Founding a nonprofit organization is not an easy task, but with some research and preparation, it can be accomplished with few headaches. If you have an idea for a new nonprofit, or would like to incorporate an existing organization as a nonprofit, follow these basic steps. Be sure to find out what laws apply in your area.
Becoming a Nonprofit Organization
Do your research. Read books and websites that describe how to create and manage a nonprofit. Talk to directors of nonprofit organizations and ask for advice. Figure out what need your nonprofit is fulfilling in your community. Find other organizations in your community who will work with you, offering support and resources.
Find potential sources of financial support, looking at federal, state and local agencies who support the kind of work you are doing, as well as private foundations and individuals who have made donations to organizations similar to yours. Apply for grant or fellowship funds from these sources and look for other avenues of income.
File the legal paperwork. Establish your organization as a nonprofit by filing Articles of Incorporation with the secretary of state in the state in which you will operate.
Apply for an EIN (Employer Identification Number) with the IRS. This functions like a Social Security Number for your organization and is needed before you can complete your application to be a tax-exempt 501(c)(3) organization.
Apply for nonprofit status with the IRS by filing an application to be a 501(c)(3) organization, which grants federal tax-exempt status. You will need to read IRS Publication 4420 on how to apply for tax-exempt status, as well as IRS Form 1023 which is the application. In order to complete the application you will need your EIN, a description of your program and the program's history, current and past financial data and a list of the sources of income for your organization. You'll also need director and staff biographies and compensation information and a list of the members who will serve on a board of directors or board of trustees. An application fee of $200 to $850 will be required along with your application, depending on the size of your organization and the amount of money you expect to take in each year.
Review the application checklist on Pages 29 and 30 of Form 1023 to ensure you have included all of the required information. An incomplete application will delay the process.
- Find experienced people to help you through the process. There are organizations that offer help to new nonprofits and charity organizations. People who have worked at similar organizations also might be willing to offer guidance.
- Take your time and be sure you are filling out the forms exactly as specified, so that you don't have to go back and forth with the IRS once your application is submitted. This takes time and could keep you from moving forward with the work of your new organization.
Items you will need
- IRS Publication 4420: Applying for 501(c)(3) Tax-Exempt Status
- IRS Form 1023 with instructions
- Program description
- History of the organization
- Current and past financial data
- List of potential funding sources/revenue stream
- Director/staff bios and compensation information
- List of board of directors/trustees
- $200-$850 for application fees (depending on the size of the organization)