If you are a local or state director, chances are you are familiar with the concept of 501c status. Basically, if you have 501c3 status as a pageant, the donations made to your pageant will be tax deductible for the donors. This is a bonus for both your pageant and the donor that could easily lead to more donations to your organization.
However, like many good things, achieving 501c3 status takes some effort. It is a process that involves a good amount of documentation, an application to the IRS, and lots of waiting. Miss New Hampshire Executive Director is something of a whiz when it comes to 501 c 3 and has a step-by-step procedure that, if followed, should lead to the IRS granting you 501c3 status.
1. Recruit a local attorney who has filed for 501c3 status in your state before. Ask them to donate their time and help you navigate the 1023 Form, which you will have to submit to the IRS for approval.
2. With your attorney, take a look at your articles of incorporation and the contact that you require your titleholder to sign. These two documents play a major role in whether or not you are granted 501c3 status. If your articles of incorporation state that the scholarships given by your pageant are forfeitable, you must make an amendment that changes that statement. All scholarships must be non-forfeitable. The reason for this is fairly simple. If you take donations for your scholarship fund, but those scholarships can be forfeited to another account or purpose, then tax-deductions cannot be given for those donations. In that same vein, the contract you require your titleholder to sign must also be worded in a way that it is clear that the scholarship awarded to her is not payment for her year of service, but instead an award in addition to her year of service. If the language of the contract makes it seem as if the scholarship is a payment for her duties during the year, the IRS could argue that the arrangement between the organization and the titleholder is quid pro quo and therefore not subject to tax-deductible status. In other words, the general public cannot get tax deductions for paying your employee’s salary. Luckily, both your articles of incorporation and titleholder contract can be altered to reflect what your organization truly is: a non-profit that makes scholarships available to young women.
3. Once you have perfected your articles of incorporation and titleholder contract, it is time to fill out Form 1023, which you will send to the IRS for approval. It is a 30-page document that will require you to answer every type of question imaginable about your organization. This document should be gone over with a fine-tooth come to ensure there are no errors and all information included in it is accurate.
4. Send off your Form 1023 to the IRS and anticipate any questions or concerns they will have. You may need to provide documentation and/or reasoning to back up any claims made in the form. Their ultimate decision to grant you 501c3 status may take up to a year, but the wait is definitely worth it.
According to Brenda Keith, it is possible for almost every state pageant in the country to have 501c3 status, although a lot hinges on how long the organization has been around and the specifics of their contracts and articles of incorporation.
“The IRS has been approaching 501c3 status on a case by case basis,” explains Brenda. “Which definitely works in your favor. In previous years, any bad precedents would bar pageants from getting the status. Now, it is very state specific. If you are in the process of applying, don’t be afraid to ask your IRS agent to speak to an agent who has granted a pageant the status before.”
If and when you are granted 501c3 status, Brenda suggests filing for umbrella coverage for all of your local pageants. Thus far, New Hampshire is the only state pageant that has umbrella coverage for their locals and it has made a big different in the amount of money locals are able to raise.
“We have one local pageant who is able to give out almost fifteen thousand dollars because of their 501c3 status,” says Brenda.
If you choose to file for umbrella coverage, you simply have to fill out another form and send it to the IRS. You, as the state organization, will be responsible for illustrating why you should receive this coverage—the local organizations do not bear the burden of proof, which actually makes the process much easier.
If you are granted umbrella coverage for your locals, you will have to file your taxes together. Brenda suggests gather profit and loss statements from each local and giving the information to your CPA so that a group 990 form can be filed.
In the end, filing for and being granted 501c3 status is a persnickety process that will ultimately benefit your pageant in many ways. Throughout the process, do not be afraid to ask questions, ask for clarification, and take your time. Your patience will be rewarded.
By Julie Anne Wieland