Steps needed to be recognized as a Non Profit Organization
The laws and regulations for starting a non profit organization differ from state to state. However, every non profit organization, regardless of the state of incorporation must apply to and receive its non profit approval from the IRS. Here is your guide on how to do that.
Getting StartedIt takes big dreams and a big heart to form a non profit organization. The road can be a little long and a little complicated. But here is a step by step guide to insure that you will successfully be recognized as a 501(c)(3) organization.
IncorporationA non profit is typically formed as a corporation and its name can be a valuable asset. For example in California a corporation name may be adopted if the name is not the same as or too similar to an existing name on the records of the California Secretary of State, or if the name is not misleading to the public.
A corporation is legally created with the Articles of Incorporation which typically identify:
(a) The organization's name
(b) Purpose of the non profit;
(c) Agent for service of process-- that is, a person whose name and address are identified and who can receive lawsuits and other official correspondence and other matters; and
(d) Any limitations on corporate powers.
Bylaws and Board of DirectorsThe members of the Board of Directors, who are appointed to their positions, have a legal responsibility to act with reasonable care and in the best interest of the organization while providing direction and oversight over the organization's activities, finances, officers, and legal compliance.
The Bylaws, are the internal laws and regulations of the organization. The bylaws typically address provisions related to management of activities and affairs of the corporation.
Tax exemption application with the IRSCompleting the Form 1023 application for the exempt status under Internal Revenue Code (IRC) Section 501(c)(3) may be the most challenging part of this process. It is a legally-driven and comprehensive inquiry covering 11 Parts and 8 Schedules.
Form 1023 requires information regarding
(a) organizational structure;
(b) compensation and other financial arrangements with officers and directors, employees and independent contractors;
(c) members and other individuals and organizations that receive benefits from the organization;
(d) organizational history;
(e) specific activities;
(f) actual or projected statement of revenues and expenses.
The IRS may typically take 3-4 months or longer to process a Form 1023 application. However, the waiting period may be much longer if the application contains errors, omissions, or other information that requires additional development by a special IRS department.
Last stepsOrganizations with a 501(c)(3) federal determination letter can at this request an affirmation of tax exception from the state of incorporation by filing the required state forms. The state will typically recognize the organization's exemption as of the federal effective date.