Question: I’m contemplating starting a non-profit organization with a 501(c)(3) exemption, can you give a brief overview of what I need to do? How do you get the 501(c)(3) tax exemption? What should I do to start the process?
Answer: To form a non-profit organization exempt from federal tax under Section 501(c)(3), you typically organize a non-profit corporation (though sometimes operating as an unincorporated non-profit entity is acceptable as well) with the Secretary of State of the state you decided to incorporate in, and have the corporate documentation drafted (e.g., the articles, bylaws, ect.). There are plenty of resources out there that will provide you with guidance on doing so, however, you should get an attorney to help you organize the non-profit entity and obtain your 501(c)(3) tax exemption to ensure that it is done correctly and to protect yourself from personal liability.
IRS Form 1023 Application for 501(c)(3) Tax Exemption
Next, you must complete and file an IRS Form 1023 application for tax exemption under Section 501(c)(3). This process can be somewhat involved and time consuming, depending on the type of non-profit, as the Form 1023 is quite long and detailed. Depending on your expected annual revenues, the filing fee for the Form 1023 can be up to $850, and take quite a while to get approved by the IRS. However, note that you can form your non-profit and begin operating prior to receiving your approval from the IRS, as the tax exemption can be retroactive for approximately 27 months from the date of incorporation. That said, this step should be taken care of as soon as possible, as it can be time intensive and there are serious tax risks if you accept donations as a non-profit and are later denied a tax exemption. It is typically best to have a tax attorney or CPA assist in the preparation of the Form 1023 due to the complexity often involved and the possible consequences of your exemption being denied. Note that some states have a separate filing for state tax exemption as well.
State Non-Profit Registration to Solicit Donations
In addition, in most states, if you solicit donations from persons in that state you must register with a state agency as a charity. Note that failure to do so can lead to serious penalties, and each state has unique requirements, though many states now accept a uniform filing called the Unified Registration Statement. In addition, for these purposes, the definition of solicitation is often quite broad, so you must be very careful to ensure that you are registered in each state requiring you to do so.
I highly suggest that you contact an attorney and/or CPA experienced in setting up non-profits and obtaining 501(c)(3) exemptions to make sure that you are setting up your non-profit correctly and not unknowingly subjecting yourself to personal liability for failing to do so.
If you would like to begin the process of organizing a non-profit organization, the Eastman Law Firm is happy to help. Please see our incorporation services page for estimated fees.