Class 501(c)(3) is the most likely choice for a rescue organization.
Contributions made to 501(c)(3) organizations are deductible on the contributor's income tax return; contributions made to 501(c)(4) and 501(c)(7) organizations are not. See Tax-Deductible Contributions, below, for further information.
Classes 501(c)(4) and 501(c)(7) are the most likely choices for social organizations like dog clubs. They are described in detail beginning on pages 51 and 54 of Pub. 557 (October 2011), respectively. But you won't find a dog club listed as an example for either class.
Examples of 501(c)(7) organizations include hobby clubs and garden clubs, and these are about as close as they get to a typical dog club. So 501(c)(7) Social and Recreational Clubs would appear to be the best choice.
However, in many cases 501(c)(4) is in fact the most likely choice. This is because of the following from page 54 of Pub. 557 (October 2011):
"A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status... Of the 35% gross receipts... up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public..."
Many clubs receive the majority of their income from club-sponsored events rather than from membership dues, and exceed the 35% limit. This means that they would not qualify as a 501(c)(7), and so 501(c)(4) becomes the most likely choice.
 Thirty-nine percent of households own one or more of the 78.2 million dogs in the U.S. There are more dog clubs than you can shake a stick at, and in fact you can't swing a cat by its tail without hitting one. Yet the word "dog" does not appear once in Pub. 557, and dog clubs and rescues are never used as examples. I guess Uncle Sam just isn't a "dog person."
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What Your Organization Needs to Do
Establish Your Organization as a Non-Profit Association or Corporation
The IRS recognizes both non-profit associations and non-profit corporations as tax-exempt organizations.
It may be a better choice for a smaller organization to simply become an association. To do so, they need only state in their Articles of Association that they are operating as a non-profit association.
Incorporation may be a better choice for an organization with potential financial risk, or activities that might result in injury, because it provides a greater degree of legal protection for the members. Since a corporation is a legal entity in itself, the idea is that members are protected from lawsuits against the corporation.
However, it is a common misunderstanding that incorporation completely protects an organization's members. It doesn't for a couple of reasons:
a. An organization's officers can be named in a lawsuit, and if the organization doesn't have enough funds to meet its obligations, the officers can be held liable.
b. A member of an organization, even a corporation, can be sued as an individual for something that happens as a result of their personal conduct.
You may find it worthwhile to speak to a lawyer who specializes in non-profit organizations about associations and corporations in your state. And you will certainly want to consider purchasing insurance for your organization, as discussed below.
An organization can become a non-profit corporation by filing Articles of Incorporation with their state. Depending on state requirements, incorporation may involve annual reporting and renewal. Be sure to comply with such requirements, or your corporation may be dissolved.
Your state will be able to provide you with information on how to form a corporation and operate with respect to state laws. If your state has requirements for associations, they will also be able to provide such information for associations.
In some states associations don't have to file with their state at all, another possible advantage to becoming an association rather than a corporation.
On page 77 of Pub. 557 (October 2011), the IRS provides a draft that can be used as a guide in writing Articles of Incorporation. It can be modified and used as a guide in writing Articles of Association.
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Get an Employer Identification Number (EIN) from the IRS
As soon as you have established your organization as a non-profit organization and determined your tax-exempt status as being either 501(c)(3), 501(c)(4) or 501(c)(7), you can get an Employer Identification Number (EIN) for your organization. An EIN is used by an organization much as an individual uses a Social Security number. Your organization will also use its EIN on any bank accounts it opens.
To get an EIN, you can either phone 800-829-4933 or apply on-line at https://sa2.www4.irs.gov/modiein/individual/index.jsp
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Establish Your Organization as a Tax-Exempt Organization with the IRS
IRS publications generally give the impression that you have to file with the IRS in writing to establish your organization as a tax-exempt organization with them. However, this is not true for 501(c)(4) and 501(c)(7) organizations, nor for 501(c)(3) organizations with gross annual receipts normally not more than $5,000.
You simply need to phone the IRS at 877-829-5500-2-4 and provide the following information:
1. Identify your organization as a non-profit association or corporation, and explain that you have completed your governing documents as described in Establish Your Organization as a Non-Profit Association or Corporation, above.
2. Provide your EIN as described in Get an Employer Identification Number (EIN) from the IRS, above.
This sounds too easy. Where's the documentation?
 501(c)(4) and 501(c)(7) organizations wishing to receive a formal determination of tax-exempt status letter from the IRS would file Form 1024.
It is not directly stated in IRS publications that filing Form 1024 is optional for 501(c)(4) and 501(c)(7) organizations, but rather it is deduced from the wording in Instructions for Form 1024 (September 1998), which state only that Form 1024 must be filed for two other classes of organizations:
"An organization must file Form 1024 to be recognized as an organization described in section 501(c)(9) or 501(c)(17)."
501(c)(3) organizations wishing to receive a formal determination of tax-exempt status letter from the IRS, as well as those with gross annual receipts normally more than $5,000, would file Form 1023.
Filing form 1023 is optional for 501(c)(3) organizations with gross annual receipts normally not more than $5,000, as listed under Organizations Not Required To File Form 1023 on page 25 of Pub. 557 (October 2011):
"Any organization... normally having annual gross receipts of not more than $5,000."
If you choose not to file Form 1024 or 1023 with the IRS, you will not receive a letter from them confirming your status as a tax-exempt organization. See Formal Determination of Tax-Exempt Status Letter, below, for further information.
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Establish Your Organization as a Tax-Exempt Organization with Your State
Establishing your organization as a non-profit organization does not automatically allow it to operate as a tax-exempt organization within your state.
In some states, you need take no further action than establishing your organization as a tax-exempt organization with the IRS. In other states, however, you need to establish your tax-exempt status with your state government.
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File Form 990-N On-Line Annually
Because your tax-exempt organization's gross annual receipts are normally not more than $50,000, you do not have to file an annual return as an individual or business would. From page 11 of Pub. 557 (October 2011), Annual Information Returns, including point 14:
"Every organization exempt from federal income tax... must file an Annual Exempt Organization Return except... An exempt organization... that normally has annual gross receipts of $50,000 or less."
You do, however, have to file a simple, electronic Form 990-N on-line each year, summarizing the status of your organization. From page 11 of Pub. 557 (October 2011), Annual Electronic Filing Requirement for Small Tax-Exempt Organizations:
"Small tax-exempt organizations with annual gross receipts normally $50,000 or less must submit Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ..."
In filing Form 990-N, you must provide the following information about your organization:
1. Legal name and mailing address
2. Any name under which it operates and does business
3. Website address (if any)
4. Taxpayer identification number
5. Name and address of a principal officer
6. Annual tax period
7. Verification that annual gross receipts are normally $50,000 or less
8. Notification if terminated
Form 990-N must be filed by the 15th day of the 5th month after the end of your organization's annual tax period. An organization that fails to meet its annual reporting requirement for 3 consecutive years will automatically lose its tax-exempt status.
Before you can file Form 990-N on-line, you must first follow the steps outlined in Establish Your Organization as a Tax-Exempt Organization with the IRS, above. Then you must wait approximately 8 weeks for the IRS to process your request so that the Form 990-N on-line filing system will recognize your organization as being tax-exempt.
When you got your EIN, you identified your organization as a non-profit, tax-exempt organization. But note that this does not carry through to the Form 990-N on-line filing system. You still need to complete the step described above.
These necessary steps are not presented in IRS publications.
File Form 990-N (e-Postcard) on-line at: www.epostcard.form990.org
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Other Considerations
Insurance
It is important for your organization to maintain a general liability insurance policy that covers all activities. A general liability policy, however, is limited in what it covers. Depending on the size of your organization, the number and size of public events it holds, and other factors that might put it at risk, you will want to consider purchasing supplemental policies.
While you should carefully study any policy you consider, the following briefly describes some of the different types of coverage available:
• General Liability: Covers claims for bodily injury and property damage when your organization is found liable in a court of law. While the officers of your organization could be named in a lawsuit, this insurance would cover all costs, including attorney fees, up to the limits of the policy.
Some General Liability policies include limited coverage for Property Loss and Accident Medical as described below; others do not.
If you are a rescue organization or your club does rescue work, be very careful in selecting a policy. Some policies cover rescue work, but others specifically exclude it.
• Officers Liability: Even incorporating your organization does not protect its members from being sued as individuals for something that happens as a result of their personal conduct. Officers Liability covers lawsuits directed at individual officers for errors and omissions, negligent acts, misleading statements, and breach of duty.
• Financial Loss: Covers financial loss due to dishonesty, theft and forgery.
• Property Loss: Covers loss or damage to property owned by your organization, including everything from office equipment to event booths.
• Accident Medical: While general liability covers claims for bodily injury, they must be the result of a lawsuit. Accident Medical covers medical bills for injury to anyone attending an activity or event without the necessity of a lawsuit. In fact, this coverage is purchased with the intent that it will help prevent lawsuits.
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Tax-Deductible Contributions
This is the first thing that comes to mind when we think of a tax-exempt non-profit organization, so I want to explain why contributions to a club would not normally be something an individual could claim as a deduction on their income tax return.
Generally, only contributions to tax-exempt 501(c)(3) charitable organizations such as churches, the Red Cross, a dog rescue, or an organization that trains service or therapy dogs, can be deducted on an individual's income tax return. While it is possible for a dog club to be a 501(c)(3) organization, most dog clubs are something between an educational, recreational, and social organization, and do not qualify.
Some 501(c)(4) and 501(c)(7) dog clubs do give a portion of their income to 501(c)(3) organizations. However, these clubs cannot give a contributor a receipt that could be used to show a tax-deductible contribution on the contributor's income tax return because these clubs are not 501(c)(3) organizations themselves.
It is possible for a 501(c)(4) or 501(c)(7) club to establish a separate fund which is itself a 501(c)(3) organization. The club could then give receipts to contributors that could be used to show that their contributions to this fund are tax-deductible.
From page 74 of Pub. 557 (October 2011):
"An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. Such a fund must itself meet the requirements of section 501(c)(3)..."
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Formal Determination of Tax-Exempt Status Letter
501(c)(4) and 501(c)(7) organizations, and 501(c)(3) organizations with gross annual receipts normally not more than $5,000, are able to operate as tax-exempt organizations without applying to the IRS in writing for approval to do so.
This makes establishing a tax-exempt organization a much simplified process, and sharing this information is one of the primary purposes of this website. However, the downside of an organization not applying to the IRS in writing is that they will not receive a formal determination of tax-exempt status letter from the IRS.
Filing Form 1024 could also offer advantages such as exemption from certain state taxes and non-profit mailing privileges. See Purpose of Form on page 1 of Instructions for Form 1024 (September 1998).
Should a business, organization, or state government require something in writing from your organization to show evidence of your tax-exempt status, you can obtain a letter from the IRS by filing Form 1024 or 1023, as described in Establish Your Organization as a Tax-Exempt Organization with the IRS, above.
Or you may be able to satisfy the requirement for something in writing simply by providing a letter containing a statement similar to this:
"Name of Organization" is a non-profit organization exempt from Federal income taxes under Section 501(c)(3, 4 or 7) of the Internal Revenue Code.
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Form 1099-Misc
Anytime your organization pays over $600 in a year, for example paying a judge for their services at a dog show or renting equipment for a dog show, it is your responsibility to report the amount paid to the IRS. This information is submitted on Form 1099-Misc, a copy of which is also sent to the payee.
There are significant fines for not submitting Form 1099-Misc. It provides the IRS with a method of double-checking that the payee is reporting the income on their tax return.
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State Sales Tax
If your organization sells something, such as at an event, do you have to collect sales tax? This is not an issue in states that don't have a sales tax. And in other states, your tax-exempt status may exempt you from having to collect a sales tax. You will have to check with your state.
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