We are an auxiliary to a 501(c)(4) volunteer fire association. We are considering making the auxiliary a 501(c)(3) to allow us to access fundraising opportunities that are available only to (c)(3)s, but we don't want to create a separate organization that would have to file taxes separately and maintain separate insurance. We were told that a 509(a)(3) supporting organization may be an appropriate mechanism to accomplish this. If we go the (a)(3) route, would we be able to access the opportunities for fundraising that are available to 501(c)(3)s?
This is a great question for dispelling some myths.
First, while gifts to 501(c)(4) organizations are usually not deductible, the IRS has ruled that gifts to 501(c)(4) volunteer fire and ambulance companies are deductible as charitable contributions if given solely for public uses, e.g. for new apparatus or medical equipment and not pool tables for the rec room. You may not have to set up anything to accomplish what you want.
Second, any new entity will have to file tax returns and will probably want insurance. If it doesn’t file a tax return for three consecutive years, it will lose any exemption that it obtains.
Third, in order to be a 509(a)(3) supporting organization, the organization has to be a 501(c)(3) charity, so a supporting organization would have access to essentially all of the fundraising opportunities of any other 501(c)(3). 501(c)(3) charities are basically divided between public charities that have a lot of public support and private foundations that receive their income from a small group of individuals or companies and from investment income. Generally, a supporting organization is a charity that is operated, supervised or controlled by or in connection with another public charity or governmental unit. (See Ready Reference Page: “Supporting Organizations Qualify as Public Charities”) An organization normally asks for supporting organization status only when it can’t meet one of the public support tests on its own. (See Ready Reference Page: “Calculating Public Support Percentage”)
Fourth, if you do continuous fundraising and have any success at all, you will meet the public support test, so you don’t need to be a supporting organization. If you don’t expect to raise more than $50,000 a year for the first three years, you can file the simplified Form 1023-EZ application for exemption as a public charity. (You can’t file the EZ if you want classification as a supporting organization.) (See Ready Reference Page: “IRS Issues Streamlined Form 1023-EZ”) And if you don’t receive more than $50,000 a year, you can file the Form 990-N electronic postcard for your annual tax filing. That’s not a whole lot of extra work.