America's Worst Charities

How a charity is formed

1. GET A FEDERAL EMPLOYER ID NUMBER

The application is free online from the IRS using Form SS-4.

2. FORM A NONPROFIT CORPORATION

The two-page application is available through the Florida Department of State. The form asks for the names of directors and the nonprofit's purpose, but no other documentation is needed.

Cost: $78.75

Time: About a week

3. GET AN IRS TAX-EXEMPT STATUS

Form 1023 must be completed and submitted to the IRS in order to apply for tax-exempt status. It asks about the charity's organizational structure, planned activities and executive compensation.

Cost: $400 - $850 depending on expected revenue

Time: Typically a few months unless you're flagged by the IRS. The IRS rejects fewer than 1 percent of applications. Charities can raise cash while they wait.

4. REGISTER TO SOLICIT WITH THE STATE

Florida and about 38 other states require nonprofits to have a license to solicit their residents. In Florida, there is a five-page application that has to be renewed annually.

Cost: $10 initial registration

Time: 10 days if the application has all the necessary information

5. RAISE MONEY

Most charities build financial support slowly through money-making programs, community events or sponsorships from corporations and wealthy individuals. But charity operators who hire professional solicitors can generate donations with little work. For a cut of donations, consultants and solicitors will create marketing materials, man phone banks and in some cases pay a charity's start-up costs. What's left after their fees is enough for the charity founder's salary and a modest amount of charitable work.

How a charity is formed 06/06/13 [Last modified: Thursday, June 6, 2013 3:27pm]

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