Prison Liaisons Compliance Monitoring for 501(c)(3)

A private foundation offers extraordinary flexibility and control, allowing its board full discretion over grantmaking and investments. The IRS grants these entities significant philanthropic capabilities—allowing them to award scholarships, run charitable programs, and grant to individuals or international organizations.

However, this latitude is paired with complex IRS rules and regulations, particularly those governing "self-dealing." These rules ensure that the foundation's tax-advantaged funds are used exclusively for public benefit, and not the personal interests of its founders.

The reality is that 501(c)(3) tax law is complicated and often non-intuitive. Even well-intentioned donors can inadvertently cause costly compliance mistakes. This is where Prison Liaisons steps in. We ensure your mission moves forward by securing the expert guidance and compliance services you need at the lowest possible cost.

With Prison Liaisons, you gain more than just monitoring—you gain a strategic advantage in managing compliance costs. We function as your dedicated liaison and project manager, connecting you with a network of vetted, specialized tax, legal, and accounting professionals who provide the necessary 501(c)(3) compliance services.

We benefit you by:

1. Vetting and Organization: We carefully source, qualify, and organize the best independent experts for the specific compliance work your foundation requires.
2. Cost-Efficiency Focus: Our primary goal is to leverage our industry knowledge to secure the lowest possible rates for every service needed, ensuring your budget is maximized for your charitable mission.
3. Active Management and Alerting: The experts we connect you with are on the job, actively monitoring day-to-day transactions and conducting continuous oversight. Should they flag a potential compliance issue, Prison Liaisons immediately alerts you and facilitates direct access to the necessary specialist to help you make timely, informed decisions.

We simplify the complexity of 501(c)(3) compliance by handling the vendor management and ensuring you receive high-quality service at the most cost-effective rate available.

Our comprehensive services are designed to address the most critical and complex areas of 501(c)(3) regulation, leveraging the cost-saving power of our partnerships:

• Grantee Verification (501(c)(3) Status): We utilize our partners to thoroughly review proposed grantees and confirm their status as a valid 501(c)(3) public charity in good standing before releasing grant funds.
• National and International Due Diligence: Our partnerships facilitate essential checks against national and international watch lists (including USA PATRIOT Act and Executive Order 13224 requirements) to verify grantee organizations and individuals.
• Grants and Expenses Monitoring: We proactively use partner services to alert you to grants or expenses likely to violate IRS regulations concerning self-dealing, excess business holdings, taxable expenditures, and more. We also ensure compliance with accountable plan rules by obtaining the necessary documentation.
• 5% Minimum Distribution Requirement: We track all qualifying expenditures to monitor your foundation's progress toward meeting its annual 5% distribution requirement, providing timely reminders when warranted.
• Oversight of Insider Grants (Board Memberships/Affiliations): Grants directed to charities controlled by foundation insiders are specially flagged. We ensure both clients and grantees adhere to rules requiring prompt disbursement of these funds for them to count toward the 5% minimum distribution.
• Substantial Contributor Tracking: We identify significant historical contributors—who are classified as foundation insiders and subject to critical self-dealing and other regulations—to maintain strict compliance oversight.
• Identification of Supporting Organizations: We identify and work with clients to review additional due diligence options for granting to specialized public entities (supporting organizations), ensuring compliance or pursuing alternate methods like expenditure responsibility.
• Compensation Benchmarking: A foundation is permitted to pay staff and board members compensation, but it must be "reasonable." We facilitate access to partner-led compensation benchmarking services to help ensure that compensation levels are in line with industry norms and provide our helpful Compensation Guidelines Checklist for internal use. We ensure the lowest possible rate for these and all other necessary compliance services.

The total cost to obtain 501(c)(3) status is composed of two main categories:

1. Mandatory Filing Fees: Both your state and the IRS charge filing fees for the necessary incorporation and 501(c)(3) applications. These fees typically range between $500−$1,000 in total.
2. Professional Service Fees: To navigate the complex application process correctly and efficiently, engaging a professional service provider is highly recommended. Prison Liaisons works with specialized partners to secure this necessary expertise. Crucially, we focus on leveraging our network to ensure you receive the lowest possible rate for these professional services, which is typically far below the cost of hiring a non-specialist attorney.

The application process has two stages:

1. Preparation Time: The primary application, Form 1023, often exceeds 100 pages with all required attachments and schedules. The IRS estimates a novice might spend well over 100 hours preparing this form. Prison Liaisons streamlines this process by connecting you with experts who can dramatically reduce this preparation time, ensuring your application is complete and accurate the first time.
2. IRS Processing Time: Processing times vary significantly, but the IRS typically takes anywhere from 3 to 9 months to review your submission and issue a determination letter. Getting the application right initially, a core focus of our service, is the best way to prevent delays.

Yes, an organization can incorporate as a non-profit entity at the state level without ever seeking 501(c)(3) determination from the IRS. However, a non-profit without 501(c)(3) status is not tax-exempt and does not receive the significant benefits tied to that designation (like tax-deductible donations). Since the primary benefit of a non-profit is tax exemption and eligibility for funding, there are virtually no practical use cases for not seeking and obtaining the full 501(c)(3) status.

While it is legally possible to apply for grants before receiving the official IRS determination letter, nearly all reputable grantmakers and foundations require an approved 501(c)(3) determination letter before they will release any funding. Expediting the approval process by ensuring a complete and accurate application—which Prison Liaisons helps you achieve—is critical for accessing major funding sources.

Even with tax-exempt status, 501(c)(3) organizations are still responsible for certain taxes:

• Unrelated Business Income Tax (UBIT): They may be subject to taxes on income generated from activities that are unrelated to their core charitable purpose.
• Payroll Taxes: If the organization has employees, they are subject to federal and state payroll taxes.
• State and Local Taxes: Depending on the state and locality, a 501(c)(3) may still be required to pay certain sales and/or property taxes.