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Making a non profit and becoming a 501(c)(3)

Fort Worth, TX |

I want to start a non profit organization and make it a charitable one by becoming a 501(c)(3). I am not sure what kind of lawyer to contact or what questions to ask. I have seen the Form 1023, and it frightens me. First because it is so big, but mostly because I really don't have any firm answers to put in the form. I have not raised money as of yet and the "user fees" are based on what you have earned as a non profit. What do I do about the user fees, finding out all the forms and things I need to do, and possibly an attorney willing to donate his time until the non profit has raised money enough to pay legal fees?

Attorney Answers 2


The non-profit form is a little daunting, but there are plety of resources out there to help you fill it out. Mostly, it needs to be a good faith projection based on your first three years. Think of it like a nonprofit "business" plan. Once you submit it, the IRS will contact you with any questions/issues. Which you can then resolve. When you have resolved them, you will get an Advance Ruling, which means that you have three years to take donations (which are tax exempt for the donor) while you work on getting all your ducks in a row. Usually, by then, the organizations know whether it makes sense to seek a permanent ruling or whether the nonprofit was a great idea, but there was not enough support to get it operating. Hope that helps.

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This can be a complex issue to study and understand. You are taking the right first steps to seek resources, and prepare.

One place to start is the IRS site with information on the Form 1023, and supporting information (and application fees) you should tender with your application. Here is that URL: Below is also a wiki with summary information on 501c3 (I have no idea how accurate the information may be, but it appears to give a reasonable overview and links back to IRS revenue Rulings and guidance)

Second, this process isn't the only work ahead for you. You should keep in mind that you still need to form your state law entity, and seek recognition of the federal non-profit status by your state and local revenue authorities.

Third, you need to explore the limits on the "non-Profit" status. Many assume this means exemption from all taxes, assessments and similar fees, but this is often not true. UBIT or unrelated business income might be taxable. Payroll taxes for employees of the non-profit must still be paid. Sales and Use tax on sales BY the Non-Profit TO the Public (like in a museum store) are generally required and imposed. Some state laws impose real property ad valorem taxes on certain non-profits.

Study your state laws carefully. Don't assume exempt means the same thing to all governments and their agencies.

And the type of 501(c)(3) you elect can also make a difference. A public foundation will not be required to pay an annual monitoring fee (or Tax) on its income (Except for certain types of income like UBIT); But a Private Foundation will be required to pay 2% of its gross income in fees to the IRS.

Fourth, there may be state laws that apply to you simply because you solicit contributions from the public. For instance, Georgia has a Solicitations Registration and Disclosure Act.

As for advice and counsel, you might check for resources or references from other charities in your area. Having a good accountant or tax advisor will be a good next step. If there is a legal aid or non-profit legal entity in your area, they may be able to make suggestions concerning legal services or referrals.

Best of luck in your pursuit of your non-profit goals.

State Required Legal Ethics Disclosure: This Answer and any information contained in this answer is not intended to be treated as legal advice; And, this posting does not create an attorney-client relationship or privilege of any kind. This attorney licensed only in Georgia.

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