Becoming a nonprofit or a 501(c)(3) means the entity, usually a corporation, is organized for nonpolitical purposes and has been recognized by the IRS as being tax-exempt by virtue of its charitable programs.
The initial corporate meeting is the essential first step in forming a nonprofit organization. It is at this meeting that the initial board of directors is installed and officer titles determined. The minutes of this meeting should include a resolution that shows unanimous affirmation by the board to establish the organization and pursue both incorporation and federal tax exemption. The purpose of the organization should be articulated in writing. At this point you will also need to decide on a name for the corporation.
Filing and Approval
To obtain federal tax code recognition as a 501(c)(3), tax-exempt entity, Form 1023 must be filed with
the Internal Revenue Service. Form 1023 is a 29-page, comprehensive look at an organization’s structure and programs. Given the number of additional schedules, attachments and exhibits that may be required in addition to the application itself, most Form 1023 filings range between 50-100 pages of information.
Typically, IRS 501(c)(3) approval takes between two and 12 months, including the time needed to answer written follow-up questions. Expedited review can be requested if a new organization is being formed to provide immediate disaster relief or if a promised grant is both 1) substantial relative to the organization’s budget and 2) the grant has a specifically defined expiration date. However, there is no guarantee the IRS will grant expedited review requests.
You will also need to register in your state as a nonprofit organization by contacting the Charity Registration Office. In addition, most states also have requirements that nonprofits submit an annual report along with a filing fee. The vast majority of states also require charities that raise funds by soliciting individuals, corporations, foundations and state government to register annually. Failure to file these reports can result in revocation of one’s corporate status.