What can you do with a nonprofit corporation?

There were 22,743 not for profit corporation tax returns filed in Illinois in 2016, a quarter as many as the 89,987 C corporations reporting that year. There was an average of one nonprofit for every 57 Illinois residents.

Alexis De Tocqueville called associations an essential part of the American character in his 1835 book Democracy In America. He said "Everywhere that, at the head of a new undertaking, you see the government in France and a great lord in England, count on it that you will perceive an association in the United States. In America I encountered sorts of associations of which, I confess, I had no idea, and I often admired the infinite art with which the inhabitants of the United States managed to fix a common goal to the efforts of many men and to get them to advance to it freely."

The Internal Revenue Code, which Illinois law follows, permits exemption from income taxation for 28 different purposes under Section 501(c), for everything from religious and apostolic organizations to nuclear electric power plant decommissioning trusts.

Banks, insurance companies, hospitals, electric utilities, and political campaigns can all qualify for an exemption. So can veteran's groups, horticultural societies, and fraternal lodges dedicated to bingo and alcoholic celebrations. Private foundations can be exempt if they distribute enough of their funds every year.

State sales and property tax exemption tests are stricter.

For charities and religious organizations, exclusively exempt ownership and use of a property are required, as is proof of primarily charitable activity, not just services paid for by state, local, or federal governments.

Creative financing may still be possible. A 99 year lease to a for-profit limited partnership which could attract investors with low-income housing tax credits did not destroy a housing authority's exemption in an Illinois Department of Revenue decision this year, since property use was limited to low-income housing, the for-profit had no right to sell the land, and the authority controlled activity on site.

Sales tax exemption applicants must also show that their income comes from primarily from charitable donations, not from low or high-profit sales or private and government contracts.

The reasons for organization as a not for profit, apart from tax exemptions, are as different as the groups that organize such corporations. Research organizations may need nonprofit status to qualify for foundation grants. Mutual insurance companies use exemptions to build up tax-free reserves to pay benefits.

Surgeons form medical groups to share costs and to benefit from group practice exemptions from the "Stark" regulations, which limit lab referrals and prescription revenue to operations owned by individual doctors. Nonprofit group practices can have such affiliates and can also pay their organizers fair market value salaries.

The "one person, one vote" form usual for membership organizations, and their organization with entity officers to hire and supervise staff, and a policy-setting Board of Directors (or trustees, or elders, or Patriarchs Militant, for the Odd Fellows), matches the republican form of government usual in the United States of America. Democracy is not, however, required for all tax-exempt nonprofits.

Many boards elect their successors, and local entity management can be named by outside authorities, like cardinals by the Catholic Pope.

Nonprofits serve the public.

Tax-exempt groups can pay no more than fair market value for services or property, and public charities cannot operate for the sole benefit of a particular set of "owners."

For this reason, nonprofit organizers may run multiple entities with different tax rules on capital accumulation and likely sources of investors simultaneously, such as research foundations, manufacturing companies to commercialize the intellectual property the foundations create, and medical practices or real property trusts.

If you have nonprofit questions, you can reach me at www.growthlaw.com.

• William A. Price is Attorney at Law at Growth Law in Warrenville.