Process for starting a nonprofit

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Before Applying for 501(c)(3) Status (at every step, consult state law)

0.) Beforehand starting, we should have:

A clear, well-defined mission that qualifies as “charitable” under Section 501(c)(3) of the Internal Revenue Code.

A detailed description of the activities it will undertake to carry out the mission.

A core group to do the substantial work required to achieve the mission, including dedicated members who are willing and able to become directors and officers.

A detailed budget

A realistic fundraising plan

Legal counsel (desirable)

A bookkeeper or accountant (desirable)

I.) Create an entity under state law

Generally form a not for profit corporation.

To do this, prepare a certificate of incorporation (sample).

Alternatives to incorporating:

Limited Liability Company: prepare articles of organization. Permissible when the members of the LLC are themselves exempt organizations.

Unincorporated Association: prepare articles of association.

Trust: prepare trust agreement or declaration of trust.

II.) Create bylaws (sample)

Cover how the organization is run, including:

Giving proper notice of meetings.

Electing directors and officers.

Keeping and producing financial records.

Signing checks and contracts.

III.) Hold first organization meeting

Typically, bylaws are adopted and directors and officers are elected at the meeting.

Hold good meetings:

Draft proper meeting notices

Create agendas

Keep minutes of the meetings

Adopt minutes at the following meeting

Maintain records of all meetings

Be consistent

IV.) Check with the charities bureau in your state for local requirements.

Registration with the charities authorities in multiple states may be required depending on the level of activity in those states.

Regular and on-going solicitations in a state typically trigger the registration requirement.

Applying for 501(c)(3) Federal Tax Exemption

This is the big step that can take 3-4 months

Beforehand, must obtain an Employer Identification Number (“EIN”) using IRS Form SS-4.

Complete and file IRS Form 1023 for recognition as a 501(c)(3) organization.

Include corporate documents:

Bylaws (or operating agreement).

Certificate of incorporation (or articles of organization, or trust instrument).

Conflict of interest policy.

Key elements of form 1023

Part IV (Narrative Description of Activities): Detailed description of past, present, and future activities.

Part IX (Financial Data): Detailed financial information: a statement of revenues and expenses and a statement of assets and liabilities.

Alternative to 501(c)(3) status:

A donation to a church, or to an organization with less than $5,000 in annual gross receipts, is deductible by the donor as a charitable contribution whether or not the organization has applied for and received tax-exempt status from the IRS.

Many churches and most small organizations nevertheless apply for 501(c)(3) status to eliminate any doubt regarding their tax exempt status and to make donors more comfortable.

Investigate state and local tax exemptions

State and local tax exemptions are routinely granted to 501(c)(3) tax exempt organizations.

Requirements:

The organization must be organized and operated exclusively for one of the following purposes:

Religious

Charitable

Scientific

Literary

Educational

Prevention of cruelty to children or animals

Testing for public safety Fostering national or international sports competition

Organizational test: The certificate of incorporation (charter) of the nonprofit must provide:

That it is organized exclusively for an exempt purpose described in Section 501(c)(3).

That in the event of dissolution, assets will be distributed to another 501(c)(3) organization or to a government entity for a public purpose.

Operational test:

The organization must be operated to further the exempt purposes stated in the charter.

In addition:

No intervention in political campaigns.

Only limited activity to influence legislation.

No excessive financial benefit to insiders or other private interests.

Business activity that is unrelated to the nonprofit's exempt purpose must be limited.

Federal Reporting Requirements for Exempt Organizations

IRS Form 990, 990-EZ, or 990-N

Form 990: required to file if the organization's revenues exceed $100,000 per year.

Form 990-EZ: may be filed if the organization's gross receipts are less than $100,000 and its assets are less than $250,000.

Form 990-N (“e-Postcard): must be filed if gross receipts are less than $25,000.

Form 990-T: required to file if the organization has more than $1,000 in unrelated business income.

Public Charities Versus Private Foundations

Typically, public charities carry out charitable activities while private foundations support them.

Public charities have many advantages over private foundations, including:

Less burdensome reporting requirements.

Need not distribute a portion of revenues to other charities.

Individuals and corporations may make more generous contributions to public charities than to private foundations.

Exempt from certain taxes.

Notes on filing requirements

(these notes came from a separate discussion with a CPA and still need to be integrated into the above outline)

file as corporation or unincorporated association

file form 1024. Need this year's and 2 years projected F/S (financial statements?)

file form 8718fee: 300 if will collect under 10K for 4 years 750 if collect moreform 990file PC form to MA annually

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