Before applying to the IRS for tax-exempt status, most organizations first become incorporated (an unincorporated association is sometimes an exception). Incorporation will help protect board members and other individuals in your organization from being held personally liable in case of a lawsuit.
Nonprofit incorporation is very similar to creating a regular corporation except that a nonprofit must take the extra steps of applying for tax-exempt status with the state in which it incorporates and with the IRS.
Nonprofit incorporation usually involves these steps:
- Choose a business name that is legally available in your state.
- Prepare and file your "articles of incorporation" with your state's corporate filing office, and pay a filing fee.
- Apply for federal and state tax exemptions.
- Create bylaws that will dictate how the corporation is run.
- Appoint an initial board of directors.
- Hold the first meeting of the board of directors.
- Apply for any licenses or permits that your corporation will need to operate in your state and local municipality.
Your state's corporate filing division is usually part of the secretary of state's office. You can request a packet of nonprofit materials from that office which will include sample articles of incorporation, the state's laws on nonprofit corporations, and instructions on how to find an available business name. Here are a couple of easy ways to find the office in your state and the procedures required. Check Nolo's Legal Encyclopedia or the state-by-state guide at Harbor Compliance.
After you have filed all the paper work for nonprofit incorporation in your state, and received a copy of your articles of incorporation, you can move on to submitting your application to the IRS for your federal nonprofit status as a 501(c)(3) organization. It is best to file within 27 months after the date of your incorporation.
The form you must complete for the IRS: IRS Package 1023, Application for Recognition of Exemption.
IRS publication 557, Tax-Exempt Status for Your Organization, provides instructions on filling out the proper forms. You can get by calling 800-TAX-Form, or they can be downloaded from the IRS website, www.irs.gov. The IRS also provides a help line: 1-877-829-5500.
The IRS will review your application and send you a "determination letter" indicating that it has approved your nonprofit status. Or, the IRS might ask you for more information. It can also deny your application. If that happens, don't give up; contact a lawyer who specializes in nonprofits.
You may need to apply to your state for tax-exempt status as well. Some states require a separate application to get a state tax exemption; some states are satisfied with your federal tax-exempt status; and in others, you will need to send a copy of your IRS determination letter. To find out what your state requires, contact your state tax agency.
Check to see if your city requires you to have a solicitation license before you can fundraise.