How to apply for 501c3 nonprofit status
Having a nonprofit status means to have an income tax exception 500 (c)(3) for companies dedicated to charitable work (educational, religious).
You can apply for a nonprofit status or federal income tax exception when you create and register an eligible organization.
Additionally, you can be qualified to apply for it with the Internal Revenue Service (IRS) and receive all the benefits for your nonprofit organization.
Among the benefits of acquiring the nonprofits, status are tax-deductible charitable contributions.
This organization depends on donations and companies are more willing to donate when they know the donation will be tax-exempt under section 501(c)(3).
Furthermore, this assures to grant-making institutions that they are giving the grant to the allowed beneficiaries.
Steps to apply for your nonprofit status
First, to be able to apply for the nonprofit status you have to check out the available options to structure the organization as a:
- Unincorporated association
Be sure that your organization has these requirements:
- No part of the income goes to profits to any of the members of the organization. The earnings are charitable and do not go to the pockets of the executives.
- In the case of a “trust” held by a person to use or distribute to benefit the third party. Every earning and property is charitable.
- The number of members must be a minimum and all have to have the same purpose or objective is to be nonprofit and charitable.
Choose a name for your organization
Second and previous to the registration of your nonprofit status you have to pick a name that it’s acceptable (not already been used), this name should describe the objective of the company and its nature.
Select the directors of your nonprofit status
There are some states that require that you choose a specific number of initial directors, these are going to have the responsibility to make the high-level decisions and also be accountable for the responsibilities.
The board members have to be natural people and not to be associated with a similar type of organization.
The members do not need to live in the same states.
Pick a registered agent
Choosing an agent and an address it’s important because this figure is the one designated to receive any legal notifications.
- The agent has to be register and residing on the state and the address must also be within the state’s limits.
- You cannot use a P.O Box located in the state.
- The agent has to be reachable on the address that you designated on business hours.
Delimitated the nonprofit status objectives
When you create a company and want to obtain the tax-exempt status, you need to have a purpose. There are categories that are described in the 501(c)(3) and you have to choose one.
In fact, the main thing is the company must be charitably directed to help a determinate group of people or a cause.
It can be to relieve the poor, the unprivileged, the advancement of religion, education, science, to build or rebuild a structure that helps a collective group.
For a cause
- Defending human rights
- Community improvement
- Eliminating prejudice and discrimination
- Lessing burdens of the government
- Testing for public safety
- Fostering sports competitions
- Preventing cruelty to children or animals
Grant the nonprofit assets to exempt purposes
In the case of the company’s dissolution, it must be stated that in the articles of incorporation that the assets are going to be exempt purposes in accordance with the Internal Revenue Code. The assets can go to the Federal Government, state or local government for public purposes.
Fill the incorporation form of nonprofit status
You have to fill the incorporation form in a state agency that is usually the Secretary State Office. The form contains these requirements:
- The organization name
- Your register agent or office
- The company’s directors
- Company’s purpose
- The dissolution statement
File the articles of incorporation
Equally important, you have to file the articles, this procedure can be made online after you fill the application form.
For example, you can also do it in person or through fax.
Disburse the fee
In addition, to incorporate the nonprofit status company there is a fee that you must pay. The amount of payment can vary in each state, from $25 up to $50.
Get the required licenses and permits
Moreover, along with the papers and documents filed to the Secretary of State, you have to get local licenses and permits, even more, if the business you are conducting has a public matter, such as selling merchandise.
Meet the insurance needs
- In order to function as a business, you have to have insurance even more if you have employees.
- The workers have to be insured and have compensation insurance.
Valid an Employer Identification Number (EIN)
After you register the company, the IRS mandates that you register to obtain an EIN that is considered your account number with the IRS.
To be able to do this, you have to fill out the form SS-4 online, this should include:
- Business information
- Nature of the company
- Employee’s information
- The purpose of the company
- The type of nonprofit
Make your application on time
- The organization has to be registered before the 27th month you have started operations.
- It will be considered legal on the date you filed the articles of incorporations.
- In case you file after the 27th month, you have to file Schedule E of the form 1023, this is going to determinate the effective date of exemption.
Fill out the Form 1023
Another requirement is the application to get recognition of exception under section 501 (c)(3)
- Applicant’s identification
- The company’s structure
- Description of the activities
- Proof of required provisions
- Financial agreements with the directors, sponsors or workers
- A list of the beneficiaries of the organization
- The history or the organization
- The financial data
- Public charity status
- User fee information
Check the Form here https://www.irs.gov/pub/irs-pdf/f1023.pdf
Pay the fee
And after filling the Form1023, you have to file it as possible and when you do it there is a fee that it must be paid.
The amount is going to depend on the type of organization.
If the gross receipts exceed $10.000 annually over a four year period, the fee is going to be $850, but if the receipts are less than that, the fee is $400.
Receive the acceptance letter
After the tax specialist approval, the IRS is going to send you a determination letter and you should keep for your records.
Abstain from prohibited activities for nonprofit status
Some of these prohibited activities could be:
- Taking part in political campaigns
- Lobbying for other purposes
- Providing benefits to private individuals
- Operating for benefits other than charitable ones
- Taking part in illegal activities or activities that violate public policy
Keep your accounting books in order
Likewise, you should keep a good record of your books.
Meet federal requirements
Besides, as a nonprofit organization, you are going to be required to file documents with the IRS and fill out Form 990 which for IRS and this will provide them with general information for public inspection.
Disclose required information
Finally, all forms, documents and accounting books should be always available for any inspection.