Process for starting a nonprofit
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.I.) Create an entity under state law
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)
Generally form a not for profit corporation.II.) Create bylaws (sample)
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.
Cover how the organization is run, including:
III.) Hold first organization meetingGiving proper notice of meetings.
Electing directors and officers.
Keeping and producing financial records.
Signing checks and contracts.
Typically, bylaws are adopted and directors and officers are elected at the meeting.
Hold good meetings:
IV.) Check with the charities bureau in your state for local requirements.Draft proper meeting notices
Keep minutes of the meetings
Adopt minutes at the following meeting
Maintain records of all meetings
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).Key elements of form 1023
Certificate of incorporation (or articles of organization, or trust instrument).
Conflict of interest policy.
Part IV (Narrative Description of Activities): Detailed description of past, present, and future activities.Alternative to 501(c)(3) status:
Part IX (Financial Data): Detailed financial information: a statement of revenues and expenses and a statement of assets and liabilities.
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.Investigate state and local tax exemptions
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.
State and local tax exemptions are routinely granted to 501(c)(3) tax exempt organizations.
The organization must be organized and operated exclusively for one of the following purposes:
ReligiousOrganizational test: The certificate of incorporation (charter) of the nonprofit must provide:
Prevention of cruelty to children or animals
Testing for public safety Fostering national or international sports competition
That it is organized exclusively for an exempt purpose described in Section 501(c)(3).Operational test:
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.
The organization must be operated to further the exempt purposes stated in the charter.
Federal Reporting Requirements for Exempt OrganizationsNo 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.
IRS Form 990, 990-EZ, or 990-NPublic Charities Versus Private Foundations
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.
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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