The new officers of a high school music booster club run by parent volunteers have inherited a record keeping mess. The group has been helping the music program off and on since the 1980s. It may have filed for 501(c)(3) exemption at one time, but we don't know. We don't appear on the IRS exempt list or the automatic revocation website. We do have a state tax exemption form from the 1980s, but that's it. Should we simply start over by changing our name, getting a new EIN, incorporating as a nonprofit, and filing a new Form 1023?
There isn’t any absolute answer to this question but it may make sense just to start over. If you incorporate you will at least know that you are a corporation, with its protections from individual liability that may not apply if you are an unincorporated association. If you think you may once have had federal exemption and would be applying to recover it, you will have to file a complete Form 1023 and explain what you have been doing for the last umpteen years. If you start over and don’t expect to raise more than $50,000 a year in the next three years, you can file the Form 1023-EZ (See Ready Reference Page: “IRS Issues Streamlined Form 1023-EZ for Exemption of Small 501(c)(3) Groups”) which is ridiculously simple and likely to be approved within a month or two.
If the old club has money left in the bank, you will probably want to transfer it to the new corporation. It is unlikely to be challenged because it is for the same purpose. The new entity is likely, though not guaranteed, to be free from any potential hidden liabilities of the old club, but it is unlikely to be worse off that continuing to operate an organization without records. A fresh start could be invigorating.
(For a discussion of the Top 10 Areas of Legal Concern for Small Volunteer Organizations, you may want to listen to our recorded webinar available in our bookstore.)
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