How to Form a Community Land Trust as a California Not-For-Profit Corporation
Prepared by: Secretary Kay M. Gilbert
Originally to: Mundo Iximché Board of Directors
Date: 15 October 2004
Notice: This document was not prepared to give legal advice to Mundo Iximché. Please consult a lawyer: different requirements may apply depending on your specific needs and circumstances.
- Sources:*
- Community Land Trust Legal Manual (Springfield, MA: Institute for Community Economics, 2002)
- IRS Publication 557, “Tax-exempt status for your organization”
- IRS Publication 4220, “Applying for 501(c)(3) tax-exempt status”
- IRS Publication 4221, “Compliance guide for 501(c)(3) tax-exempt organizations”
- Anthony Mancuso, The California Nonprofit Corporation Kit, 3rd Edition (Berkeley: Nolo Press, 2001)
- Peter B. Manzo & Alice Espey, Get Ready, Get Set: What You Need to Know http://before Starting a Nonprofit (Los Angeles: Center for Nonprofit Management, 2004)
- Public Counsel, “Steps to form a California nonprofit tax-exempt organization”
- Los Angeles Eco-Village document generated at retreat with ICE’s Rick Jacobus (7/24/04)
- California Department of Justice, Office of the Attorney General, Nonprofit Integrity Act of 2004 (SB 1262) seminar (11/17/04)
(i) In the CLT Legal Manual
(n) In the Nolo Press manual and accompanying cd-rom: confirm that it is the current version
(p) Public Counsel has a template
[indicates steps that must be taken before or after other steps, or within a specific time period]
1. Choose a corporate name and reserve it with California Secretary of State (n)
Information at http://www.ss.ca.gov/business/corp/corp_naav.htm and http://www.ss.ca.gov/business/corp/corp_artsnpinf.htm, name availability at http://www.ss.ca.gov/business/corp/corp_naav.htm, name reservation form at http://www.ss.ca.gov/business/corp/pdf/naavreservform.pdf.
California nonprofits may not use the words “Bank,” “Trust” or “Trustee” in their names, and the IRS disapproves of the word “Trust” in the name of anything but a private foundation.
2. Submit Application for Employer Identification Number to IRS
Download Form SS-4 at http://www.irs.gov/pub/irs-pdf/fss4.pdf.
3. Form CLT planning committee, educate the community and recruit first Board of Directors
[must precede 13.]
Recruit volunteers for the 1/3 of Board members who come from the local community and the 1/3 who represent the “larger public interest” (elected officials, accountants, attorneys, affordable housing developers, activists, environmental organizations, green builders and developers, realtors, etc.).
4. Prepare Bylaws (npi)
Traditionally, Articles of Incorporation come first. However, Articles and Bylaws must be consistent. Since Bylaws are broader and more detailed than Articles, it is easiest to draft the Bylaws first and then adapt them for the Articles.
The Bylaws specify the terms of the CLT, the restrictions designed to preserve affordable housing and the environmental sustainability requirements. Specify that the CLT is a membership organization, and define members’ duties, powers and rights.
5. Prepare Articles of Incorporation (in)
Download instructions and sample Articles at http://www.ss.ca.gov/business/corp/pdf/articles/corp_artsnp.pdf.
The Articles must state:
a. corporate name
b. that it is a public-benefit corporation organized for charitable purposes
c. specific purposes
d. name and address of initial agent for service of process
e. tax-exempt purpose(s) under IRC §501(c)(3) (for a CLT, “charitable” and “relief of the poor and distressed or of the underprivileged” should be in there). Under the “safe harbor” provisions, up to 25% of units can be sold/rented to people of moderate or higher income, but then it would be safer to be able to also state one or more other recognized charitable purposes, such as “to combat community deterioration” and “environmental conservation.”
f. names and addresses of initial directors
g. that its property is dedicated to an allowable purpose, with no part inuring to the benefit of any corporate actor or private person, and that on dissolution, all assets go to another nonprofit with the same allowable purpose.
h. signatures of initial directors/incorporators
i. distinct CLT features, including:
- membership categories;
- members’ power to elect the Directors and amend Articles and Bylaws;
- land-stewardship restrictions on the CLT;
- resale restrictions on the residents.
6. Consolidate paperwork and set up Corporate Records Book
This book holds copies of the bylaws, articles of incorporation and the minutes of the first meeting of the Board of Directors (or the Incorporators) and all the meetings that follow.
Have a system for keeping financial records as well. The IRS requires that whatever system one chooses clearly show income and expenses for each tax year, and the sources of income, using either an accrual or a cash accounting method. Organizations with more than one program must have separate records for each. The records should have a summary of transactions showing gross receipts, functional expenses, deductions and credits. Supporting documents in the records should include grant applications and grants, sales slips, paid bills, invoices, receipts, deposit slips and canceled checks.
7. Make four copies of Articles
One goes in the Corporate Records Book; three go to the Secretary of State (8.).
8. File Articles with California Secretary of State (n)
[must precede 9. & 11.]
Filing Articles creates the legal entity of the corporation. Submit a check for the fee, a cover letter, the original Articles and three copies, two to be certified and returned, one to be forwarded to the California Attorney General (18.).
Once the Secretary returns the two certified copies, make four copies of one certified Articles. File one of the certified copies returned from the Secretary of State with the FTB (9.) and one with the IRS (11.). Of the four copies of the certified Articles, put one in the Corporate Records Book, replacing the uncertified copy. File one with the US Postal Service for a nonprofit mailing permit (15.) and two with the Tax Assessor’s office if one seeks an exemption from paying local personal and real property taxes.
9. Register with California Attorney General Registry of Charitable Trusts
[must file within 30 days after 8. if the nonprofit has already received any assets (cash or goods); if not, must file within 30 days after receiving assets]
Download instructions, http://caag.state.ca.us/charities/forms/charitable/ct1_instructs.pdf, and form CT-1 at http://caag.state.ca.us/charities/forms/charitable/ct1_form.pdf. More information at http://caag.state.ca.us/charities. The initial registration package comprises:
a. Form CT-1 [attached here with instructions],
b. Articles of Incorporation,
c. Bylaws,
d. IRS Determination Letter (if the IRS has already issued it),
e. Form RRF-1, and
f. One of the following financial documents showing revenue and/or assets:
- an independent audited report,
- a financial statement,
- IRS Form 990, 990EZ or 990PF, or
- Franchise Tax Board Form 199.
Send this initial registration package—and annual Form RRF-1 updates—to:
Registry of Charitable Trusts
Box 9034437
Sacramento, CA 94203-4470.
10. Prepare and file California Franchise Tax Board Exemption Application
[must follow 8.]
a. FTB Form 3500: Exemption Application, http://www.ftb.ca.gov/forms/02_forms/02_3500bk.pdf, or call 800.852.5711.
b. FTB Form 3520: Power of Attorney, Declaration for Administration of Tax Matters, see http://www.ftb.ca.gov/forms/misc/3520.pdf, fillable form at http://www.ftb.ca.gov/other/poa/forms.html. Additional information and forms at http://www.ftb.ca.gov/forms/index.html.
11. File Statement of Information by Domestic Nonprofit Corporation (SI-100) with California Secretary of State
[must file within 90 days after 8.]
Instructions and sample form at http://www.ss.ca.gov/business/corp/pdf/so/corp_so100.pdf.
12. Prepare and file application for federal tax-exempt status with Internal Revenue Service
[must follow 8.]
General information at http://www.irs.gov/charities/article/0,,id=96109,00.html, forms at http://www.irs.ustreas.gov/charities/index.html, or call the IRS at 800.829.3676. Copy all materials submitted and place them in the Corporate Records Book.
a. [must file after 5., within 15 months, or within 90 days after the end of the year if gross receipts exceed $5,000.] Form 1023: Application for Recognition of Exemption under Section 501(C)(3) of the Internal Revenue Code, www.irs.gov/pub/irs-fill/k1023.pdf. Submit the correct fee with the form.
b. Form 872-C: Consent Fixing Period of Limitation Upon Assessment of Tax Under Section 8940 of the Internal Revenue Code, see page 19 of Form 1023.
c. Form 8718: User Fee for Exemption Organization Determination Letter Request, www.irs.gov/pub/irs-fill/f8718.pdf
d. Form 5768: Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation, http://www.irs.gov/pub/irs-fill/f5768.pdf.
e. Form 2848: Power of Attorney and Declaration of Representative, instructions at http://www.irs.gov/pub/irs-pdf/i2848.pdf, fillable form at http://www.irs.gov/pub/irs-fill/f2848.pdf.
13. Mail IRS Determination Letter to California Franchise Tax Board
[must follow 11.]
Send a copy with a cover letter.
14. Hold first Board meeting
[must follow 4.]
At this meeting, the Directors should:
a. accept their election as Directors;
b. approve the bylaws;
c. elect officers;
d. authorize officers to prepare and present a budget, and to seek federal and state tax exemption (if not already done);
e. authorize officers to set up bank accounts for the corporation;
f. ratify organizers’ actions to create the corporation and pursue tax exemption.
15. Prepare minutes of first board meeting (n)
Prepare organizational minutes of Board of Directors and file in Corporate Records Book. Include any necessary attachments.
16. Apply for nonprofit mailing permit to United States Postal Service
[must follow 8.]
Get a third-class nonprofit mailing permit, with lower rates than regular mail. This requires both a one-time and an annual fee, so only do it if the savings will be greater than the fees. Submit the following to a main post office branch:
a. a certified copy of the Articles
b. a copy of the Bylaws
c. a copy of the tax-exemption Determination Letter from the IRS
d. a copy of the tax-exemption Determination Letter from the FTB
e. copies of program literature, newsletters and other promotional materials.
Fill out a short application and pay the fees.
17. Apply for California property tax exemption to the County Assessor
[must follow 12., may have to follow 19.]
California Revenue and Tax Code §214 has a “welfare exemption” from paying real- and personal-property taxes. Most nonprofits that meet IRS 501(c)(3) requirements will also qualify here. Nonprofits that lease their property to another entity may qualify, if that entity also qualifies for the welfare exemption. See California Revenue and Tax Code §§251 & 442. Get three complete sets of the welfare-exemption claim forms from the County Assessor.
18. File Domestic Nonprofit Corporation Statement with the California Secretary of State
[must file within 90 days after filing Articles]
The office will send the nonprofit this form after it files Articles. Must refile every 2 years, either Form 50-200C, or Form 50-200NC if there are no changes from the previous filing. Download forms at www.sa.gov/businesss/corp/corps_formsfees.htm.
19. Develop ground lease defining the relationship between the CLT and the Limited Equity Housing Cooperative (LEHC) or other entity (i)
In order to draft the ground lease, one must first:
a. develop a resale formula including
- initial purchase price
- formula for building equity
- price adjustments
- method for locking in subsidies
b. design a ground-lease fee including amortized property taxes, if not exempt
c. create a Permitted Mortgage Agreement for residents financing their units. (i)
20. Purchase land for the Trust (i)
There are several methods of transferring the owner’s interests to the two entities, the CLT buying the land and the individual homebuyers, renters or LEHC. If the residents are not buyers, the CLT will need a lease agreement with the residents.
21. Develop property acquisition strategy and staffing plan for expansion
Identify properties surrounding the CLT. Find abandoned-property records through tax records. Speak with individual residents and owners, and hold community information meetings. Recruit local realtors to find properties.
Contact federal and state government representatives about areas with abandoned or undeveloped properties and development programs or other funding sources.
a. Senator Barbara Boxer, 112 Senate Hart Ofc. Bldg., Washington, DC 20510-0505, 202.224.3553, 202.228.0026[fax], http://www.boxer.senate.gov/contact/webform.cfm, www.boxer.senate.gov; 312 N. Spring St. #1748, Los Angeles, CA 90012, 213.894.5000, 213.894.5042[fax]
b. Senator Dianne Feinstein, 331 Senate Hart Ofc. Bldg., Washington, DC 20510-0504, 202.224.3841, 202.228.3954[fax], http://feinstein.senate.gov/email.html, http://feinstein.senate.gov/; 312 N. Spring St. #1748, Los Angeles, CA 90012, 213.894.5000, 213.894.5042[fax].
c. US House of Representatives, Rayburn House Office Bldg., Washington, DC 20515, Capitol Hill switchboard 202.224.3121, www.house.gov
d. California Senate, State Capitol, Sacramento, CA 95814, http:;//www.sen.ca.gov
e. California Assembly, State Capitol, Box 942849, Sacramento, CA 94249-0000, 916.319.2355, 916.319.2364, www.assembly.ca.gov/defaulttext.asp
f. County Boards of Supervisors, http://www.ca.gov/state/portal/myca_sites.jsp?sCatTitle=County+Sites&BV_SessionID=@@@@0615366781.1099896210@@@@&BV_EngineID=ccchadcmmjjglekcfngcfkmdffidfof.0; in Los Angeles County, Kenneth Hahn Hall of Admin., 500 Temple St. #383, Los Angeles, CA 90012, 213.974.1440, http://lacounty.info, 213.974.1411, executiveoffice@bos.co.la.ca.us, http://bos.co.la.ca.us/
g. City Councils, http://www.ca.gov/state/portal/myca_sites.jsp?sCatTitle=City+Sites&BV_SessionID=@@@@0615366781.1099896210@@@@&BV_EngineID=ccchadcmmjjglekcfngcfkmdffidfof.0; in Los Angeles, City Hall, 200 N. Main St., Los Angeles, CA 90012, 213.485.5705, http://www.lacity.org/, www.ci.la.ca.us
22. Raise money for CLT operations and property-development staff
Revenue sources include HUD programs, affordable-housing grantmakers, environmental-sustainability grantmakers, private donors and membership fees. In-kind services and goods can come from green builders, recyclers, churches and community associations. Groups that offer support services to nonprofits include the California Association of Nonprofits, the Center for Nonprofit Management, the Legal Aid Foundation, and, in Los Angeles County, the Liberty Hill Foundation and Public Counsel.