Could my uncle’s work with family genealogy qualify him for a 501(c) nonprofit business?

by Michael F. Cade, CPA, CGMA | Aug 20, 2018

My uncle is doing our family genealogy and publishing the work in book form in the public domain. Does this work qualify him for a 501(c) nonprofit business? He puts a lot of money into the continued research. We would also like to advertise these books (not for money, just that they exist), and think that forming an official business after our ancestral name would help. The books are free to read, free to download, and possess a huge amount of information about the family. 

Nonprofits are formed to address a public need. While family genealogy is a worthwhile endeavor, it may not meet the IRS’s standards to qualify for tax-exempt status, but the educational aspects of your uncle’s work may help his case. The IRS is responsible for determining if an organization qualifies for federal tax-exempt status. Check out information from its website on the formation of a nonprofit, including the factors that it considers.

Also, be aware that there are benefits and costs associated with the tax-exempt status. Make sure that the administrative costs of the exemption are not larger than the benefits.

The primary benefits of tax-exempt status include:

  • The ability to receive donations that are tax deductible for individuals who itemize on their tax returns.
  • Not paying federal income tax on any funds derived by the organization that are directly related to its tax-exempt purpose.
  • Some states provide sales tax exemptions for certain nonprofits for purchases made to support the organization’s tax-exempt purpose.
  • Some businesses provide discounts for certain 501(c) nonprofits.

To qualify for tax-exempt status, there are a number of up-front and ongoing cost considerations:

  • The organization needs to have a structure, such as a corporation or association. Regardless of type, formal documents are required to apply for the tax-exempt status, which may result in some legal costs.
  • To obtain the tax-exempt status, the organization will need to file a Form 1023 or 1023-EZ with the IRS. The IRS charges a user fee that must be paid with the tax-exempt status application.
  • To maintain the organization’s tax-exempt status, the organization must file a nonprofit return (Form 990 or 990EZ) every year.
  • The organization will need to maintain records to track funding and expenses.
  • The organization may need to register in its operating state for a business license.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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