An union member friend, his son, and myself are starting our own small model railroad group in my home state of Illinois and running into some problems that only other modelers would know or could relate to. My friend lives near Boston, his son lives in Tennesse, and I live in Indiana. Commuting to Illinois wouldn't be a problem at all since Amtrak runs from Boston through Indianapolis to Chicago so my friend and I can always reach the clubhouse to maintain and a train from Memphis to Chicago will make it easy for his son to attend meetings and openhouses
Aside the commuting, we do not have a solid location yet so when we are filling out the application for Illinois we are thinking of putting a public library address until we can licensed and fill out paperwork to change the location to a building or land address in the future.
My question is, are we going about it the wrong way and if so, is there any way of obtaining a nonprofit license so we can start our club?
Thank you and please keep your comments professional.
Mr. LMD, Owner, founder
The Central Chicago & Illinois Railroad
Yes, you are going about it the wrong way. Why would you think that the local library is going to want to sort your mail out of their mail? Or allow you to go through their mail to take out your stuff?
If this "club" of yours is just going to be the three of you, then one of you will have to use his name to get a PO box at the local post office. Of just have the mail sent to one of your houses.
If you are going to have a club open to all comers, then you will need to determine a club name, probably decide what type of non-profit club you want to be, hire a lawyer to do all the proper paperwork to get you recognized in Illinois, and then get an Illinois PO box using the club name as the addressee.
Note that the PO will probably require one of you to give them your real address so that they can track you down if you don't pay the bill.
Do you think you need incorporated nonprofit status? That is usually for groups that either make income from their activities, or want to accept donations that are tax deductible. And the IRS is not likely to rush to grant 501(c)(3) tax exempt status to any kind of model railroad club unless it can qualify as a museum, or has an actual educational component that is active. There is a recent trend for some large clubs to organize as "museums" to obtain 501(c)(3) status but I have a hunch that at some point the IRS is going to start looking at such museums with a very suspicious eye. A bunch of guys enjoying building a layout and having operating sessions does not a museum make. There has to be something more and it has to be real.
As to incorporation or formal organization (corporation, partnership, limited liability company, or limited liability partnership) that would only be something to consider if the club is going to hold substantial assets, such as buying your own building and needing insurance on it, or buying large quantities of model train stuff in common ownership. A simple partnership might be in order for the normal model train club but again there are many many clubs that have no FORMAL form of organization whatsoever and do just fine.
I can say that if you want insurance both for the property and liability insurance to protect you in the event of visitors or open houses and such, that a formal organization makes sense. Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs) are popular forms of organization for smaller outfits that seek to protect their members from personal liability.
I agree with the above poster about using some library's address as your address. If government wants an address they want it for a reason and a library would be ill advised to lend its address to just anybody or any group that wants to form a formal organization of some kind. I suggest getting a real address. If you retain counsel to create your organizing papers somethings they serve as the "agent" for such purposes and their address is used.
One of the topics that your counsel will ask about to include in your formal paperwork will involve what happens in the event of dissolution of the organization? Who gets the stuff? Who gets any money? Think about that now before making stuff up on the fly in his office while his meter is ticking to the tune of $200 or more per hour.
Dave Nelson
dknelsonDo you think you need incorporated nonprofit status? That is usually for groups that either make income from their activities, or want to accept donations that are tax deductible. And the IRS is not likely to rush to grant 501(c)(3) tax exempt status to any kind of model railroad club unless it can qualify as a museum, or has an actual educational component that is active.
There are other types of 501C status. The 501C3 is a non-profit which can accept tax-deductible donations. Our club is organized as a non-profit social organization. I believe that is a C7. We can accept donations, like from an open house, but those donations are not tax deductible for the donor.
There are rules that govern the use of any such donations. For example, they cannot be used for the benefit of individual club members. And I believe that there is a yearly limit for donations.
At the risk of being called "non-professional" by Mr. LMD, this whole idea sounds like a scheme to have expenses for a personal club written off by the government. I see no way that a "club" in a state where none of the three existing potential members resides will get approved for anything, just as I don't think commuting from Indiana, Tennesse, or Massachusetts to attend a club meeting in Illinois is ever really going to happen.
I actually have some experience in the non-profit sector in Illinois, included start-ups. There are a number of questions I would have and a bit of advice.
First, I presume you're talking about state non-profit tax exempt status? Because that's a different thing from federal IRS 501c3 status. Two different animals, although they sound like they are similar. I can go into more detail and will below to some extent, but no point in getting too much into detail until you're sure which one it is you're interested in.
Also be aware that you can have a"private association" in Illinois and it has some limited legal status. That very well might be enough for a model RR clubs, especially if it's juts a few close friends. It's basically a dba arrangement, let's you open a bank account, get a mailbox, etc. There is no registration AFAIK, you simply start calling yourselves that and when you go to the bank to open an account, for example, they'll ask what the legal status is most likely for setting up a non-personal account and you tell them it's the XYZ RR Club and it's a private assoiciation and that's usually all they need. The only drawback is there's no liability protection for the individual members.
That said, Illinois non-profit status is in a bit of turmpil in recent years. Part of it is driven by the desparate state budget situation, but we won't bother with the politics per se, as that is out of order here. However, I can teall you another part has been driven by large hospitals, including a local one, who have sought to transform their business model and claim non-profit status even for parts of the operations that have been profit centers. The state and local gov'ts aren't real happy about this, so they have been pushing back by challenging their non-profit status in various ways. To make this fair, they've also gone after just about any other non-profit in the state. The hospitals have teams of lawyers and have fought the state to a draw at this point. All the little non-profits don't have teams of lawyers.
For a number of years, I was the chair of the board and COO for a sizable but not huge non-profit here. We were a federal 501c3 almost from the get go, as well as being a Illinois non-profit and thus tax-exempt under state law, too. No need for details, but our mission involves news and arts media prodction and outreach. Most of our programs are open to the public and can be reduced or no-cost to anyone who simply asks -- we don't need to see your last year tax form or pay stubs. There's no question that it meets our charitable and educational requirements under 501c3 status. We even survived an IRS audit of the same because people didn't like our work rocking the local power structure.
But we no longer have state tax-exempt status. We're still a non-profit, etc, but we went back and forth with them for several years, and spent better than $10k on lawyers fees. Sorry Charlie, no more tax-free supplies, etc, all of which we clearly qualify for under the plain language of state law -- but not under the current interpretation of it by the state bureaucracy. So good luck with that.
Yes, you may still want to incorporate for liability reasons. If it's just good friends and the public isn't regularly on the property, a private association may fit the bill. A private association may even be able to get insurance, for instance. Anything more complicated than that and you probably need to talk with an attorney who's qualified by understanding the specifics of Illinois law as it's currently applied.
BTW, I agree that the library's address, unless that's where the club will be located, is a bad idea. You want to represent exactly who and what you are and have a definite point of contact when dealing with the state. Fixing things later will be a monumental hassle. It's bad enough when everything goes right, so you don't wnat to complicate anything that doesn't need to be in dealing with the state bureaucracy.
Mike Lehman
Urbana, IL
Thank you Mr. Mlehman,
I actually have all the basic paperwork and document required for filing, but we do not have a based location right now to put on the filing so I thought of just asking and paying a fee from a local library in Illinois where we figure the potential location would be located and when we obtain our status and donations we will buy land and remove the library to our new location of meeting. Our club primary objectives is allowing the open public visit and sometimes operate certain trains on the layout as well as have parents enroll their child(ren) into our club keeping them away from trouble and even take trips to the Illinois Railway museums. Our agenda from the beginning wasnt just to create a club and go into non-profit, but always include the youth, especially in illinois, to our club helping the hobby with new generations of modelers and train lovers.
I do agree using the library address is a bad idea, but as the Sec. of the state worded into in his guideline no non-profit organizations can use a PO as an address so we are stuck in a fork in the road. We have nothing to hide because really, why lie about a hobby and recreational activity (career for others) that you love??
I also thank you for not jumping the gun.
http://www.cyberdriveillinois.com/departments/business_services/incorporation/nfp_instructions.html
I would suggest talking to a Certified Public Accountant and or a Attorney, which are licensed in you respective State.
It will cost you a few dollars...but make sure that everything is Legal.
I don't think you want to spar with the Internal Revenue Service, as they can be absolute .... on non-profit organizations that are not set up legally.
Please do it legally, to save you all from disappointment in future.
I do know first hand of several incidents, which occured with a model railroad group and local railroad historical, in my area, that was a absolute mess, with theft of assets and finances.
Long story short, the model railroad group was never incorporated and the last president of the group, at the time of closure, was to have put around $600.00 remaining in the treasury, into a trust account, around 25 years ago.
Never was done, records "Lost" and I think you can figure out the rest....
No proof of evidence, so prosecution is impossible.
The historical group was indeed State incorporated an into a IRS 501 C-3 Status.
Still in operation, but is a Clic.
They have not had a turnover of elected officers in around 10 years and the treasurer has been in this capacity for around 25 years.
Poor book keeping and is not run as a business should be run. Yes a non-profit is indeed a business and if you think otherwise.......
Part of the Clic, is a attorney.
Rull number one, never have a member, particularly a board member, who is a licensed CPA and or a Attorney giving the organization advise and or given authority to undertake same for the organization.
You will run into problems PDQ.
The attorney member of that group, has continually given this organization rather poor legal advise.
Beware.
Board members should be elected by rank and file membership, via secret ballot.
Never...Never...Never... have any one person and or persons appointed to some capacity as a board of director member.
That's where serious trouble begins.
Board of Director's Meeting should be CLOSED, to Elected Board Members ONLY!
Never...Never... Never... have open board of directors meetings, where any rank and file member and or non-member of organization can come and attend and participate as if a board member.
You have a monthly membership meeting... for just that.
Democracy.
Beware of committes. I've seen it time and time again, were some think that they are board members and can do things without rank and file membership approval.
Theft...whether monetary and or moveable assets.
Never...Never...Never... let organizations moveable property out of custody.
Have seen too many things, end up at a member and or members homes and board does nothing about.
INVENTORY ALL moveable assets. Have back up copies and a fire safe.
Theft...Theft... Theft...
When a organization has well over $300,000.00 or so and or ANY amount of moveable assets and no accountability and inventory, watch out...THEFT!
Members volunterring to pick something up that has been donated. INVENTORY and location stored, otherwise, Theft...Theft...Theft...
Members using a organization, representing as same on a prospective doantion to organziation...
Several appointed by board to look into.
Report back, that something will be donated, but do not tell exactly what and or conveniently with hold further information, so individual and individual members can use contact, for personal gain for self and or selves, to add to personal collection (s). Theft...Theft...Theft...
A group within the group, that does not want to follow groups by-laws and do things on their own... TROUBLE!!!
Just a few things to be aware of.
Again, you organization IS a business.
We are trying to figure a way of filing the paperwork and getting approved, but the address is what's stopping us considering we have the money for the legal paperwork,but not the location right now. We want to be a non-profit and since "social clubs" are supposed to be extempt I do understand you're right. Right now there are only my union friend and his son and myself as the official members and board members with little chance of adding another person onto the board unless they are either business or railroad knowledgable. We plan on having backup copies of everything in a safe and pay in cash as much as possible instead of a bank account (IRS stealing money from businesses lately). I'm confident the other two individuals will not steal anything from the future layout as my friend is an union worker and currently making plans to be a conductor and his son know the law and rules of stealing.
Thank you for your advice and suggestion.