501 C 3 Incorporation Laws
If your organization has chosen to seek 501(c)(3) nonprofit tax exempt status, there is a strict set of tasks that must be accomplished before you hold in your hands that all important determination of nonproft status letter from the IRS. The process isn't difficult if you know the steps and break them down into manageable pieces
Other People Are Reading
-
Creating a Board
-
Your organization must have a board of directors. Directors may not derive profit directly from their association with the charity. For the financial health of the charity, board members should be able to contribute significantly to the fund-raising efforts of the organization. Find individuals who support your mission and purpose and have leadership ability as well as business and legal skills they can offer to the nonprofit. Create an organizational chart that shows clears lines of authority and responsibility within your organization, including the board of directors and any advisory boards.
By-laws
-
One of the first tasks in forming your corporation will be to draft your bylaws. This document addresses the organization's operational procedures. If you put the majority of your organization's operational guidelines in the bylaws, they will be easier to amend than if you put them in the articles of incorporation. You will file your by-laws at the same time you file the articles of incorporation with the state in which you file for incorporation. The trick with bylaws is to make them generalized enough to allow your organization flexibility, but specific enough to ensure a clear standard of operational uniformity, integrity and transparency. By-laws tell you who does what in an organization--who has authority to make what decisions and how things carried out. The by-laws are the framework of the corporation. Get expert help putting them together.
-
Articles of Incorporation
-
To be a 501(c)(3) you'll need to be a nonprofit corporation, incorporate by your state's laws. There is a link below to the IRS's state by state list of where to get an application and instructions for incorporation in your state. You will need to prepare articles of incorporation. There are three ways you can do this. You can get a lawyer, you can copy and adapt some successful nonprofit articles or you can buy software that will help you write them. Be careful not to make your articles too specific. Include only what the law requires for incorporation. Changing them later involves submitting an application to change your articles and another filing fee. Leave specifics to the by-law,s which the board can modify without state filing fees. There are however, specific items that must be included in the articles in order for your application from the IRS for tax exempt status to be approved. Be sure those items are included.
Incorporation in your state
-
Next you will submit your bylaws and articles of incorporation with the required fees to the state agency that handles incorporations. You will also need to obtain an Employer Identification Number (EIN) from the IRS. This can be done online. In some states the incorporation process can also be done entirely on-line. Follow procedures closely because you'll have to have your incorporation papers completed before you can apply to the IRS for tax exempt status. You don't want the incorporation process to slow you down.
Applying for Tax Exempt Status
-
Once you've received your incorporation papers, you will need to fill out IRS form 1023 (at http://www.irs.gov/pub/irs-pdf/f1023.pdf ) and send it with all the paperwork required by the IRS. This will include a checklist, form 2848 (power of attorney and declaration of representative), form 8821Tax Information Authorization if filing, Request to Expedite, the 1023 application form and attached schedules, Articles of Incorporation, Amendments to the Articles, Bylaws, policies and procedures, nondiscrimination policy document, form 5768 (if you're doing any lobbying), EIN, financial data and representative printed materials. The checklist will guide you through the creation of the package.
The application must be signed by the appropriate person who is authorized by your board to sign for the corporation.
The Wait
-
The most difficult part of the 501(c)(3) determination process is waiting for the IRS to rule and send you a determination letter. It can take long months before you receive your letter. It has taken fewer than two weeks. A determined and tenacious applicant can hurry the process. Inequity in the speed of determination is one of the reasons the request to expedite procedure was put in place by the IRS. Be sure to file one if you are in a hurry to receive your 502(c)(3) determination letter. This can happen if you are purchasing significant amounts of goods or equipment and need the exemption from state or local sales tax or if you have a potential donor who requires an IRS number before releasing funds. If this is the case, be sure and request and expedite when filing your application with the IRS.
-
