This content is provided as a guide to general information related to the law and legal procedures but does not constitute legal advice. You are advised to consult a lawyer for legal advice pertaining to all base, local and federal government compliance and operating restrictions.
Traditionally most snackos have operated as unincorporated non-profit organizations. Any group of people joining together for the purpose of non-profit activity that has not filed legal paperwork has formed an unincorporated non-profit whether they know it or not. So long as an unincorporated non-profit has less than $5,000 in annual revenue it may continue to function without any filing requirements to the IRS. Once revenues exceed the $5,000 annual threshold, or more specifically the three year gross receipts test, the organization must apply for tax-exempt status.
Non-Profit vs Tax-Exempt
There is a common misconception that being a non-profit means you are exempt from paying taxes. The term "Non-Profit" is a state construct that defines a type of corporation. Non-Profit organizations are incorporated at the state level and must apply separately for "Tax-Exempt" status. In many states federal approval and recognition of "Tax-Exempt" status with the IRS will carry over to state Tax-Exempt recognition as well. Even unincorporated non-profits (those who haven't filed any paperwork to incorporate with the state) can apply for federal "Tax-Exempt" status. The current fee to apply for Tax-Exempt status with the IRS is $275.
UBTI - Unrelated Business Taxable Income
Tax Exempt organizations may still be liable for tax on income from business that isn't considered to be substantially related to the purpose that is the basis for the organizations exemption. If you have more than $1,000 of unrelated business income you must file an additional form annually and if you expect to owe more than $500 in taxes you are required to make quarterly estimated tax payments. Examples of unrelated business income generally relate to the sale of merchandise or food, beverages and services to the public.
Getting an EIN from the IRS does not fulfill your tax obligations with the IRS. An EIN, or Employer Identification Number, is essentially an account number that is used to identify your organization when dealing with the IRS. Organizations with annual revenues less than $5,000 as described previously do not need an EIN, however banks generally require one to open an account in which case you may have an EIN regardless. An EIN is required to apply for Tax-Exempt status.
If you are making more than $5,000 annually or have decided to file for tax exempt status with the IRS you will first need to decide if you are going to incorporate or proceed as an unincorporated non-profit. Remember incoporation occurs at the state level and since laws vary state by state we recommend you consult with an attorney regarding the proper method of proceeding. Next you will need to get an EIN to begin your application with the IRS. There are multiple categories non-profits may apply for, but the common military organization section is 501(c)(19) which carries the following requirements.
- It must be organized in the United states or any of its possessions
- At least 75% of its members must be past or present members of the United states Armed Forces
- At least 97.5% of its members must be past or present members of the United states Armed Forces (or their spouses, widows, widowers, ancestors, or lineal descendents) or cadets (including only students in college or university ROTC programs or at Armed Services Academies).
- It must be operated exclusively for one of the IRS listed purposes which includes "to provide social and recreational activities for members".
- No part of its net earnings may inure to the benefit of any private shareholder or individual.
While most Snackos operate exclusively on base there may still be requirements in regard to state Law, especially if conducting business transactions with the public. Also consider that if you wish to formally incorporate as a Non-Profit organization you would have to do so through the state itself. Because every state has different rules governing aspects of operation and licensing we recommend you consult an attorney regarding your state.
Military services have their own requirements for private organizations operating on base. In the Air Force for example AFI 34-223 states that "unofficial unit-affiliated activities" such as snackbar activities are not considered Private Organizations unless current assets exceed a $1,000 monthly limit. AFI 34-223 furthermore defines the requirements and operations of Private Organizations.