Completing Key Documents Print
Becoming a non-profit organization with the legal right to accept contributions and grants has many benefits. It does require that someone be responsible for creating the necessary documents, and provide the initial leadership and commitment to “birthing” an organization with tax-exempt status.

Non-profit status is granted by the IRS (501(c)(3)) and is necessary if you tell donors that their contributions are tax-deductible. Foundations usually require that applicant organizations have non-profit status or some will make grants in your name to a designated fiscal agent who is a 501(c)(3) organization.

To become a 501(c)(3) organization, you should:

  1. Form an initial Board of Directors or steering committee. It doesn’t have to be more than six to ten people at this time but you will need them to complete the next steps.
  2. Choose a name.
  3. Designate who among the founding members will be leading this process. You may decide to divide up the following steps and the leader can put the application all together. Choose a person and an address that all correspondence will go to. Some forming organizations get a P.O. Box.
  4. Go to www.irs.gov and download the current requirements and forms. In applying for 501(c)(3) status as a public charity, you will need to submit two applications:
    1. a.    Employer Identification Number (EIN)
    2. b.    Tax-Exempt Status Form 1023 – The user fee for this is $750 (as of September 2008) if you expect to have more than $10,000 in income in the next four years.
  5. Complete your Articles of Incorporation. To do this, you will need to create the following:
    • Purpose of organization
    • General goals of organization (educate, advocate, support effective programs, etc.)
    • Bylaws – how the organization is going to operate.
      To construct Articles of Incorporation and Bylaws, examples from other states follow for you to review. There are certain paragraphs and sections that must be included for you to be considered for tax-exempt status (go to IRS publications 557 for requirements). You do not need an attorney to do this; however, it may be prudent or more efficient to hire an attorney to facilitate this process for you or to review your documents before submission.
  6. Contact your State Department of Revenue for your state-specific requirements to be exempt from franchise and state income taxes.
  7. Contact your Secretary of State’s Office for requirements and forms for state incorporation.
  8. You may also need a solicitation license in your state. Contact your state government solicitation license branch.
  9. Even if you do not immediately hire staff or use contractors/consultants, you need to apply for an Employer Identification Number from the IRS. 
  10. Sit back and wait!! It may take three to six months to hear from the IRS. While you are waiting, you can continue to construct your organization. Board development, strategic planning, and initial fundraising can proceed. It is a much easier process with less paperwork if you complete these steps before you have any funds. You will, however, need some money to submit the 501(c)(3) application or to pay for legal assistance if you choose to use it. Be very careful in filling out all of these forms. Answer all questions properly. The IRS is especially detail-oriented, and may come back to you with suggestions or need a need for additional information.

The top ten reasons for delays in processing Exempt Organization Applications are:


Number 10. Is there enough financial data? See the instructions to Form 1023 or Form 1024 to determine how much information you need to provide, based on how long your organization has existed.

Number 9. In what month does the annual accounting period end? Applications should indicate the end of their fiscal year. It is a good idea to check for consistency. Does the fiscal year ending date stated on the application agree with the fiscal year ending date stated in the by-laws, on the financial statements, and on any prior returns filed?

Number 8. Did you provide the required information on the principal officers and board of directors? Applications should list the following information concerning the governing officials:
  • names,
  • mailing addresses,
  • titles and positions,
  • annual compensation.

Number 7. Did you provide enough information on the activities to show us how your exempt purpose will be achieved?  Please don't restate your purpose, but explain the specific activities you will carry on to achieve that purpose. You should consider a "who, what, when, where and why" approach. You should explain past, present, and planned activities. If you haven't started an activity yet, develop your plans well enough that we can have a clear understanding of how it will operate.  You are not required to describe activities that are merely speculative at this time.

Number 6. Did you complete all required schedules? You should check the line items on the financial statements. Some lines require supporting schedules.

Number 5. Did you complete all required pages? To make a determination, the information contained on the pages and schedules of Form 1023 and Form 1024 is necessary. On Form 1023, there are various schedules and pages that must be filled out for churches, schools, hospitals, scholarships, supporting organizations, and certain other organizations.

Number 4. Did a director, trustee, principal officer, or other authorized individual in a similar capacity sign the Form 1023 or Form 1024? Generally, a principal officer is the president, vice president, secretary, or treasurer.  The person signing the application must indicate his or her title or other authority to sign.  A taxpayer's representative may not sign the application.  Neither a stamped signature nor a faxed signature is permitted.

Number 3. If you have adopted by-laws, did you submit a copy? You need to provide a copy of your by-laws, code of regulations, or any other document that sets out the organization's rules of operation, but only if adopted.

Number 2. Did you attach a complete copy of your organizing document and all amendments?  If the applicant is a corporation, this would be a copy of the articles of incorporation that shows it has been filed with and approved by the state. If the applicant is not incorporated, it should have a similar organizing document. This could be a constitution, articles of association, or by-laws. Whatever the document is called, it must at the minimum state: the legal name, the purposes, and the date of adoption. The document should be signed by at least two officers of the organization. A trust document must be signed by the trustees and show the date of formation.  For section 501(c)(3) applicants, the organizing document must comply with the organizational test for exemption.

The Number 1 reason for delays in processing exempt organization applications is . . INCORRECT OR NO USER FEE!

(Source: IRS website, September 2008)

The IRS may grant you a temporary status as a 501(c)(3) organization. After a waiting period, a determination will be made as to your organization’s final status.

Each year, to maintain your 501(c)(3) status, you must file a form 990 with the IRS if your annual gross income receipts are more than $25,000. Your accountant can help you with this.

If you have less than $100,000 in total receipts for the year, or you have less than $250,000 in total assets at the end of the year, you can file a Form 990 EZ. These forms must be filed by the first day after the fifth month after your fiscal year closes.

Please see www.irs.gov for current information on these forms and requirements.