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501h vs 501c3 Which is Better?

Hey ChoralNet,  the non-profit I started is making our final organizational decision before turning in our paperwork.  We are deciding between 501c3 and 501h organizatin.  We have been advised to go with the later.  I am concerned because a grant I was looking at said only 501c3s could apply.  Has this ever been a problem for your ogranization?
Replies (3): Threaded | Chronological
on March 30, 2014 2:35pm
The 501h is not an organization type but rather a piece of tax code that allows a 501c3 to elect use some of its funds for the purposes of lobbying. Most arts related organizations will be 501(c)3 unless there is a distint political mission whereby the artistic aim is to influence elections or a political direction directly (in which case they will not likely be allow an exeption).
There is an IRS publication (#557) that details all that is needed for 501(c)3 status as well as all of the 501(c) non-profit types.
Dan Abraham
Bach Sinfonia
American University
Washington, DC
Applauded by an audience of 3
on April 7, 2014 9:44pm
  Thanks for your knowledge on this topic.  Your link led me t other useful info as well.  I now get that 501h is not an organization type.  I believe our board is simply desiring to have clear limits even though we do not intend to do any political activity.   I don't see that it would do any harm and since we would still be a 501(c)3 I feel more comfortable with the 501h election.
Thomas,  thanks for your thoughts as well.  We have already had our own insurance and feel that we will be financially strong enough to stand on our own in this early period.  The sponsorship does seem like a good idea for many groups. Regarding grants, I always have my hopes up but am firmly grounded in reality.  Grants would be great but I'm not counting on them.
Jack Senzig
Children's Choir of teh Internet
Artistic Director
on March 31, 2014 12:40pm
You want to be incorporated as a 501(c)3 educational public charity.
Another option is to start as a fiscally-sponsored project of an umbrella organization (ie another nonprofit), and I highly recommend looking into this. This is especially attractive if you don't have much support infrastructure. It can take awhile to gain public charity status, so this will hold you over for the time being until you figure out what you're doing (The corporate documents go through rather quickly, but you only qualify as a 501(c)3 private foundation at first. The public charity determination takes six or more months). One caveat: don't use a religious nonprofit as a fiscal sponsor, which often happens with choruses emerging from churches. A fiscal sponsor typically takes a percentage of your donations as an administrative fee, but they also extend their insurance and nonprofit postage qualifications to you. Adequate insurance is required by most concert venues, and a $1M liability policy can easily cost your organization $2k, but if fiscally sponsored, it would only be $150 to extend it to a concert venue for an evening. The sponsoring organization will also relieve you of some of your accounting costs, and it may have a brokerage account if you wish to receive donations of securities.
If your nonprofit is really fragile, the fiscal-sponsorship route is also more attractive because killing a corporation is hell. In the mid 1990's there was a trend among small dance companies to incorporate and many of them regretted it. Nowadays, most dance companies are fiscally sponsored. Same with documentary filmmakers, etc.
Please note that there are additional nonprofit state requirements. For example, in California, you need to go through a separate process to obtain an organizational clearance certificate from the Board of Equalization if your organization owns property (which can also include things like property tax paid on equipment such as photocopiers). You also have to register with the Registry of Charitable trusts.
Another caveat: don't put too much hope in competitive grants. For most arts organizations, grants rarely exceed 8-10% of your operating budget, and often lower on the West Coast. Foundations who fund arts favor established professional operations and program funding. I've seen far too many arts ensembles get their hopes up.
Yours truly,
TJ Busse
Controller, San Francisco Gay Men's Chorus
Applauded by an audience of 2
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