A front page article in the January 18, 2008 Washington Post, captioned “Chief of Veterans Charities Grilled on Groups’ Spending,” told of a United State Congressional investigation into questionable spending by two charities created to help Veterans. The story is instructive in that it highlights the increased scrutiny by both Congress and the IRS regarding charities.
As background, there are two necessary parts to creating a Section 501(c)(3) charity. First, you create an entity under state law, typically a corporation. Second, you file a “Form 1023” application with the IRS. The Form 1023 is extremely detailed and thorough. Once the entity is created, an annual tax return is filed. Interestingly, assuming the IRS approves the application, the approval date is retroactive to the date the state jurisdiction recognized the corporation.