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Step Four: Filing Documents to Create Your Organization



Tip:

You can save money by drafting articles of incorporation and bylaws yourself and then have a professional review and refine them.

It’s tedious and time-consuming, but there’s no way around the mound of paperwork you have to complete if you’re going to form a nonprofit. 

You will need to file paperwork with both the federal Internal Revenue Service and, in some cases, certain offices within your state government.

To receive 501(c)(3) recognition from the federal government, you will need to file IRS Form 1023.  It’s a lengthy document, requiring a great deal of attention to detail.  But first, you should create some of the supporting documents that you will need to include with your application.

In theory, you can complete this application yourself.  But the stakes are so high that it makes sense to consult one or more professionals - certified public accountants or lawyers knowledgeable about nonprofit regulation.

The IRS places a great deal of importance on good governance practices for nonprofits.  It believes “a well-governed charity is more likely to obey tax laws, safeguard charitable assets and serve charitable interests,” explains a recent IRS presentation. 

To satisfy the IRS, you will need to draft articles of incorporation, bylaws, a conflict of interest policy and include those as a part of your application.  We’ll explain those in this section, but we’ll begin with the relatively easy task of obtaining a Tax Identification Number.

Tax Identification Number

Also known as an Employer Identification Number (EIN), a federal Tax Identification Number is relatively painless to obtain.  This is a nine-digit permanent number that identifies your organization and the person responsible for its operations; he or she will need to supply a Social Security number.  You’ll need an EIN when you open a bank account, apply for tax-exempt status or apply for a grant.

You can obtain an EIN within minutes by using the IRS’s online service.  You can also apply by phone or fax.

The EIN is supplied immediately.

Articles of Incorporation

Articles of incorporation are your organization’s “birth certificate.”

Articles of incorporation—also known as articles of organization—are your organization’s “birth certificate.”  They describe the nature of your organization’s work and designate your organization’s registered agent -  the person whose name will go on the document, and who handles official correspondence.  It could be you, your lawyer or a third party.  In some states, you also may list the names of additional incorporators. The date of filing will become your organization’s date of birth.

What do articles of incorporation look like? Here’s a sample version from the IRS.

And here are examples from Wisconsin Watch and MinnPost.

Articles are filed with officials in your state - generally with the secretary of state’s office.  Rules vary, depending on location, so check with your state for details.  (See a list on the IRS website for phone numbers and other information.)  A Google search for the name of your state and “articles of incorporation” and “filing” also can quickly turn up additional details.

For your organization to qualify for tax-exempt status, the articles of incorporation must contain statements certifying that:
  1. The entity will be organized and operated exclusively for one or more tax-exempt purposes as permitted under section 501(c)(3) of the IRS Code.  These include educational, charitable and literary, among others.

  2. None of the net earnings will go to private shareholders or individuals.  And no one will benefit if the organization is dissolved.

  3. The organization will not be organized or operated for private interests, such as the founder’s family or other insiders.

  4. The organization will not devote a substantial part of its activities to attempts to influence legislation or participate in political campaigns.  For news projects, this has generally been interpreted to mean avoiding editorials or endorsements of policies or candidates.

You may be able to obtain free legal help.  For example, your state bar association may have a program that provides free help for new nonprofits.  You may also find a group that works with nonprofits in your state.  Talk with leaders of other established nonprofits to learn what’s available.  Two places to start are the Citizen Media Law Project at Harvard, and its sister site, the Online Media Legal Network.

Bylaws

When you apply for tax-exempt status, you have to submit a copy of your organization’s bylaws and any amendments.  The IRS will be looking for evidence that your organization’s rules comply with its regulations for a 501(c)(3).

Bylaws are a map of the organization’s power structure, as well as a rule book outlining how things will get done.

Bylaws are a map of the organization’s power structure, as well as a rule book outlining how things will get done. Composing them may sound daunting, but the IRS actually requires surprisingly little from tax-exempt organizations. 

The bylaws should cover such topics as how many directors will serve on the board (it’s fine to go with a range, from three to 11), whether meetings may be conducted over the telephone, how often meetings will be held, and how elections of board members and officers (president, vice president, secretary, treasurer, at a minimum) will be conducted.

The bylaws should also describe a process for dealing with conflicts of interest.  For example, your bylaws might say that if a director has a real or potential conflict of interest, he or she may answer questions about the issue at hand, but may not vote. 

Here are examples of bylaws from the Wisconsin Center for Investigative Journalism and St. Louis Beacon.

The IRS will compare your organization’s articles of incorporation to your bylaws for consistency.

Applying for a 501(c)(3)

Now you’re ready to complete Form 1023 to apply for recognition from the IRS as a tax-exempt 501(c)(3). The IRS also provides these instructions to file.  Follow them closely to ensure your application is processed as swiftly as possible.

Tips for completing Form 1023:
  • In Part I, line 6a, you can designate as the primary contact person an officer, director, trustee or other individual—including an “authorized representative,” such as a lawyer or accountant—who is permitted to speak with the IRS, under the terms of the bylaws or other rules of operation.  This is not necessarily the same as the registered agent for articles of incorporation.  If you’re the founder but you’re not a board member, you probably should not list yourself here, because officers generally must also be directors.

  • In Part IV, be specific when describing how your organization will operate, and make sure your description is consistent with the information you gave in your articles of incorporation and bylaws.

  • Part IX, the financial data summary, will require you to estimate the organization’s revenue and expenses during the first years.  Your budget should reflect your priorities for building the organization, indicating where expenditures will grow as resources increase.  (Remember, when calculating staff compensation, allow for about 10 percent on top of salaries for the organization’s contributions to Social Security, workers compensation, unemployment insurance, etc.) More on budgets in Step Six.

  • Although it isn’t technically required, a conflict of interest policy should be included. (More information in Step Five).

  • As this may be the first time you’ve prepared the items in this form, it may be helpful to view financial statements and 1023s prepared by other groups. Here are examples from MinnPost, WCIJ, and St. Louis Beacon.

The application fee is based on your organization’s annual gross receipts.  The fee, as of 2010, is $400 for receipts of less than $10,000 in the previous four years, and $850 for receipts of $10,000 or more over the same time period.

Note that once approved, your completed Form 1023, along with other documents you file with the IRS on an annual basis, must be shared with the public when requested. 

Expect to wait at least three to four months—and sometimes up to six to nine months—for the IRS to approve your application.

Once approved, you should keep your original determination letter from the IRS with the rest of your important business papers.  A copy will be requested for every grant application you fill out.  (If you affiliate with another nonprofit, you must submit proof of their nonprofit status.)  Also, remember that once you’ve completed this part of the process, you will still need to file annual tax returns on behalf of the nonprofit.  And if your nonprofit earns a considerable amount of money from business pursuits, such as advertising, you may have to pay taxes on it.  This will be discussed further in Step Six.

The IRS provides much greater detail on how to complete the process in this document (IRS Publication 557), which can be downloaded as a PDF. 

Your state tax exemption

Once you’ve received your 501(c)(3) ruling letter from the IRS, your organization may still be required to register with one or more state agencies to be allowed to solicit for contributions and to be exempted from state taxes.  You can find those forms from the Federation of Tax Administrators.

The National Association of State Charity Officials maintains a list of links to state offices that regulate charities.  You may want to consult with the relevant state offices before filing.

       

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