The answer may not be what you expect. 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 (notes) of this meeting should include a resolution that shows unanimous affirmation by the initial board to establish the organization and pursue both incorporation and federal tax exemption. The purpose of the organization should be articulated in writing, as well.

The short answer is, “yes”. It is not necessary that you have every board position filled before paperwork is filed, but you need an initial board in place. In a nonprofit organization, it is the members of the board of directors who are legally accountable.

Probably. There are a number of tasks involved with forming a nonprofit organization at the state level. The most important of these is the incorporation process. While it is possible to form a non-corporate, nonprofit organization, (and obtain federal 501(c) tax exemption), the vast majority of organizations choose corporate status.

Forming a corporation means that the founders, or incorporators, are creating a legal entity that exists wholly apart from the people involved with it. Most people prefer to form a nonprofit corporation, in part, because of the liability protection a corporation provides. For example, if a nonprofit corporation were to be sued, the assets of its directors and members are generally protected because corporate assets are distinct from personal assets.

To obtain 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.

Go here to get a look at Form 1023.

Form 1023-EZ is a much more generalized document that does not require written budgets or narratives. Form 1023-EZ is specifically designed for certain, low-budget organizations.

Form 1023 is filed with the Exempt Organizations Division of the Internal Revenue Service in Cincinnati, Ohio, though it is now an electronic submission as of February 2020.

Form 1023-EZ is a much more generalized version of the standard Form 1023 long form. Form 1023-EZ is a more streamlined method of filing designed for smaller nonprofits seeking 501(c)(3) status. Because this form is e-filed, the time it usually takes to get IRS approval is greatly decreased. The 1023-EZ does not require written budgets or narratives with the application.

Not all purposes or activities qualify for this process. In addition, on-going gross revenue is limited to under $50,000. For more information, see our Form 1023-EZ info page.

Generally, Form 1023 should be filed within 15 months of the organization’s formation. For practical reasons, many organizations find it better to apply as soon as possible following formation. Extensions beyond 15 months may be possible under a variety of circumstances. After a period exceeding 27 months following corporate formation, retroactivity of 501(c)(3) status is likely limited.

Yes, but it is not recommended. The IRS will allow unincorporated associations to apply, but these organizations will not have the inherent benefits associated with the corporate structure. In addition, the IRS will still require copies of an organizing document…and will subject the organization to corporate requirements regardless.

The IRS has a two-tiered filing fee structure. Organizations filing the standard Form 1023 pay a $600 filing fee when sending their application to the IRS. Organizations filing Form 1023-EZ pay a reduced $275 filing fee.

Technically, anyone can complete Form 1023. From a practical standpoint, it is usually advisable to enlist the help of a professional who specializes in the process, such as The Foundation Group. While the IRS rejects slightly less than 10% of applications filed, nearly half are abandoned by the filer…usually out of frustration or inability to answer tough, IRS follow-up questions. Out of approximately 80,000 applications filed annually, only half make it through the process.

No. There is no direct correlation between the organization and the financial, tax or credit status of any officer, director or employee.

As stated in another answer, IRS Form 1023 is 29 pages long, plus required schedules and attachments. While every organization does not have to complete every page, a typical application package is between 50-100 pages of material. More important, however, is the amount of time required to complete the package. The IRS estimates a preparation time of well over 100 hours for a novice to prepare Form 1023.

Form 1023-EZ reduces that estimated time because the application is significantly shorter.

Falls Credit N Tax prepares Form 1023 on behalf of its clients. Click here to learn more.

In order for the IRS to make a determination on a standard Form 1023 application, specific questions must be answered relative to the organization’s legal structure, its governing board and potential conflicts of interest. More importantly, pages of detailed questions concerning the organization’s activities must be answered. This is in addition to a three-year projected budget (new organizations) or up to five years of financial history (existing organizations) and a written narrative essay outlining the organization’s programs, both current and planned, that will advance the organization’s exempt purpose. Add to that copies of supporting schedules and documentation and you have a basic application package.

The information requested on a Form 1023-EZ relates to more generalized questions of structure and compliance. No written budgets or narratives are required.

Both Form 1023 and 1023-EZ must be submitted online via the pay.gov IRS portal.

Form 1023 does not need to be notorized, but it must be signed, under penalty of perjury, by an officer or director.

Generally, yes. IRS 501(c)(3) recognition is (usually) effective retroactively to the earlier of 1) the organization’s legal formation or 2) the commencement of its programs. This means that the organization’s activities are retroactively tax-exempt and donations are retroactively tax-deductible to the donor, extending even to prior tax years. In order for the program-commencement date to be considered the effective date of tax-exemption, however, there must be an organizing document of some kind. Signed minutes from an initial organizing meeting of the board of directors may be sufficient. Under certain circumstances, IRS tax-exemption may only be retroactive to the date of the filing of Form 1023. This is particularly true for organizations formed more than 27 months prior to applying for 501(c)(3) status.

The bigger issue here is state compliance concerns.  Most states require nonprofits to register with that state’s Division of Charities (or similar department) prior to any fundraising activities.

Yes, but don’t expect much success with that. Most foundations, government agencies and other potential sources of funding will require an organization to possess an approved IRS 501(c)(3) determination letter.

No. Your EIN is the only number issued to your organization by the federal government. When your nonprofit’s 501(c)(3) status is approved by the IRS, you will receive a written notice, known as a letter of determination.

A denial by the IRS of 501(c)(3) status, known as an adverse determination, is a very difficult situation. An adverse determination can be appealed, but it is an enormous undertaking absolutely requiring professional representation. Alternatively, the organization may choose to apply again from scratch. In either case, it is usually an uphill battle to acquire 501(c)(3) recognition once an organization’s initial application has been rejected. All the more reason to consider acquiring competent assistance at the beginning of the process.

Probably not. Private foundations may still be subject to taxes on investment earnings and undistributed minimum grant allocations. All 501(c)(3) organizations may be subject to taxes on “unrelated business income.” 501(c)(3) organizations that have employees are subject to federal and state payroll taxes. Additionally, some states do not exempt 501(c)(3) organizations from sales and/or property taxes. It is important for the organization to know what is required in its state and locality.

In most states, no. While a handful of states have a simple, one- or two-page form that must be prepared, California is the only state that requires a separate application process rivaling the one required by the IRS. In California, federal tax-exemption does not eliminate state income tax liability until approval is received from the California Franchise Tax Board.

Organizations filing Form 1023-EZ are also required to file the entirety of the separate application to the California Franchise Tax Board.