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TEXAS REGULATIONS AND LAWS AND THEIR IMPACT TO NON-PROFIT ORGANIZATIONS SUCH AS CASA MARIANELLA

TEXAS REGULATIONS AND LAWS AND THEIR IMPACT TO NON-PROFIT ORGANIZATIONS SUCH AS CASA MARIANELLA

TEXAS REGULATIONS AND LAWS AND THEIR IMPACT TO NON-PROFIT ORGANIZATIONS SUCH AS CASA MARIANELLA

Executive Summary

Nonprofit organizations serve the interests of the public without profit generation. Casa Marianella is a nonprofit organization operating in Texas. The operations of the firm are affected by the policies implemented by the state. In fact, the state legislation has made it challenging for Casa Marianella to hire staff. Consequently, fundraiser events that enable it to provide services to immigrants have reduced significantly. Consequently, the firm has to use some of the state’s policies such as tax-exempt. Casa Marianella will forward the documents of incorporation to the Internal Revenue Service for review. Section 501(C) (3) of the Internal Revenue Code provides the procedures under which Casa Marianella can benefit from federal tax exemption. However, it should identify its role in society and outline its program to obtain a tax exempt status to attract potential grant-making entities. The firm should also monitor its operations and evaluate its members in order to ensure that funds are used appropriately.

Introduction

All nonprofit organizations in Texas must adhere to the predefined laws and regulations according to their objectives. The primary goal of Casa Marianella is promoting self-sufficiency to displaced immigrants. Therefore, the firm qualifies as a non-profit organization that should seek a tax exemption status. Consequently, the firm should send its documents of incorporation and certificate of corporate formation to the secretary of state. A report stating the state of the organization and additional information such as the current staff, directors, and agents should also be sent after every four years. The tax exempt status is accompanied by various benefits such as increased chances of investment by interested parties. However, the organization should meet the needs of the community in order to receive the required financial support.

Policy Background

            The Texas Non-Profit Corporation Act provides guidelines that a nonprofit organization should use to acquire a tax exempt status.[1] The tax exemption in Texas dates back to 1894’s Wilson-Gorham Tariff Act that later provided exemption for charitable, religious, and education institutions.[2] The policy enables nonprofit organizations to use all the funds at their disposal for their activities. The legislation applies to Casa Marianella that depends on fundraising events to raise money. However, the Secretary of State Registration Unit requires all charities to avail their documents before soliciting any public donations as per the provisions of the USA Patriot Act. The charitable raffle events can also take place in Texas with a maximum of two events per year as stipulated by the Charitable Raffle Enabling Act.[3] Nonprofit organizations operating in Texas are also subject to employment laws as is the case with other firms. The state also provides a framework that the organization should use to register for the compensation of the unemployed if it has employees for at least 20 weeks annually.[4]

Policy Analysis

Nonprofit organizations operating in Texas should send its documents of incorporation to the Internal Revenue Service (IRS) to obtain a tax exempt status according to its bylaws. Further, all nonprofit organizations must come up with a report stating the organization’s basic information, including the staff, directors, and registered agents every four years. These agents have the responsibility of receiving and handling any legal actions or court filings directed towards the organization. There are additional documents that must also be included within the documents of incorporation as stipulated by the Texas Non-Profit Act such as the statement that spells out the purpose of the organization as a nonprofit. The declaration should also specify whether it is a charity, religion, agricultural, scientific, athletic, educational, or patriotic service organization. The statement must also indicate whether the staff and directors can manage the affairs of the organization as per the legal requirements.

The tax exemption policy increases chances of investment to a nonprofit organization. The firms reduce the liability to taxes, which encourages more individuals to donate to the organization. Moreover, they offer individuals tax deductions during charitable donations. The assets of the nonprofit organization are limited under the law and the members are not liable to any debts. However, the firm must have the finances inspected by the public since it is dedicated to their interests.[5] Therefore, they must provide detailed records accompanied by annual filings to the IRS and the state within provided deadlines. Although non-profit organizations aim to serve public interests, they are still unpopular to investors as compared to profitable ones.  

Nonprofit organizations are run in such a way that funds generated are used by the firm to provide its services. Those firms selling any goods or services take the funds generated back to the organization to sustain their operations, specifically to provide services to the community. As such, the organization does not need to share the earnings among the members. In view of this, a tax-exemption status would enable the entity to generate as much funds for the delivery of community services. Since the state can recognize the nonprofit status of entities, it can issue the tax-exemption after all documents are approved. Consequently, the organization is allowed to raise funds from the public and organize its programs, such as raffle prizes and community cooking projects in the streets.

Fundraiser policies in Texas have many benefits. For instance, they enable institutions to raise funds for charitable purposes within a short period. They also provide a platform for brand awareness by allowing participants to share the event widely.[6] However, the budget during a fundraiser event is very high, which is a significant risk. The goals and objectives of the organization must be met and capital resources are needed. In addition, planning, coordination, compliance with the regulations, and the execution of the event needs a lot of funds and time. In some cases, the committee must involve volunteers from the community, which is not always easy. Nonprofit organizations are also required to disclose employee’s details[7] and the agreement between them to solve future disagreements that may arise. Conflicts are likely to occur considering employees can state their desired wage in the contract. Therefore, the policy limits the flexibility of the agreements, which is a disadvantage to the firm.

Recommendations

The employment laws and regulations should be compatible with the conditions of work and the objectives. The policies should address the unequal bargaining power between the two involved parties to improve performance. Nonprofit organizations should be classified as public charities or private foundations depending on the nature of the financial support. Moreover, the financial status of these firms dictates the tax regulations applied. The private foundations pay less tax compared to public charities. Implementing safe working conditions and favorable legal requirements for the employee can improve employee morale, which can improve work performance and delivery of services to the public.

Tax exemption policy enables nonprofit organizations to succeed in their operations. However, they have to ensure the proper allocation of organizational resources through their annual statements. In addition, the firms must indicate whether they can meet the needs of the community.[8] Therefore, the nonprofit organizations should create programs that showcase their community activities. Through the use of funds to deliver the objectives of the organization to the community, the entity can attract more support from the state and other companies.

Nonprofit organizations can benefit from federal tax exemption as provided by Section 501(C) (3) of the Internal Revenue Code.[9] However, the documentation required for the tax-exempt status is time consuming and costly. In some cases, the nonprofit organizations can affiliate an existing charity to make the process shorter. However, the charity must acquire full control of the programs of the nonprofit organization. The charity acts as an agent to the organization and can lead to the acquisition of more fundraising opportunities. Additionally, the charity can assist in bringing potential investors who can contribute funds to the organization. Additional activities and events which can lead to the generation of funds can easily be implemented by having such an agent onboard. Therefore, the charity agents save time and cost in generating new investment opportunities.

The organizational activities dictate whether tax-exempt status is allowed. The expenditure of the nonprofit organization should be monitored and earnings should not be taken by any shareholder or staff member. The consequence of having a tax exempt status is that all operations should be dedicated to the community. In this case, any form of misconduct can lead to the cancellation of the organization’s programs and the external funding. Therefore, the company should not take part in conflicting activities such as political campaigns. In order to ensure a consistent record, all corporate minutes drawn from the board and committee minutes should be maintained. A complete report of the annual operations can be filed to help in measuring the success of the organization’s objectives, including the proper allocation of fundraiser funds to the initial need of the charity. 

Conclusion

Nonprofit organizations in Texas must adhere to laws provided by the state through the Non-Profit Act. Casa Marianella, which provides shelter and other basic requirements to immigrants, must raise funds, allocate resources, and employ staff members according to the guidelines. It also has to follow them to acquire the tax exempt since its operations differ from those of for-profit organizations. Through the tax exemption policy, the organization can increase its chances of receiving external investment opportunities. It also benefits from reduced liability to taxes which encourage more individuals to donate to the establishment. Successful operations of the organization are guaranteed by the tax exemption policy. However, the organization has to ensure the proper allocation of organizational resources and indicate its ability to meet the needs of the community.

Bibliography

Candid. “What Are the Advantages/disadvantages of Becoming a Nonprofit Organization? | Knowledge Base.” GrantSpace. Last modified 2019. https://grantspace.org/resources/knowledge-base/pros-and-cons/.

Casa Marianella. Casa Marianella. Last modified 2017. http://www.casamarianella.org/.

Cherico, Courtney. “Challenges and Benefits of Nonprofit Event Fundraising.” GuideStar Blog. Last modified March 25, 2014. https://trust.guidestar.org/blog/2014/03/25/challenges-and-benefits-of-nonprofit-event-fundraising/.

Cullinane, Mollie. “Nonprofit Employment Laws.” Cullinane Law Group | Legal Counsel for Nonprofits + Associations | Austin Texas. Last modified January 20, 2014. https://cullinanelaw.com/nonprofit-employment-laws/.

Department of the Treasury. Applying for 501(c)(3) Tax-Exempt Status. Washington DC: IRS, 2018.

Hollingsworth, Gabrielle. “Advantages and Disadvantages of Employment Agreements.” LegalMatch Law Library. Last modified May 1, 2018. https://www.legalmatch.com/law-library/article/advantages-and-disadvantages-of-employment-agreements.html.

Jeanty, Jacquelyn. “The Texas Non-Profit Corporation Act.” Small Business – Chron.com. Last modified July 27, 2011. https://smallbusiness.chron.com/texas-nonprofit-corporation-act-15517.html.

Nisbet, Matthew, John Wihbey, Silje Kristiansen, and Aleszu Bajak. Foundation Funding For Media Services In The US: 2010-2015. Last modified 2018. https://shorensteincenter.org/funding-the-news-foundations-and-nonprofit-media/.

Nisbet, Matthew, John Wihbey, Silje Kristiansen, and Aleszu Bajak. Declining Rate Of Employees At US Newspapers: 2000-2015. Last modified 2018. https://shorensteincenter.org/funding-the-news-foundations-and-nonprofit-media/.

Smyth, Danielle. “Fundraiser Requirements in Texas.” Legal Beagle. Last modified August 8, 2010. https://legalbeagle.com/6832846-fundraiser-requirements-texas.html.

Texas CBAR. Forming a Nonprofit Tax-Exempt Corporation in Texas. Texas: Texas CBAR, 2018.

Thorndike, Joseph. “Tax History Project — Why Did Congress Exempt Social Welfare Organizations?” Tax History Project -. Last modified June 13, 2013. http://www.taxhistory.org/thp/readings.nsf/ArtWeb/CFFB1CE42BEFA8B285257BE400723DF8?OpenDocument.

Appendix

Chart of Funding for a Nonprofit Organization

Figure 1: Foundation funding for media services in the US: 2010-2015. Copyright 2018 by Mathew Nisbet et al., Reprinted with permission.

Graph of the Decline of Employment in a Nonprofit Organization

Figure 2: Declining rate of employees at US Newspapers: 2000-2015. Copyright 2018 by Mathew Nisbet et al., Reprinted with permission.


[1] Jacquelyn Jeanty, “The Texas Non-Profit Corporation Act,” Small Business – Chron.com, last modified July 27, 2011, https://smallbusiness.chron.com/texas-nonprofit-corporation-act-15517.html.

[2] Joseph Thorndike, “Tax History Project — Why Did Congress Exempt Social Welfare Organizations?,” Tax History Project -, last modified June 13, 2013, http://www.taxhistory.org/thp/readings.nsf/ArtWeb/CFFB1CE42BEFA8B285257BE400723DF8?OpenDocument.

[3] Danielle Smyth, “Fundraiser Requirements in Texas,” Legal Beagle, last modified August 8, 2010, https://legalbeagle.com/6832846-fundraiser-requirements-texas.html.

[4] Mollie Cullinane, “Nonprofit Employment Laws,” Cullinane Law Group | Legal Counsel for Nonprofits + Associations | Austin Texas, last modified January 20, 2014, https://cullinanelaw.com/nonprofit-employment-laws/.

[5] Candid, “What Are the Advantages/disadvantages of Becoming a Nonprofit Organization? | Knowledge Base,” GrantSpace, last modified 2019, https://grantspace.org/resources/knowledge-base/pros-and-cons/.

[6] Courtney Cherico, “Challenges and Benefits of Nonprofit Event Fundraising,” GuideStar Blog, last modified March 25, 2014, https://trust.guidestar.org/blog/2014/03/25/challenges-and-benefits-of-nonprofit-event-fundraising/.

[7] Gabrielle Hollingsworth, “Advantages and Disadvantages of Employment Agreements,” LegalMatch Law Library, last modified May 1, 2018, https://www.legalmatch.com/law-library/article/advantages-and-disadvantages-of-employment-agreements.html.

[8] Texas CBAR, “Forming a Nonprofit Tax-Exempt Corporation in Texas”, Texas: Texas CBAR, 2018, 1.

[9]  Department of the Treasury, “Applying for 501(c)(3) Tax-Exempt Status”, Washington DC: IRS, 2018, 3.

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