How to Become a Charitable Organization

Samuel Owens and Seth Leighton, two American expatriates developing educational curriculum in Gonder, Ethiopia go on a retreat to the Simien Mountains in Gonder.

Establishment of a charity goes beyond the state laws that govern business organizations within your jurisdiction. Federal provisions governing tax-deductible donations to charities and income tax exemption will impact the longevity and prosperity of your charitable organization. Therefore, it is essential to integrate these federal provisions into your state application to increase your organization's appeal to potential donors and to maximize your charity's assets. This article illustrates how to leverage your state and federal applications so that your organization takes full advantage of the benefits of charitable status.

Difficulty:

Moderate

Instructions

Things You'll Need

• Mission Statement for your charitable organization
• State Articles of Incorporation for a Non-Profit
• IRS Form SS--4
• IRS Form 1023

How to Become a Charitable Organization

1. Request "Articles of Incorporation" for a non-profit organization from your Secretary of State. List your organization's purpose as "charitable" and provide further explanation of your organization's mission and target community.

2. Declare in your Articles of Incorporation that your organization is exclusively formed for charitable purposes, that no earnings from the charity will be distributed for personal gain and that upon dissolution of your charitable organization, all assets will be distributed for exempt purposes under 501(c)(3) of the Internal Revenue Code.

3. File your Articles of Incorporation and other mandatory state business organization documents with the your Secretary of State. Follow all subsequent filing and registration requirements at your county, city or other government subdivisional level.

4. Apply for an Employer Identification Number (EIN) with the IRS by either filing a Form SS--4 or by directly contacting the IRS and making a telephone request.

5. Apply for federal income tax exemption by filing a Form 1023 application with the IRS.

6. Register for charitable solicitation privileges within your state by contacting your concerned state agency.

7. Apply to your state agency for exemption from both state income tax and state sales tax. Supplement this application with proof of 501(c)(3) federal income tax-exempt status resulting from your successful Form 1023 application.

Tips & Warnings

• The IRS website contains draft provisions that you can copy and paste onto your Articles of Incorporation that establish your organization for charitable purposes, that denounce private gain and that distribute the organization's assets for tax-exempt purposes. The State Attorney General is typically the agency that governs charitable solicitation within a state.

• States primarily adopt a "general usage" definition of "charitable." However, if your state adopts a narrow definition of "charitable," then your stated purpose must meet the narrow scope of the state definition. Even if your charitable organization will not employ individuals, federal law requires all organizations to apply for an Employer Identification Number (EIN). Avoid penalties and complications by filing for tax-exempt status with the IRS within 15 months of incorporation of your charitable organization.

References

• Life Cycle of a Public Charity/Private Foundation

Resources

• Applying for 501(c)(3) Tax-Exempt Status
• Governance and Related Topics--501(c)(3) Organizations
• IRS Publication 557: Tax-Exempt Status for your Organization