How to Establish a 501(c)(3)
Establishing a 501(c)(3) involves a series of steps and filling out an application to set up a nonprofit organization approved by the United States Internal Revenue Service (IRS). The IRS takes up to six months to make a decision on applications to determine 501(c)(3) status. Once the IRS approves the application, the organization becomes exempt from business income and property taxes. Plus, the organization is able to accept tax-deductible contributions and apply for grants.
Other People Are Reading
Instructions
-
-
1
Create a mission statement that briefly explains the purpose and expected goals of your nonprofit organization. Keep the statement just a few sentences in length. Keep the mission statement focused on the benefits the organization provides.
-
2
Form a Board of Directors consisting of qualified people who want to devote the time and resources necessary to achieve the organization's goals. Select people who offer the skills and characteristics associated with the organization. Choose people who can financially contribute and help raise money to build the organization.
-
-
3
Develop bylaws and policies for your Board to adhere to and to explain how your organization will handle operations and day-to-day activities. Include provisions that make the organization solely responsible for all assets, properties, and liabilities. Register the final bylaws with an approved State agency.
-
4
Create a budget for the fiscal year. Include the organization's mission, goals, programs and services when developing the budget. Indicate the costs for all programs and services along with all revenue the organization expects to make. Once the budget has been created, it requires approval from the Board of Directors.
-
5
Put systems into place that cover accounting, finances and operations. Use a record-keeping system to track everything the organization does. Make sure to include a system for keeping minutes from the Board of Directors meetings and financial statements, both required by law. Check with your state since documentation requirements vary from state to state.
-
6
Download the Application for Recognition of Exemption with the IRS from the IRS website. Fill out the form, also known as Form 1023, to establish your 501(c)(3) status. Complete the form using Adobe Acrobat, or print the form and fill it in manually. Plan to include copies of the information obtained in the steps above to complete the form. Once approved, the IRS recognizes your organization's tax-exempt, public charity status.
-
1
Tips & Warnings
Secure and use the advice of an attorney familiar with setting up 501(c)(3) organizations.
Consider asking an attorney familiar with 501(c)(3) laws and regulations to serve on the organization's Board of Directors.
File and receive approval to become a 501(c)(3) before attempting to raise funds or accept donations.
Recognize that the Board of Directors has ultimate control over the nonprofit organization, meaning the founder may find themselves relinquishing control to benefit the organization.
References
Resources
- Photo Credit form -3 image by Rog999 from Fotolia.com
