from the ground up, I have to agree with Steve. Given your goals, 501(c)3 sounds like a bad option. Yeah, the lefties would do it that way, but you should stay legal. The c(3) title is for CHARITABLE or Educational foundations, and are forbidden from advocating on behalf of or against specific politicians. Think Red Cross, soup kitchens, and groups that educate about things like cancer.

The start up process for the group should be fairly simple. You should consult a lawyer with expertise in what you are doing, but the cost shouldn’t be prohibitive. You start be incorporating as a local not-for-profit corporation, which is not the same thing as a non-profit organization. Typically it costs a couple hundred bucks to file the paperwork because it isn’t much different than a simple business incorporation. That group then establishes bank accounts and membership fees and organizes the rest of whatever. The officers of that group then get together with a lawyer and an accountant to determine and apply for the appropriate 501(c)x status. I think there are about 12 of them with varying degrees of preferential tax treatment. The c(3) is usually regarded as the most preferential, and with it you can usually purchase things needed for your organization at substantial discounts, but you need the one that best suites your objectives, not necessarily the one that exempts you from the most taxes. Also note that (c)x status only applies to federal taxes. You still need to either pay local taxes or apply for exemptions from the appropriate authorities. The last group I helped incorporate the (c)3 paperwork cost about $5000 until we were finished. That included lawyer, accountant, and a second round with the IRS because the agent reviewing our application thought we were a trade group instead of educational.

Once you are organized it isn’t necessarily difficult to get to the point where you are dealing with millions of dollars in your budget. If your organization is 40,000 people and your dues rate is $25/person that is $1 million. But frankly, if you’ve got any sense the dollar figures will start scaring the heck out of you long before that if you don’t have the protection of an incorporation and a responsible set of officers and board members to guide the organization. That same $25 gets you $100,000 with only 4,000 members, and that’s still more than twice as much as most people make in a year. Without the incorporation you are likely to be treated as a partnership, which means not only are each and every one of you who run the organization responsible for all of it, you are also responsible for any agreements any other member makes on behalf of the organization. And those agreements aren’t necessarily limited by the amount of money you have collected.

I wouldn’t go as far as Erick does in saying that you have to BE a (c)x before you start operating

for a grassroots organization. The thinking is too different for the kinds of events you are doing. OTWP is affordable but not cheap. Grassroots is on the cheap but not shoddy. OTWPs think Gaylord, grassroots think Holiday Inn, and even then, only because Red Roof doesn’t usually have meeting space. OTWPs think guest lists and tickets, grassroots thinks membership and “ticket” is right up there with the n-word, because that’s a quick way to get the entertainment people (both the taxing agents and the Ticketmaster people) looking for a big chunk of your proceeds.

She may be honest and the best at what she does, but she was the wrong choice to be involved in organizing a tea party. Ultimately it may just be a failure to communicate. She may have proceeded according to standard practices thinking everything had been clearly spelled out, but because the people on the other side have never dealt with that kind of organizing before, they didn’t understand what she meant. And with large amounts of money on the table the charges of embezzling are going to fly quickly from people who aren’t use to dealing with those kinds of contracts and amounts of money.

I still remember one of our early conventions when we the hotel came to us because our American Express card didn’t go through for the hotel charges. First off, we thought the charges weren’t being billed each day by the hotel, secondly we didn’t think there was a limit on an Amex account. Turns out they have some formula where they determine a floating limit based on your average expenditures. Our model was flat until the convention, then ballooning like you’d see if somebody stole your card and was making fraudulent purchases. We made a payment by phone from our bank deposits that morning, then tried to run the card again, only to find that the payment wouldn’t clear until Monday morning and it was Saturday afternoon. We and the hotel eventually worked it out (it seems that offering to pay in cash for an amount Amex won’t authorize is highly likely to cause blanched faces at hotels and even at some banks), but it was pretty tense for a while.