Our organization is converting from for-profit to nonprofit in order to seek grants and donations for ongoing support. Can we approach private foundations to obtain grants before being officially recognized by the IRS as a 501(c)(3) entity?
You can always ask. But most private foundations will not make grants to organizations that have not received recognition from the IRS of their exemption as a public charity. To do so would require the foundations to exercise “expenditure responsibility” and that requires some extra work and carries some additional risks. (See Ready Reference Page: “Outflanking Foundations' Public Charity Defense.”) You might be able to talk with them now about a grant when you get your letter, but some won’t even talk with you until you provide a copy.
If you have converted from a for-profit, be sure that your Form 1023 Application for Recognition of Exemption notifies the IRS that you are a successor to the prior organization. A U.S. Attorney has recently taken the position that it is a crime to answer that question improperly, and the federal District Court in Massachusetts has held that the government may proceed with a criminal prosecution on that issue. (See Nonprofit Issues®, March 16, 2007.)
The prosecution failed because of the statute of limitations, but if the government had brought the case in time, the jury's conviction would have been upheld. (See Nonprofit Issues®, July 16, 2008.)
Monday, December 15, 2008