Tax-Exempt Nonprofit Organizations in Wisconsin

Tax-Exempt Nonprofit Organizations in Wisconsin

Do you hold a charitable intention close to your heart but are not sure on how to begin the process to form your new organization?  It is important to note that a nonprofit and a tax-exempt are commonly thought to be the same entity; however, these entities have a significant difference. A “nonprofit” is a nonstock corporation formed for a nonprofit purpose under Chapter 181 of the Wisconsin Statutes. A “tax-exempt” organization is a nonprofit organization with an additional qualification: the Internal Revenue Service (IRS) has recognized the organization as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. This formal exemption is the reason that tax-exempt organizations are commonly referred to as a “501(c)(3).”  The formation of a tax-exempt nonprofit organization requires, at a minimum, the following steps.

First, you should determine your specific charitable purpose and goals for your organization. You should also consider whether there is a specific need for a new organization with this charitable purpose. Under Section 202.11(2) of the Wisconsin Statutes, a charitable purpose must be for a benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary (charitable) objective. Further, to be recognized as a tax-exempt organization, your charitable purpose shall also fall under Section 501(c)(3) of the Internal Revenue Code.

Second, as you consider forming your organization, you should determine a name for your organization. This name must be distinct from other organizations registered in Wisconsin. Your attorney can assist you with determining the availability of your desired name.

Third, you should identify the initial directors and officers of the organization. A good rule of thumb for selecting directors is to identify at least three people that support your charitable purpose. These directors will govern the operation of your organization. The officers that you should elect are President, Vice President, Secretary and Treasurer. The roles for each officer are explained in the initial governing documents.

Fourth, after you determine your charitable purpose, name and initial directors, your organization must file Articles of Incorporation with Wisconsin and obtain an employer identification number. The Articles of Incorporation formally create your organization and describe the initial key operational details for your organization. Your attorney can assist with drafting and filing of these Articles of Incorporation with the Wisconsin Department of Financial Institutions (DFI). After filing the Articles of Incorporation, the organization shall obtain an employer identification number from the IRS.

Fifth, now that your organization is registered with Wisconsin, you should prepare the organizational documents and hold the organization’s initial meeting. You will need bylaws, which provide for the overarching terms that govern the organization, including the duties for directors, voting requirements and roles of officers. You should have a conflict of interest policy which states that any key person within your organization shall set aside any personal interests that may compete with the interests of the organization. Each director, officer and other key person shall sign an acknowledgement of this policy and disclose any potential competing interests. Your attorney can assist with the drafting of the bylaws, conflict of interest policy and other necessary organizational resolutions and acknowledgments to make sure the intentions of the organization are met and protected. When the documents are ready, you should hold an initial meeting of the directors and officers, at the meeting you will adopt and approve the documents and discuss the initial actions of the organization.

Finally, you should obtain 501(c)(3) status and any necessary state tax exemption status. Your accountant can assist you with the preparation and filing of Form 1023 or Form 1023-EZ to obtain tax-exempt status from the IRS. After you receive your tax-exempt status from the IRS, you should file the Form S-103 Application for Wisconsin Sales and Use Tax Certificate of Exempt Status with the State of Wisconsin. You should also consider whether it is necessary to register as a charitable organization with the Wisconsin Department of Financial Institutions.

The experienced business law attorneys at Anderson O’Brien, LLP are happy to answer your questions regarding the most suitable organization for your intentions and to guide you through the formation process and ongoing operations of your desired organization.


Is It Legal to Write Your Own Will?

Is It Legal to Write Your Own Will?

We often hear this scenario: you handwrite your final wishes and sign the document before storing it in your safe, bank box or another safe place. Is this document a valid Last Will and Testament to carry out your wishes?

In Wisconsin, this handwritten document is considered a “holographic” will. A holographic will is a handwritten document that is signed by the testator, being the person who intends to formalize their distribution intentions, but is not witnessed or notarized. Under Wisconsin law, such a will is not properly executed and is not considered a valid Last Will and Testament.

For a Will to uphold and truly carry out the final wishes of a testator, the document must be properly executed with a number of formalities. First, the document must be signed by the testator, either by the testator or with assistance of another person with the testator’s consent, or by another person with the testator’s direction and in the testator’s conscious presence.

Second, the document must be signed in the conscious presence of two witnesses. Alternatively, the testator may implicitly or explicitly acknowledge the signature on the Will or acknowledge the Will itself in the conscious presence of the two witnesses.

The two disinterested witnesses must sign the Will. These two witnesses shall be disinterested, meaning that they do not stand to inherit from the testator’s estate via the Will and they are not listed as fiduciaries in the Will.

A witness’s signature is not considered proper if the witness does not either actually witness the testator’s signing or receive the above-described acknowledgement from the testator. For example, a Will cannot be signed by a third-party at a different location without any acknowledgement from the testator. Further, Wisconsin does not allow for the signing of Wills via video conferencing.

You may also further protect your intentions by self-proving your Will at the time of execution if you sign your Will under oath and witness. To formalize this self-proved Will, you should sign your Will in the presence of a notary public and receive an official seal.

If you have questions about your estate planning options and whether a Will or another document is the right fit for your intentions, the experienced estate planning attorneys at Anderson O’Brien, LLP are happy to meet with you to discuss your options.

Completing LLC Organization Through Agreements

Completing LLC Organization Through Agreements

You have made the decision to start your own small business. That is great news! But what steps should you take now to properly organize your limited liability company?

In Wisconsin, the first step of limited liability company formation is to decide on a name and file Articles of Organization with the Wisconsin Department of Financial Institutions. The articles establish your business with the State of Wisconsin and specify whether your business is managed by members or managers, who will serve as your registered agent, and the principal location of your business.

Many individuals file articles online, but do not complete the other steps to best protect their business and to take full advantage of the limited liability protection provided for by a limited liability company.

The next step is to develop and execute an Operating Agreement for your limited liability company. An Operating Agreement guides how your new business will function. You will draft your Operating Agreement to determine voting rights and duties of members, management terms of members or managers, member ownership interest, and meeting requirements. The Operating Agreement, when fully executed, protects the members from personal liability for actions of the limited liability company. This point is important because without the executed Operating Agreement, the members will likely be subject to personal liability as they would be if they operated with a sole proprietorship or partnership. Resolutions by the organizers, members, and/or managers adopting the Operating Agreement and member lists should be executed at the same time.

The final step to develop your new limited liability company is to determine whether to draft a Buy-Sell Agreement. This agreement is very important to limit conflict when a limited liability company has multiple owners. The terms of this agreement determine the process for transferring business ownership and anticipates various scenarios which will likely lead to conflict. Such scenarios include the determination of the fair market value of the business and a selling member’s interest, what happens to the shares of a member in the event of death or divorce, how shares are transferred when a member retires, and who has the option to purchase ownership in the limited liability company.

The business attorneys at Anderson O’Brien are happy to provide you with personalized guidance on the topics covered in this post, as well as decisions regarding the nuances of the tax elections, management decisions, proper record-keeping, and other steps to formalize your new limited liability company.


County Claims on Residence for Delinquent Property Taxes

County Claims on Residence for Delinquent Property Taxes

If you own real estate in Wisconsin, you are familiar with the annual property tax bills that arrive in the mail each December.  You are also aware that you are required to pay your tax installments to the County Treasurer by January 31st and/or July 31st of each year.  When a landowner does not pay property taxes for that year, the local County Treasurer will issue the landowner a tax certificate for the delinquent taxes.

Generally, the landowner has a two-year period to pay delinquent taxes and redeem their property from the County.  After those two years have passed and a landowner has failed to pay taxes to redeem the property, the County may obtain the property by 1) recording a tax deed with the Register of Deeds, 2) foreclosing the tax certificate, or 3) foreclosing the tax liens against the property.  During each of these processes, the landowner has another chance to reclaim the property.  Under the first process, the owner may reclaim the property any time before the County Treasurer records the tax deed.  Under the second process, the owner may reclaim the property before the property is sold at a foreclosure sale.  Under the third process, the owner may reclaim the property within eight weeks after the County Treasurer publishes notice of the foreclosure of the tax liens in the newspaper.

If the owner misses any of these opportunities to reclaim the property, the County will acquire title to the property through one of the three above-described processes.  Once the County acquires the property, the County may sell the property to a willing buyer.  At this point, the owner’s very last option to reclaim their property is to purchase it back from the County.

But is that really the last chance?  If the County acquires the property by recording a tax deed, the owner has an additional three years from the date of recording to commence an action to reclaim the property.  The original owner would need to be successful in obtaining a judgment against the County, which can involve a long and costly litigation process.

So, what does this all mean for buyers who purchase unredeemed property from the county?  Buyers should be aware of the risk that the original owner has three years to commence an action to recover the possession of the property, even after the buyer purchases the property from the County.  Although the likelihood that an original owner would go through the time and expense of commencing a civil action is very low, buyers must be aware of the three-year risk and should consider the risk as they decide to purchase the property.


Maximizing Bequests with Charitable Contributions

Maximizing Bequests with Charitable Contributions

Many Americans wish to leave a donation to their favorite charity, community foundation or nonprofit organization when they pass away. You may be one of them. Often people decide to donate by gifting a specific dollar amount or percentage from the residue of their estate. However, you could make the most of your philanthropic intention by designating your selected organization as a beneficiary of your tax-qualified retirement plan.

Qualified retirement plans are IRS-approved retirement accounts in which income accumulates, tax-deferred, over time. These types of accounts remain the leading form of a retirement account because they allow individuals to grow their pre-tax contributions over the course of their working career. Common examples of these accounts include non-Roth IRAs, employer-sponsored 401(k)s, profit-sharing plans, and public sector 403(b) plans, as well as other tax-deferred plans.

Rather than administering your retirement account as part of your estate and making a specific bequest in the form of a cash gift to the organization, you can name the organization as a direct beneficiary of your retirement account. By naming the organization as a direct beneficiary, you will notice a double tax benefit. First, your estate will not be required to pay federal estate taxes, if the value of your estate is greater than the federal estate tax exemption, because the retirement account will receive a charitable deduction. Second, charitable organizations are tax exempt, meaning that the organization is not required to pay federal or state income taxes on the gift it receives. The organization will receive the entire balance of the account, making the most of your gift.

Another tax benefit to consider arises if you intend to give part of your estate to charity and part of your estate to individual beneficiaries. When an individual beneficiary, such as a child, receives your qualified retirement account, the IRS requires the individual to pay income taxes on the distribution. Therefore, the individual would not receive the full retirement account value. In this circumstance, you should consider leaving these individuals the remaining non-qualified accounts from your estate, such as post-tax investment accounts, Roth IRAs and common stocks. By gifting qualified accounts to a charitable organization and gifting non-qualified accounts to individual beneficiaries, you will maximize the amount you leave to all beneficiaries. Being mindful about your beneficiary designations allows you the opportunity to minimize tax payments and to make the most of your legacy gift.

If you plan to leave a percentage of a qualified retirement account to a charitable organization and the remainder to a noncharitable beneficiary, you should be aware of impacts to required minimum distributions of your beneficiaries. The timeline for the required minimum distribution for the noncharitable beneficiary may be accelerated and the individual would not be able to take the required distributions over their life expectancy. You should be on the lookout for associated tax implications before finalizing your estate plan.

An estate planning attorney, such as the skilled attorneys at Anderson O’Brien, can offer guidance as you consider a charitable gift as part of your legacy to leave a lasting impact on your community or a charitable cause that is meaningful to you.