How to Start a Non Profit Organization

A non-profit usually starts out life as a private effort to support a cause. Wealthy people and for-profit corporations often create non-profit foundations to handle their charitable contributions. In either case, the organization is not exempt from income taxes until the Internal Revenue Service says it is. Establishing a non-profit organization first requires the creation of a corporation, which then submits an application to the IRS for tax-exempt status based on certain requirements such as no financial benefit being derived by an individual associated with the non-profit excluding reasonable salaries, yearly financial reporting to the IRS, financial support through donations and grants and no engagement in lobbying or political support activities.

Things You'll Need

• business plan

Instructions

1. Organize your prospective board of directors and confer with them in writing your business plan and bylaws. One of the most important elements of your business plan and bylaws is the mission statement or statement of purpose for your organization. It should be carefully discussed and written with full support of all directors.

2. Use a legal incorporation service to form your corporation under the laws of the state where your organization will operate. These services usually save you money, time and headaches trying to figure out what your state requires. If there is an attorney on your board, have the attorney assist in reviewing the incorporation papers to assure they are appropriate and accurate. Otherwise, follow the instructions of the incorporation service.

3. File your IRS Form 1023 to apply for non-profit status. If you qualify, the IRS will return a determination letter stating you either qualify or do not qualify. Along with your Form 1023, be prepared to supply your mission statement, business plan, bylaws and other documents that support your claim that you will be operating as a legitimate charity.

4. Open a bank account in your non-profit's legal name. An account is necessary to to accept cash donations and to pay bills and disburse cash awards.

Tips & Warnings

• Non-profit status is statutory for churches, schools and organizations providing medical or hospital care (including medical education and research). The IRS assumes all other applicants for 501(c)(3) status are private foundations, so a public charity must prove that it provides support to social causes or other public charities. This is one use for your statement of purpose in your business plan and bylaws.

• Always try to attract an attorney and an accountant to your board of directors, because dealing with the IRS and maintaining your non-profit status can be difficult if you don’t have legal and accounting experience.

• If your non-profit is going to be larger than a one-person operation, you will need to hire a staff and likely will need to rent office space.

• It is possible to lose your tax-exempt status if you fail to report to the IRS on time or if you violate any of the responsibilities of non-profit status. For example, during political elections churches are occasionally involved in IRS investigations into their activities in support of certain political candidates or ballot propositions.

References

• Internal Revenue Service: Tax Information for Charities & Other Non-Profits
• Society for Non-Profit Organizations: Starting A Nonprofit Organization
• Foundation Center: Establishing a Non-Profit Organization

Resources

• IRS Tutorial for Non-Profits