Part I: The IRS
Many people know that a good way
to obtain financial support for the causes they champion is to become a
federally-recognized nonprofit organization. For most, that recognition will
allow the group to have this ability, to received donations that are tax
deductible to the donor, and the donations are also non-taxable by the
organization is the 501c3. There are other associated sections of the tax code
that address different types of nonprofit organizations, such as business
associations or clubs.
A fun fact, the NFL is actually a nonprofit,
but it is not a 501c3, still for a $9 billon organization that does not pay
federal taxes, you can see why this can be worth the effort. Starting to get a
little notice for that, recently.
Below are questions to help you
begin the process to organize your information and prepare to apply for
What is the nature of your firm: are you a sole
proprietor, a partnership, an unincorporated association or a corporation?
Do you have an EIN (employment identification
number): These are issued quickly and online, and you have to have one to apply.
Who is on your board of directors? What
authority do they have? What makes them part of your board, what expertise or
commitment do they bring to your work?
Do you have a mission statement that clearly
describes your purpose?
How do you plan to support your activities,
specifically? Where will the funding come from?
The IRS Application: IRS Form 1023
The IRS will require an
application fee of $400 to accompany the application, provided you estimate
your income to be less than $10,000.00 annually.
If you know or believe that your
organization will generate more than $10,000, the fee is $800. If you have a
commitment of a donation that is contingent upon your having this designation,
you may request, and pay for, an expedited review.
Note: this fee does not include any
collateral fees from your state to file as a business entity, fees for
registering as a nonprofit or other means to get funds from you.
This application requires
documents and narrative/budget explanations that must be provided by your
organization; the application must be printed and mailed, and requires a
signature of an officer of the group and all final documents will need to be
mailed by the applicant.
The additional documents that
must be included with this application:
Articles of Incorporation
EIN number ( employment identification
Conflict of Interest Policy Statement for Board
Three years of pro-forma budgets, or actual
budgets if you have been doing business
Complete Board List and Biography including
relevance to the mission
Board Policies for terms and responsibilities
Descriptive Narrative Including Mission
Statement, Programs, specific fundraising and development plans.
not begin the application until you can answer all these questions.
the process this by doing the hard stuff: start to build your projected budget
and develop your narrative portion.
this information for the person who will be reading it and making the decision;
anticipate questions they might have.
will not take weeks, it will take months. The better your preparation, the
fewer reasons the IRS will have to request clarification questions.
journey of a thousand miles requires a first step. Be thoughtful as you approach this effort, and
be sure you really need to do become a separate nonprofit organization:
Is there another organization already doing what
you plan to do?
What is the reasoning behind being a separate
you realistically prepared to do all the due diligence, the filing, the
reporting and recording, and the behind-the-scenes paperwork to establish and
maintain your tax-exempt status?
Yes, it is quite a bit of effort,
but with over 1.6million nonprofit organization in the United States, it is
very do able.
Need help or advice?
Questions? Email or call now,
let’s get you started!