How to Become a 501(c)(3) | Starting a Tax-Exempt Non-Profit
When you decide to start a non-profit organization to serve a need that has not been met in your community, you will not automatically be granted the tax-exempt status that so many of these organizations enjoy. Starting a tax-exempt non-profit involves a few extra steps. Before you begin, it’s important to know all the steps so your organization can become a 501(c)(3).
Incorporating Your Non-Profit
The process to start a tax-exempt 501(c)(3) looks very much like the one regular corporations go through, with the extra step of applying for tax-exempt status.
- Choose a business name – Make sure to check the state-by-state information on the various laws that apply to naming a nonprofit in your state.
- Appoint a Board of Directors – Draft your bylaws with guidance from your Board of Directors. These are the operating rules for your nonprofit.
- Decide on a legal structure – Choose whether your organization will be a trust, corporation, or association.
- File your incorporation paperwork – You must next file formal paperwork, or articles of incorporation, and pay a small filing fee to your state. Look up your state office through the National Association of State Charity Officials (NASCO).
- Apply for tax-exempt status – A nonprofit organization may be eligible for exemption from federal income tax.
- Obtain necessary licenses and permits – Does your nonprofit have all the licenses and permits needed to comply with federal, state, and local rules?
According to the Internal Revenue Service (IRS), except for churches, their integrated auxiliaries, and public charities whose annual gross receipts are normally less than $5,000, organizations will not be treated as described in section 501(c)(3) unless they notify the IRS by applying for recognition of section 501(c)(3) status.
Generally, organizations required to apply for recognition of exemption must notify the Service within 27 months from the date of their formation to be treated as described in section 501(c)(3) from the date formed. When the IRS determines that an organization qualifies for exemption under section 501(c)(3), it will also be classified as a private foundation, unless it meets the requirements to be treated as a public charity.
Review the requirements to become a tax-exempt non-profit under section 501(c)(3), which state that an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and may not participate in any campaign activity for or against political candidates.
Organizations described in section 501(c)(3) are commonly referred to as charitable organizations and, other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170. The organization must not be organized or operated for the benefit of private interests.
Applying for 501(c)(3) Recognition
The IRS states that to apply for recognition by the IRS of exempt status under section 501(c)(3) of the Code, you will need to use a Form 1023-series application. The application must be submitted electronically on www.pay.gov and must include the appropriate user fee.
Your organization should also request an employer identification number, even if you do not have any employees. You will use Form SS-4, Application for Employer Identification Number, which also has related instructions for you to learn how to obtain an EIN. You may obtain an EIN by applying online, by fax, or by mail.
Tax Filing Requirements
Once you have secured tax-exempt status, you will need to file a version of Form 990 each year for your non-profit organization. You will have the following options:
- Form 990, a Return of Organization Exempt from Income Tax form
- Form 990-EZ, Short Form Return of Organization Exempt from Income Tax form
- Form 990-N, the Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required to file form 990 or 990-EZ
- Form 990-F, the Return of Private Foundation
Which tax form your organization files depends on the type of charitable organization (public or private) plus the amount of their gross receipts and total assets. If a public charity’s gross receipts are less than or equal to $50,000, then it will file form 990-N. If a public charity’s gross receipts are between $50,000 and $200,000, and if its total assets are less than $500,000, the organization can file either form 990-EZ or form 990. If a public charity’s gross receipts are greater than or equal to $200,000, or if its assets equal or exceed half a million dollars, the organization must file form 990. All private foundations, regardless of income and assets, must file form 990-PF.
CONTACT CLEAR VIEW BUSINESS SOLUTIONS FOR HELP WITH A TAX-EXEMPT NON-PROFIT
The paperwork for starting a tax-exempt non-profit organization can be confusing, particularly when it comes time to gather and report your financial information. At Clear View Business Solutions, we have the expertise to help you become a 501(c)(3) and we look forward to collaborating with you on your non-profit organization. Learn more by contacting Clear View Business Solutions to speak to our team about our services. Give us a call at (520) 544-0177.