve, it is time to develop the Mission Statement to:

• Define the purpose of the organization and

• Define the ultimate goal of the organization.

Examples of such a statement might be:

• To assure that all the retired widget makers of the world have access to health care. Or,

• To perfect the world-view of natives of Patagonia. Or,

• To create a better world through support of municipal sewer systems.

It is important that the mission statement be very broad in scope and not easily attainable. In fact, it is usually an unattainable goal. Most organizations either skip this step or delay it until they are already in operation. DON'T DO THIS. Having the mission statement focuses your organization's efforts and also makes it easier for outsiders to understand the organization and to decide to support your goals and programs.

PUT IT ALL ON PAPER

Having developed a mission statement it is now time to develop the basic documents on which the program will rest. These consist of:

A) Bylaws

The by-laws of a non-profit organization are not very different from those of a for profit corporation. However, there are two paragraphs that must be inserted and that do not appear in for-profit by-laws without which tax exempt status cannot be obtained.

1) NON INUREMENT

"No director, officer, employee, or other person connected with this corporation, or any private individual, shall receive at an time any of the net earnings or pecuniary profits from the operations of the corporation, provided, however, that this provision shall not prevent payment to any

such person of reasonable compensation for services performed for the corporation in effecting any of its public or charitable purposes, provided that such compensation is otherwise permitted by these Bylaws and is fixed by resolution of the Board of Directors, and no such person or persons shall be entitled to share in the distribution of, and shall not receive, any of the corporate assets on dissolution of the corporation."

2) DISSOLUTION

"On the dissolution or winding up of the corporation, its assets remaining after payment of, or provision for payment of, all debts and liabilities of this corporation, shall be distributed to a nonprofit fund, foundation, or corporation which is organized and operated exclusively for educational, charitable and scientific purposes which meet the requirements of Section 214 of the California Revenue and Taxation Code and which has established its tax exempt status under Section 501(C) (3) of the Internal Revenue Code."

Some variations on these models may be permissible, but the basic prohibitions on personal gains during the operation of upon the dissolution of the entity must appear. These models, however, are acceptable to the Internal Revenue Service.

Having developed your Bylaws you may now choose to either file your incorporation papers or delay the filing until after Policies and Procedures, as described below are developed.

B) Program Policies and Procedures

Although policies and procedures are not required before a nonprofit is incorporated, this is nonetheless a critically important step that is often delayed too long. To protect the Directors from liability and to provide for the smooth functioning of the organization, the following policies ought to be adopted.

a) Personnel Policies and Procedures

Labor law is in a constant state of flux. It is important that personnel policies not only be written to comply with current law, but that they are kept up to date. It is common in a non-profit organization to delegate responsibility for this to an Executive Committee or a Personnel Committee. A consideration for City Attorneys is that the employees of a newly created corporation are not city employees. As a consequence the policies of the nonprofit do not necessarily have to conform to either city personnel policies or the labor contracts that apply to city employees. Nor will city policies necessarily apply to the activities of the nonprofit to fill in a gap created by the failure of a nonprofit to establish policies of its own. Such policies should contain, at a minimum, job descriptions, chain of command descriptions, behavioral

expectations, disciplinary procedures, benefits and wage ranges. It sometimes makes sense to include a statement to the effect that this policy does not constitute a contract between employer and employee.

b) Non-Discrimination Policies

It is advised that non-discrimination policies be kept separate from Personnel Policies since they may also apply to the organization's client population and relate to the Program Operational Policy. Additionally, many granting organizations will require a copy of the non-discrimination policy and it may not be advisable to send grantors your complete Personnel and Program Operations policies.

c) Fiscal Policies and Procedures

These policies and procedures are extremely important. They define how your organization will handle money and provide the necessary road map for staff and Board to act responsibly and for your auditor to validate your actions. It is important that the procedures be very detailed . . . no potential problem should remain unaddressed.

d) Program Operational Policies.

The Program Operational Policies define the goals and objectives of each program and activity as well as defining the procedures for adoption, operation and termination of programs. Discussion of these policies makes clear what the organization will be and how it will do it. Some organizations combine a Development or Fund Raising Program with Program Policies. I advise that these be adopted separately.

e) Development Program Policies

These policies define and govern how the organization will raise and how donors will be recognized. Such policies often contain lists of industries and/or companies from which money will not be accepted. Many young organizations delay the development of a development policy or deal with controversial donations only on a case by case basis. This is unwise, if for no other reason than it is wasteful if the development staff or a Board members works to cultivate a major donor only to later learn that this is an unacceptable source.

f) Board Operational Policies

Board operational policies define how a Board of Directors will carry out its business. Although a great deal of this policy will normally be contained in

the By-Laws of the corporation and a great deal more is covered in the statutes, it is useful to have this additional document to expand upon those documents or to define what will occur in the absence of statute or where statute gives options.

Among the items that are important to a nonprofit Board are:

• The order of business at a meeting • The governing rules of order in a meeting • Causes for removal of a member of the Board of Directors, other than

those causes in the bylaws or the statutes • Forms of committee reports.

As the organization matures, more and more items become apparent.

Some may argue that this is too soon in the process of organizational formation to adopt such policies. I would argue that it is never too soon and that to delay this development will very often cause a policy to be adopted in a crisis situation. Policies developed in crisis situations almost always lack the deliberation and consideration that make good policy. It must also be kept in mind that these policies are not cast in stone. They may be amended if they prove unworkable.

FILE FOR INCORPORATION

And now it is time to file your incorporation papers. The incorporation forms are not complicated and can be obtained from the website of the California Secretary of State. A copy of this form is attached as Attachment C at the end of this paper. A resource with respect to technical issues arising from incorporation is in "Advising California Non Profit Corporations", published by Continuing Education of the Bar. Model articles of incorporation also appear in that book.

As noted above, the two paragraphs set forth in this paper regarding dissolution and non-inurement most appear in the Articles of Incorporation.

REQUEST AN EMPLOYER IDENTIFICATION NUMBER

As soon as the incorporation is approved the incorporator should contact the Internal Revenue Service to request an Employer Identification Number. This number is needed even if the organization does not intend to have a paid staff. You must have this number prior to requesting tax exempt status. Fortunately, this is the easiest step that you will go through; it only requires a telephone call. The number is 1-888-8 16-2065.

REQUEST TAX EXEMPT STATUS

The Application for Recognition of Exemption, Form 1023, provides the Internal Revenue Service with the information it requires in order to make a determination of whether or not the organization is engaged in an activity and method that is acceptable under section 501(C)(3) of the Internal Revenue Code. A copy of sections of the form that are pertinent to this discussion are attached at the end of this paper as Attachment D. However, the IRS requires forms to be submitted on its own form. It will not accept photocopies of other replicas.

When requesting a copy of Form 1023, request that it be sent to you in a package that contains full instructions. The IRS also has a very good booklet available on nonprofit organizations. It is advisable to file this form within 15 months of incorporation. If this length of time is exceeded you will have to complete Part III of Form 1023, questions 2 through 6 regarding previous financial activity of the corporation. If you do file within this time limit you will only have to check YES in question 1 and move on to question 7.

Page 1 is self-explanatory. However, a special word should be said about space 3, name and telephone number of person to be contacted if additional information is needed. This contact should be a person who is both readily available and knowledgeable. The IRS agent to whom the application is assigned may have questions that can be easily resolved by telephone. Conversely, an ill informed conversation could lead the agent to misunderstand the purposes or activities of the new corporation and deny tax-exempt status. Typically the contact is a member of the Board of Directors or the attorney or consultant who completed the form.

The signature line is very important. This is the only person from whom the Internal Revenue Service will accept inquiries following submission of the form. This person should also be readily available and knowledgeable. If someone else is going to be following up with the Internal Revenue Service it is a useful device to execute a limited power of attorney for that person and file it with Form 1023. Because of the length of time that IRS takes to process Form 1023 it is often necessary to contact them several times during the process to determine where your application is and to attempt to nudge them into faster approval. The usual time for approval seems to be between three and six months.

PART II. Section 1. Activities and organizational information (page 2)

If you have done the above steps thoroughly, this step is easy. The directions say to list each activity separately in the order of importance based on the relative time and other resources devoted to the activity. Indicate the percentage of time for each activity. Some organizations find it useful to put these activities in a grid form to clearly show what will be done, how important the activity is and who will perform the activity. An imaginary activity of such a grid is shown below as Chart C. When using such a grid refer to it on page 2 as a schedule, reference it and attach it to the document prior to sending it to the IRS.

CHART C. PART II GRID FOR FORM 1023 ( Based on an imaginary organization with a mission to assure health care for retired widget makers.) Specification: YEAR ONE ONLY

Activity/percent of Purpose Method Initiation Date Location/Responsibil time ity Circularize health To identify barriers Direct mail and Months 1 Staff offices/ care providers to to health care for telephone interviews. Assigned staff ascertain their client retired widget eligibility makers requirements. 20% of effort Circularize retired To identify the most Direct mail and Month 2 Staff offices/ widget makers 20% prevalent barriers to telephone interviews Assigned staff of effort health care Fund raising. 15% of To provide support Corporate, Month 1 Development effort for the mission of the foundation and Committee of the

organization individual Board of Directors solicitations by and assigned staff proposal, mail and telephone

Meetings with health To educate health Face to face Month4 Staff care providers 12% care providers on the meetings

needs of the retired widget makers and to seek changes in health care provider policies.

Meetings with retired To match widget Face to face Month 5 Staff widget makers 12% makers with the high meetings

probability health care provider

Etc.

Most organizations prefer to present the same materials in outline or narrative form, which are also acceptable. However, tabular form is often a more efficient means to convey the necessary information.

PART II, SECTION 2, Page 2. Sources of Support

It is only necessary to list the sources by broad categories rather than with the

line-item specification of a budget. The typical categories used are government, foundations, corporations, individuals, and program income. It is important to refer back to this section when completing the budget- see below.

PART II, Section 3, Page 2 Describe the fund-raising program.

Again, if you have taken the preliminary steps described above it will be easy to complete this section. Such a section might read as follows:

• Foundation Proposals- To be written by development consultant, reviewed by staff and approved by Board of Directors. To be initiated in month 1 of operation. See Statement 1 for a representative copy of such a solicitation.

• Corporate Proposals - same as foundation proposals above • Major donor solicitations- Case to be developed by staff with assistance of

outside counsel. Face to face meetings to be conducted by members of the Board of Directors, all of whom are volunteers.

• Individual donations -Direct mail solicitation to be written by staff, approved by the Board of Directors, signed by the Chair of the Board, printed by an outside printer, folded, stuffed and mailed by volunteers and initiated in month 4 of operations. See statement 2 for a representative copy of such a solicitation.

• Special Events- To be designed and implemented by a fundraising committee consisting of Board members and other volunteers. To be initiated in month 10 of operations.

• Program income- Fees to be collected from clients will be, from time to time, approved by the Board of Directors and collected by staff. To be initiated in month 6 of operations.

A few caveats: if you are planning to use professional fund-raisers, it is important for you to know whether they are indeed professional fund-raisers or development consultants. The basic distinction is that a fund-raiser is registered by the State of California and is compensated to raise money on your behalf, collect money on your behalf and perhaps also to open depository accounts on your behalf. A development consultant does not act in his/her/their own name, but only prepares solicitations or programs for the organization to execute. Obviously these two relationships call for very different contract terms to ensure accountability for funds raised and to prevent misuse of the organization's name and credibility.

PART II, SECTION 4. Names and addresses and titles of officers. etc .. and annual compensation.

It is bad practice to compensate a Board member of a non-profit. However, it is not bad practice to 1) pay the expenses of Board members or 2) have a staff member on the Board of Directors. The number of staff Board members should be small to preserve Board independence and integrity in providing guidance and oversight to staff.

Additional care must be taken to exclude staff members of the Board from any discussion or votes that will affect them personally, such as votes on personnel policies, disciplinary actions, program discontinuations or staff salaries. In spite of this, it is not unusual to have the Executive Director be a member of the Board of Directors. This question is usually moot for purposes of filing a 1023 since most organizations will not yet have hired staff at the time of filing.

PART II, SECTION 13. Does or will the organization attempt to influence legislation?

Your answer to this question may very well determine whether or not you are granted tax-exempt status. Nonprofit organizations may attempt to influence legislation. However, the type of influence that is exerted and the percentage of time and funds that are donated are critical. The general rule of thumb is to limit the methods to educating and informing decision makers on issues that are critical to the mission of the organization by way of letter writing, appearance at legislative committee meetings and private meetings with decision makers. Organizations devoting 10% or less of their time and funds to this activity are operating well within the safe area.

PART III, QUESTION 9

If the organization responds NO to questions 7 of this part, regarding public charity classification, it is necessary to qualify your organization as not a private foundation in question 9. Your answer to question 9 has important ramifications for the schedules you may have to complete with Form 1023 and also as to how you complete Part N (Financial Data) of the form. It is important that you refer to your Development Policies and to your answer to Part II, questions 2 and 3 regarding Fund Raising and Sources of Support, when considering what qualifies the organization.

If you check "j" (The organization is a publicly supported organization but is not sure whether it meets the public support test of h or i. The organization would like IRS to decide the proper classification), pay particular attention to how you complete Part N (Financial Data), since it will be this part that the IRS looks to to make its determination of qualification. In most cases "h" (As receiving a substantial part of its support in the form of contributions from publicly supported organizations, from a government unit, or from the general public.) or "i" (As normally receiving not more than one-third of its support from gross investment income and more than one-third of its support from contributions, membership fees, and gross receipts from activities related to its exempt functions.subject to certain exemptions) will be reasonable choices. However, city attorneys may be involved in the organization of "friends" groups such as the Friends of the Library or the Friends of Parks and Recreation. In those cases "e" (As being operated solely for the benefit of, or in connection with, one or more organizations described in a through d, g, h, or I) is the correct choice and Schedule D will have to be completed.

PART III, QUESTION 10

Form 872-C is a form that you complete for an advanced ruling. Most new organizations must complete this form since they will not have completed at least 8 months of a tax year. Refer back to your incorporation date to make this determination. A copy of Form 872-C is attached to this paper as Attachment E.

PART IV.

A critical piece of the presentation to the IRS relates to budget. This is reported in Part IV, page 8 of Form 1023. lf you have completed the above steps properly, you are now ready to project your budget for the first two or three years of your existence. This is extremely difficult for most new nonprofits to do. However, it must be done. My remarks here consist of helpful hints that will get you through what is, admittedly, an arduous task.

First, cost out the program. How much money will be needed per year for each of your first two years to accomplish your program goals? How many staff members, if any, will you need in order to accomplish your programmatic and administrative tasks. What will they cost? Do the same with every line from 14-22 inclusive. Please note that lines 15-17 and line 22 may require schedules to be attached. Line 16 refers back to Part III, question 9 and line 17 refers back to Part II, question 4. These should all be in agreement.

When you have calculated line 14, fund raising expenses, take a good look at what percentage this is of your total expenses. The Better Business Bureau and other ranking agencies have percentage criteria that they apply when they advise donors on donations. If your fund raising expenses approach 50% you are headed for difficulty. For most organizations it is best to keep that expense to below 20%, not only because of how the IRS will look at it, but also how donors and other members of the public will view it. It is, however, understandable that in the first couple of years of an organization's existence, fund raising expenses will be proportionately higher than in succeeding years. The bottom line, of course, is that sufficient funds must exist for an effective fund raising program or the organization will, in most cases, cease to exist.

THE IRS LETTER OF DETERMINATION

If the organization is successful in achieving recognition of tax exempt status from the IRS, it will receive a letter of determination. This letter will state the date after which donors may deduct their contributions from gross income for income tax purposes, the classification in which the organization has been placed, your annual reporting requirements, any restrictions that have been placed on the organization and other information of vital importance to the continued success of the organization. It is extremely important that this

document be preserved. Every granting organization will require a copy of it and it will be required to obtain certain benefits from the State of California, as discussed below. The Letter of Determination will also state the month and year in which the organization will be reviewed for exemption continuance.

CONTACT OTHER AGENCIES

Depending on the nature of the organization's activities it may be necessary to contact the following agencies for additional permits, reporting requirements and exemptions:

• The Franchise Tax Board - This agency can provide information regarding exemption and/or franchise tax requirements. Nonprofit corporations must pay California corporation franchise tax unless they receive an exemption by the Franchise Tax Board. Application is made on FTB FORM 3500. This form may be obtained at the Franchise Tax Board's web site. When submitting this form include copies of the Articles of Incorporation (four copies certified by the Secretary of State) and the IRS Letter ofDetermination. Telephone 1-800-338-0505 for further information.

• The Board of Equalization - The Board of Equalization can give information concerning sales tax and/or use tax liability. Nonprofit organizations in California are not automatically exempt from these taxes.

• The Employment Development Department -Disability Unemployment Insurance Tax must be paid by nonprofits in California. If the organization will have employees it is critical to make arrangements for this item.

• Industrial Relations-Division of Worker's Compensation for information about workman's compensation requirements.

• The City and/or County Clerk where the organization's principal location is. Based on the activities of the organization and the county or city in which it is located there may be specific requirements for zoning, building permits, occupancy permits, local taxes, business licenses, etc.

ANNUAL REPORTING REQUIREMENTS

The continued operation of an organization as a tax-exempt entity is, to a great extent, determined by its ability to keep excellent program and financial records. Not every tax-exempt organization will be required to file annual

reports with the IRS. However, if the organization is required to file FORM

1099, which is the tax exempt organization's reporting form, it is important that the Board and staff of the organization be familiar with its requirements at the inception of the program activities so that appropriate records may be maintained. Even if the organization is not required to report annually, a report will need to be filed at the end of the advance ruling period.

Other agencies may also require annual reports from the organization. When contacting any of the above agencies it is wise to request written statements of what your organization will be required to report and when.

Thank you for this opportunity to present this topic to you. And, we wish you the best of good fortune in whatever nonprofit endeavors you become involved.

CHART B. CHARACTERISTICS OF AN EXCELLENT BOARD OF DIRECTORS

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Passion - If there is no passion for the cause, the group will founder. This is particularly true of new groups that lack the resources that

sometimes substitute for passion.

Skill - Board members must be skilled in how to be member of a Board ofDirectors of a non-profit organization. They must know the laws that surround non-profit operation, their fiduciary responsibility, what tax­exempt is and what it isn't, how to operate as a group, board-staff relationships, how to read a balance sheet, how to analyze a budget and many more skills. The good news is that these skills can be learned and don't have to be present from the beginning.

Yntelligence- This isn't a typo .. .intelligence begins with the question, "Why?" Choose Board members who know how to ask questions. "Why Not?" is also a good question. As organizations develop and obtain staff and as the Board becomes more and more separated from operations, these questions keep the Board out of trouble and assist them to solve thorny problems.

Community Involvement- When you want to get a job done, ask a busy person. The ideal members of Boards are people who sit on other Boards and network easily among the people that you wish to contact. To some extent they will already have skills, they will have contacts, and also some knowledge of how the community functions. These people are important to getting things done.

Hours - You all know the lists of the biggest lies. Well, the biggest lie that is told to prospective Board members is, "It will only take a couple of hours a month." That just isn't true. And, prospective Board members must know, up front, how much time it will take. People should be selected who are willing to put in the hours to a) do their homework in learning about the issues surrounding the organization and its mission, b) review reports that may come from staff, c) preparing for a meeting and knowing enough so that the meeting doesn't consist of trying to bring each Board member up to speed, d) sitting on committees, e) representing the Board to the community, and e) raising money.

CHART A. THE PROCESS OF FORMING A NONPROFIT ORGANIZATION

A NEED IS IDENTIFIED

BY-LAWS ARE WRITTEN

AVAILABLE RESOURCES ARE ASSESSED AND FOUND T.AC:KTNG

INCORPORATION PAPERS ARE FILED

IRS FORMS ARE FILED

CORRECT AS NEEDED

A GROUP IS ORGANIZED TO ACT ASA BOARD

YOU ARE A NONPROFIT ORGANIZATION

PROGRAM PLANS ARE WRITTEN

Department of the Tnt&swy lntemal Revenue Service

Read the instructions for each Part carefully. A User Fee must be attached to this application.

If the required Information and appropriate documents are not submitted along with Form 8718 (with payment of the appropriate user fee). the application may be returned to you.

Complete the Procedural Checklist on page 8 of the instructions.

[mJ Identification of Applicant

1a Full name or organization (as shown in organizing document) 2 EmplOyer identification number (EINJ Of none, see page 3 of the Specific Instructions.)

1b c/o Name (if applicable) 3 Name and telephone number of person to be contacted If additional information is needed

1c Address (number and street) Room/Suite

( ) 1d City, town. or post office. state. and ZIP + 4. If you have a foreign address. 4 Month the annual accounting period ends

see Specific Instructions for Part I. page 3.

5 Date Incorporated or formed

1e Web site address 6 Check here if applying under section: a 0501!e) bO 501(1) c050l(k) d0501(n)

7 Did the organization previously apply for recognition of exemption under this Code section or under any other section of the Code? . . . . . . . ." . . . • . . . • . . . . . . . . . . 0 Yes 0 No If "Yes," attach an explanation.

8 Is the organization required to file Form 990 (or Form 990-EZ)? . . .

If "No," attach an explanation (see page 3 of the Specific Instructions). 0 NIA 0 Yes 0 No

9 Has the organization filed Federal income tax returns or exempt organization information returns? . . 0 Yes 0 No If "Yes," state the form numbers. years filed, and Internal Revenue office where filed.

10 Check the box for the type of organization. AT TACH A CONFORMED COPY OF THE CORRESPONDING ORGANIZING DOCUMENTS T O THE APPLICATION BEFORE MAILING. (See Specific Instructions for Part I, Line 10, on page 3.) See also Pub. 557 for examples of organizational documents.)

a 0 Corporation-Attach a copy of the Articles of Incorporation (including amendments and restatements) showing approval by the appropriate state official; also include a copy of the bylaws.

b 0 Trust- Attach a copy of the Trust Indenture or Agreement. including all appropriate signatures and dates.

c 0 Association- Attach a copy of the Articles of Association. Constitution, or other creating document. with a declaration (see instructions) or other evidence the organization was formed by adoption of the document by more than one person; also include a copy of the bylaws.

If the organization is a corporation or an unincorporated association that has not yet adopted bylaws. check here ..,.. 0 1 declare under the penalties of perjury that I am authorized to sign this application on behalf of the above organizatiOn and that I have examined this appliCatiOn,

including the accompanying schedules and attachments, and to the best of my knowledge It is true. correct. and complete.

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For Paperwork Reduction Act Notice, see page 7 of the instructions. Cat. No. 17133K

Provide a detailed narrative description of all the activities of the organization-past, present. and planned. Do not merely refer to or repeat the language in the organizational document. List each activity separately In the order of Importance based on the. relative time and other resources devoted to the activity. Indicate the percentage of time for each activity. Each description should include, as a minimum. the following: (a) a detailed description of the activity including its purpose and how each acitivity furthers your exempt purpose; (b) when the activity was or will be Initiated; and (c) where and by whom the activity will be conducted.

2 What are or will be the organization's sources of financial support? List in order of size.

3 Describe the organization's fundraising program, both actual and planned, and explain to what extent it has been put into effect. 1 nclude details of fundraising activities such as selective mailfngs, formation or fundraising committees. use of volunteers or professional fundralsers, etc. Attach representative copies of solicitations for financial support.

Farm 1023 (Rev. 9-98) Page 3

rmii Activities and Operational Information (Continued)

5

a Names. addresses, and titles of officers. directors. trustees. etc. b Annual compensation

c Do any of the above persons serve as members of the governing body by reason of being public officials or being appointed by public officials? . . . . . . . . . • • • . . . . . . • • . • 0 Yes 0 No If "Yes." name those persons and explain the basis of their selection or appointment.

d Are any members of the organization's governing body "disqualified persons" with respect to the organization (other than by reason of being a member of the governing body) or do any of the members have either a business or family relationship with "disqualified persons"? (See Specific Instructions for Part II. Line 4d. on page 3.) . . . • • . . • . . . . • . . . . . • • . . . . . 0 Yes 0 No if "Yes." explain.

Does the organization control or is it controlled by any other organization? 0 Yes0 No

Is the organization the outgrowth of (or successor to) another organization. or does it have a special relationship with another organization by reason of interlocking directorates or other factors? . . • • 0 Yes 0 No if either of these questions is answered "Yes," explain.

6 Does or will the organization directly or indirectly engage in any of the following transactions with any political organization or other exempt organization (other than a 501 (c)(3) organization): (a) grants: (b) purchases or sales of assets: (c) rental of facilities or equipment; (d) loans or loan guarantees; (e) reimbursement arrangements: (f)

.'performance of services. membership. or fundraising solicitations;

or (g) sharing of facilities. equipment, mailing lists or other assets, or paid employees? . • . . . . 0 Yes 0 No If "Yes," explain fully and identify the other organizations involved.

7 Is the organization financially accountable to any other organization? . • . . . • . . . . . . 0 Yes 0 No If "Yes." explain and identify the other organization. Include details concerning accountability or attach copies of reports if any have been submitted.

Page 4 Ifill I Activities and Operational Information (Continued)

8 What assets does the organizat ion have that are used In the p erformance of its exempt function? (Do not Include property producing investment I ncom e.) If any assets are not fully operational , explain their status. what additional steps remain to be com pleted, and when such final steps will be taken. If none, indicat e "N/A."

9 Will t he organization be the beneficiary of tax-exempt bond financing within t he next 2 year s?. . . . D Yes D No

10a Wil l any of the organization's facilit ies or op er at ions be managed by another organi zation or individual under a contr actual agreement?. . . . . . . . . . • . . . • . . • . • . . • . . D Yes D No

b Is the organization a party to any leases? . . • . . . . . . . • . . • . . . • • . . D Yes D No

If either of t hese questions i s answered "Yes," attach a copy of the contracts and explain the relationship between t he applicant and t he other parties.

11 I s t he organization a m em bership organization? . . . . . . . . . . . . . . . . . . . D Yes D No If "Yes," complete t he f ollowi ng:

a Describe the organization's membership requirements and attach a schedule of membershi p fees and dues. ·

b Descr ibe the organizat ion's present and proposed efforts to attr act members and attach a co py of any descriptive literature or promotional mat erial used f or this purpose.

c What benefits do (or w il l) t he members r eceive in exchange f or their payment of dues?

12a If the organizat ion provides benefits. services, or product s. are the recipients r equired. or will t hey be r equir ed. to pay for them?. . . • • . . . . • . . . . . • . . . . . D N/A D Yes D No If "Yes," explain how the charges are determined and attach a copy of the current fee schedule.

b Does or will the organization limit its benefits , services, or products to specific individuals or classes of Individuals?. . . . . . . • . . • . . • • . • . . • . . . . . D NIA D Yes D No

If "Yes." explain how t he r ecipients or beneficiar ies ar e or wil l be selected.

·.

13 Does or will the organizat ion attempt to influence legi slation? . . . • . . . . . . . . . • • D Yes D No

If "Yes," explain. Also, give an est imate of t he percentage of t he organization's time and funds that it devotes or plans to devote to t his activity.

14 Does or will t he organizat ion intervene i n any way in polit ical campaigns, I ncluding the publication or distr ibution of statements? . . . . • . . . . . . . . . . • . . • . . . . . . . D Yes D No If "Yes,· explain fully.

Fonn 1023 (Rev. 9-98) lpbiilil Technical Requirements

1 Are you f iling Form 1023 within 1 5 months f rom t he end of the month in which your organizat ion was

Page 5

created or formed? . • . . . . . . . . . • . . . . . • . . . . . • . . . . . 0 Yes 0 No If you answer "Yes." do not answer questions on lines 2 through 6 below.

2 If one of t he exceptions to the 1 5-month f il ing requirement "shown below app lies. check the appropriate box and proceed to question 7.

Exceptions-You are not required to file an exemption application within 1 5 months if t he organization:

0 a Is a church, interc hurc h organizat ion of loca l units of a church, a convention or assoc iation of c hurches, or an integrated auxiliary of a c hu rch. See Specific Instructions, Line 2a. on page 4;

0 b Is not a private foundation and normally has gross receipts of not more than $ 5,000 in each tax year; or

0 c Is a subordinate organization covered by a group exemption letter, but only if the parent or supervisory organization t imely su bmitted a notice covering the subordinate.

3 If the organization does not meet any of the exceptions on line 2 above, are you Fding Form 1023 w ithin 27 m onths f rom t he end of the month in whic h the organization was created or formed?. . • . . . 0 Yes 0 No

If ."Yes," your organization qualifies under Regulation section 301.9100-2. for an automatic 12-mont h ext ension of t he 1 5-mont h f iling requirement. D o not answer quest ions 4 through 6.

If "No," answer question 4.

;

4 If you answer "No" to question 3. does the organization wish to request a n extension of t ime to apply under the "reasonable act ion and good fait h" and the "no prejudice to the interest of t he government" requirement s of Regu lations section 30 1 .9100 -3?. . . . . . . . . • . . . . . . . . . 0 Yes 0 No

If "Yes." give t he reasons for not fi ling t his applicat ion within the 27- month period descri bed in question 3. See Specific Instructions, Part I l l, Line 4, before completing this item. Do not answer questions 5 and 6.

If "No," answer questions 5 and 6.

5 If you answer "No" t o question 4, your organization's qualification as a section 50 1 (c)(3) organization c an be recognized only from the dat e this application is filed. Therefore. do you want us to c onsider t he applicat ion as a request for recognition of exempt ion as a section 501 (c)(3) organization from the date the application is rec eived and not ret roactively to t he date the organization was created or formed? 0 Yes 0 No

6 If you answ er "Yes" to question 5 above and wish to request recognition of section 501 (c}(4) status for t he period beginnin w it h the dat e t he ·organization was formed and ending with the date t he Form 1023 application was received (t he effectl\ date of the �rganization's section 50 1 (c)(3} status). c heck here ,._ 0 and attach a compl et ed page 1 of Form 1024 to th applic at ion.

li&fiilll Technical Requirements (Continued)

7 Is the organization a private foundation? 0 Yes (Answer question 8.) 0 No (Answer question 9 and proceed as instructed. )

8 If you answer "Yes " to quest ion 7, does the organizat ion claim to be a private operating foundation? 0 Yes (Complet e Schedule E.) 0 No

After answering question 8 on this line, go to line 14 on page 7.

Page 6

9 If you answer "No" to questio n 7, indicate the public charity classification the organization is requesting by checking the box below that most appropriat ely applies:

THE ORGA NIZATION IS NOT A PRIVATE FOU NDATION BECAUSE IT QUALIFIES:

a GJ

b 0 c 0

d 0 e 0

t O

g 0

h 0

0

jO

As a church or a convention or association of churches ( CHURCH ES MUST COMPLETE SCHEDULE A.)

As a school (MUST COM PLETE SCHEDULE B.) As a hospital or a cooperative hospit al service organizat ion. or a medical research organization operated in coojunction with a hospital (T hese organizat ions, except for hos pital service organizations, MUST COMPLETE SCH EDU LE C.)

As a governmental unit descri bed in sect io n 170(c)( 1 ). As being operated solely for t he benefit of, or in conn ection wit h, one or more of the organizat ions described in a through d, g, h, or i (MUST COMPLET E SCH EDULE D.) As being organized and operated exclus ively for testing for public safety. As being operated fo r the benefit of a college or university t hat is owned or operated by a gover nmental unit. As receiving a s ubstant ial part of its s upport in the for m of contributions from publ icly supported organizations, from a governmental unit, or from the general publ ic. As normally receiving not more than o ne-third of its support from gross investment income anct.more t han o ne-third of its support from contributio'ns, m embership fees, and gross receipts from activities related to its exempt funct ions (subject to certain exceptions).

The organizat ion is a publicl y supported organization but is not sure whether it m eets the publ ic support test of h or I. The organi zation would like t he IRS to decide the proper classification.

Sections 509(a)(1) and 1 70(b)( 1 )(A)(O Sect ions 509(a)( 1) and 170(b)( 1)(A)(li)

Sections 509(a)( 1 ) and 1 70(b)(1)(A)( ii0

Sections 509{a)(1) and 1 70(b)(1)(A)(v}

Sect ion 509(a)( 3)

Section 509(a)(4) Sections 509(a)(1 ) and 1 70(b}( 1 )( A)( iv)

Sect ions 509(a)(1) and 170{b)( 1 )(A)(vi)

Sect ion 509(a)(2)

Sections 50 9{a){1) and 1 70(b)( 1 )(A)(v0 o r Section 509( a)(2)

If you checked one of the boxes a through f in question 9, go to question 14. If you checked box gin question 9, go to questions 11 and 12.

If you checked box h, I, or j, i n question 9, go to question 10.

lilfiilill Technical Requirements (Continued)

1 0 If you checked box h. i, o r j i n question 9, has the organization completed a tax year of a t least 8 months? 0 Yes-Indicate whether you are requesting:

D A definitive ruling. (Answer questions 1 1 through 14 .) D An advance ruling. (Answer questions 1 1 and 1 4 and attach two Forms 872-C completed and signed.)

Page :

D No-You must request an advance ruling by comple!fng and signing two Forms 872-C and attaching them to the Form 1023. ·

1 1 If the organization received any unusual grants during any of the tax years shown in Part IV-A, Statement of Revenue anc Expenses, attach a list for each year showing the name of the contributor; the date and the amount of the grant; and a brie description of the nature of the grant.

12 I f you are requesting a definitive ruling under section 1 70(b)(1 )(A)(iv) o r (vi), check here ..,. 0 and:

a Enter 2% of line 8 , column (e), Total, of Part IV-A . . . . • . . . . . . . . • . b Attach a list showing the name and amount contributed by each person (other than a governmental unit or "publicly

supported" organization} whose total gifts, grants. contributions, etc. , were more than the amount entered on line 12a at>ove.

13 I f you are requesting a definitive ruling under section 509(a}(2), check here ..,. D and:

14

a For each of the years included on lines 1, 2, and 9 of Part IV-A, attach a list showing the name of and amount received from each "disqualified person." (For a definition of "disqualified person," see Specific Instructions, Part II. Line 4d, on page 3.} .

b For each of the years included on line 9 of Part IV-A, attach a Ust showing the name of and amount received from each eayer (other than a "disqualified person") whose payments to the organization were more than $5,000. For this purpose, 'payer" Includes, but Is not limited to, any organization described in sections 1 70(b)(1)(A)0) through (vi) and any

governmental agency or bureau. Indicate if your organization is one of the following. If so, complete the required schedule. (Submit If "Yes," only those schedules that apply to your organization. Do not submit blank schedules.) Yes No complete

Schedule

Is the organization a church? . A

Is the organization, or any part of it. a school? B

Is the organization, or any part of it, a hospital or medical research organization? c

Is the organization a section 509(a)(3) supporting organization? D

Is the organizatlof! a private operating foundation? . E

Is the organization, or any part of it. a home for the aged or handicapped? F

Is the organization, or any part of it. a child care organization?. G

Does the organization provide or administer any scholarship benefits, student aid. etc.? . H

Has the organization taken over. or will it take over, tl}e facilities of a "for profit" Institution? • I

Form 1023 (Rev. 9-96)

ifhliliii Financial Data

Pagtt 8

Complete the financial statements for the current year and for each of the 3 years Immediately before it. If in existence less than 4 years, complete the statements for each year In existence. If in existence less than 1 year, also provide proposed

for the 2 the current

Gifts, grants, and contributions received (not including unusual grants-see page 6 of the instructions), • • • • • •

2 Membership fees received . •

3 Gross Investment Income (see instructions for definition) • •

4 Net Income from organization's unrelated business activities not Included on line 3 . . . . .

5 Tax revenues levied for and either paid to or spent on behalf of the organization • • . .

6 Value of services or facilities furnished by a governmental unit

· to the organization without charge (not Including the value of services or facilities generally furnished the public without charge) • • . .

7 Other income (not including gain or loss from sa)e of capital assets) (attach schedule)

8 Total (add lines 1 through 7)

9 Gross receipts from admissions. sales of merchandise or services. or furnishing of facilities in any activity that is not an unrelated business within the meaning of section 513. Include related cost of sales on line 22 • . . • •

10 Total (add lines 8 and 9) 1 1 Gain or loss from sale or capital

assets (attach schedule) • . . 1 2 Unusual grants . • • . . . 1 3 Total revenue (add lines 1 0

1 4 F undraising expenses

1 5 Contributions, gifts, grants. and similar amounts paid (attach schedule) . • • . • • •

16 Disbursements to or for benefit of members (attach schedule) •

Compensation of officers. directors. and trustees (attach schedule) . . • • •

Other salaries and wages . .

Interest • . . . . • . .

Occupancy (rent. utilities. etc.) .

Depreciation and depletion . .

Other (attach schedule) . . •

Total expenses (add lines 1 4 through 22) • • • • . • .

of

(b) . . . . . . . . . . (c) . . . . . . . . .. . (d) --- - - - - - - - - (e) TOTAL

ARTICLES OF INCORPORATION

The name of this corporation is ______ ....,(N.'""'�'""M=E-=O::...F_C=O.:..:R::..P,.,.O'""'RA:...:..:1i..:.;10=N:..=..<.-) -----

I I

A . This corporation is a nonprofit PUBLIC BENEFIT CORPORATION and is not organized for the private gain of any person. It is organized under the Nonprofit Public Benefit Corporation Law for:

( ) public purposes. or ( ) charitable purposes. or ( ) public and charitable purposes.

B. The specific purpose of this corporation is to----------------

I l l

The name and address in the State of California of this corporation's initial agent for service of process is:

Name _________________________________________________ __

Address _____________________________________________ ___

City--------------- State CALIFORNIA Zip -----

IV

A. This corporation is organized and operated exclusively for charitable purposes within the meaning of Section 501 (c)(3), Internal Revenue Code.

B. No substantial part of the activities of this corporation shall consist of carrying on propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate or intervene in any political campaign (including the publishing or distribution of statements) on behalf of any candidate for public office.

v The property of this corporation is irrevocably dedicated to charitable purposes and no part of the net income or assets of this corporation shall ever inure to the benefit of any director, orficer or member thereof or to the �benefit of any private person. Upon the dissolution or winding up of the corporation, its assets remaining after payment, or provision for payment, of all debts and liabil ities of this corporation shall be distributed to a nonprofit fund, foundation or corporation which is organized and operated exclusively for charitable purposes and which has established its tax exempt status under Section 501 (c)(3), I nternal Revenue Code.

Secretary of State Sample ARTS·P8 (01·00)

(Signature of Incorporator) (Typed Name of Incorporator), I ncorporator

(Rev. September 1 998)

Oepanment of the Treasury lniBmaJ RIMIIlllt SO!Vk;e

Internal Revenue Code

(See instructions on reverse side.)

To be used wit Form 1023. Sub•

in duplicate.

Under section 6501 (c)(4) of the Internal Revenue Code, and as part of a request filed with Form 1 023 that the organization named below be treated as a publicly supported organization under section 1 70(b)(1 )(A)(vi) or section 509(a)(2) during an advance ruling period,

· · · · • • • • · · • · · · · · · · i£;;C:i i,;g;i ��;,.;; �; ;;;.98;,;;ac;,;;.--;s· ;;;;;.;� -.�-� ·;;;,��;;,;�;; · · - - · - - - - · · - - ·· · } · · · · · · · · · · · · · · · · · · · · · · · · · (N.;,n;;e, � ;;croei. ·e:,ir �,: ici;;;.: '5ti.ie: i.�Ci it;,· ;;;;;jiJ • • • • • • · • · · · • · • • · · • · · • · · · ·

District Director of Internal Revenue, or

and the Assistant Commissioner

(Employee Plans and Exempt Organizations)

consent and agree that the period for assessing tax (imposed under section 4940 of the Code) for any of the tax years in the advance ruling period will extend 8 years. 4 months, and 1 5 days beyond the end of the first year.

However, if a notice of deficiency in tax for any of these years is sent to the organization before the period expires, the time for making an assessment will be further extended by the number of days the assessment i� prohibited, plus 60 days.

Ending date of first tax year . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . I (Month, day, 8nd year)

Name of organization (as shown In organizing document)

Officer or trustee having authority to sign

Si nature .,._

For IRS use only

Date

Type or print name and title

District Director or Assistant Commissioner (Employee Plans and Exempt Organizations) Date

B .,._ For Paperwork Reduction Act Notice, see page 7 of the Form 1023 lrm:ructions. Cat. No. 169050