Incorporate (and get non-profit status for) That Chapter!

Paul Prokop, Vice President VTCI

VTCI bylaws require that a chapter incorporate if it accepts non-VTCI members as chapter members.  As most or all of our chapters accept non-VTCI members, it is important to incorporate, first, because the bylaws require that action and second, because of potential liability.

VTCIís national insurance policy covers, among other things, VTCI chapters and VTCI members, if a liability claim is made for damage suffered as a result of VTCI activity.

However, members of unincorporated associations can be held liable for the acts of the association or any of its members, just as if they committed the damaging act themselves.  In the case of an unincorporated chapter and a non-VTCI member, there is significant risk of personal liability for another memberís act (on the way home from a VTCI chapter meeting, a non-VTCI member strikes and kills a pedestrian). 

The decedentís survivors file suit against the driver, the chapterís members, the chapter itself, and the VTCI.  The non-VTCI member driver is covered by his personal automobile insurance.  The other chapter members, if VTCI members, are covered by VTCIís policy and their own homeowners or renters policies.  If the other chapter members are not VTCI members and the chapter is not incorporated, they are potentially just as liable as the driver is and have no VTCI insurance protection.

The chapter treasury and the VTCI national treasury are covered by VTCIís national policy.

The bottom line: incorporate your chapter!

Incorporation is a matter of state law and regulation.  These days, it is usually a simple and inexpensive process.  Moreover, once you are incorporated, it is important to hold yourself out as a corporation.  Your chapter identification, for example, is no longer Acadian Thunderbirds; it is Acadian Thunderbirds, Inc.  You must give the public notice that they are dealing with a corporation and its accompanying limited liability.

Once you have incorporated, it is important to achieve non-profit status with your state and with the federal government (IRS).  If you do not register as a non-profit, both the state and the IRS will be looking for annual tax returns and, in some cases, taxes.

Here is the checklist for achieving federal (IRS) non-profit status:

1. Get an EIN (employer identification number); by mailing Form SS-4, (you can download this and other IRS forms at www.irs.gov.).  You can also obtain an EIN by telephone by calling the Tele-TIN number in the Form SS-4 instructions and then faxing or mailing the SS-4 to the IRS. 

2. You must then file a Form 1024, which is an application for recognition of exemption under section 501(a) of the Internal Revenue Code.  This is a 19-page form that requires lots of information.  VTCI chapters should file as section 501(c) (7) social clubs.  You must provide, among other things:

            a. Conformed (complete and accurate copy of original, signed document) copy of your chapter bylaws.

            b. Conformed copy of your state incorporation papers.

            c. Description of the purpose and activities of the chapter.

            d. Financial statements showing receipts and expenditures for the most recent 4 years.

            e. Copies of publications, such as the chapter newsletter.

3. Form 1024 must be accompanied by Form 8718, which establishes a user fee for an exempt organization determination letter request.  If the chapterís average annual gross receipts for the past 4 years are $10,000 or less, the user fee is $150.00.  If gross receipts are over $10,000, the user fee is $500.00.

Once the IRS grants non-profit status, annual tax returns using Form 990 are required if annual receipts total $25,000 or more.

Moreover, if annual unrelated business income totals $1,000 or more, an annual tax return using Form 990-T is required.  Unrelated business income is a trade or business that is regularly carried on and is not substantially related to furthering the exempt purpose of the organization.

VTCI itself can file for non-profit status to cover chapters as subunits of a central non-profit organization.  The Board of Directors is examining this option and will publish further information once a decision has been reached.