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10 Things to Do for a 501(c)(3) Tax Exemption

By Tanya Roth, Esq. on May 01, 2012 | Last updated on March 21, 2019

In one of our perennially popular Free Enterprise posts we ran down a to-do list for starting a nonprofit.

Now, let's take it one step further and talk about what you need to do if you want to have a smooth ride through the IRS nonprofit tax exemption process.

Here's a simple checklist so be sure to click on the links throughout the post for more detailed information.

  1. Research and reserve a name. Be sure that the name you want is available. Also check your state's nonprofit corporation laws to make sure that you can use the name in connection with a nonprofit. Nonprofit tip: In California, you can't use the name "trust" in connection with a nonprofit.
  2. Choose your board of directors. Your board will vote on issues affecting the nonprofit. The IRS will likely want their names and qualifications, so make sure you have a well selected board. Nonprofit tip: Try not to choose too many related members for your board.
  3. File your formation documents. If you plan to get tax exemption, file for incorporation. You don't have to do this by law, but it makes your life easier before the IRS. Nonprofit tip: LLCs result in a lot more questions during the IRS tax-exemption process.
  4. Create your nonprofit bylaws. These are important documents because the IRS will ask you for them. Play close attention to the conflict of interest clause and any compensation clauses.
  5. Get your EIN. You can't file for tax exemption without your Employer Identification Number. So apply online to get your EIN. The process takes half an hour or less.
  6. File for Federal tax exemption. In order to file for tax exemption, your nonprofit will have to file the Form 1023 with the IRS. This is a very large form, complete with supplemental narratives, so plan your time accordingly.
  7. File for State tax exemption. Each state has a different set of criteria for tax exemption. Check with your state's taxing authority to see what you might need to file.
  8. Register with your State for Fundraising and Solicitation. If you plan to solicit funds for your nonprofit, you might have to register with the Attorney General or Secretary of State. There is also a Uniform Registration Statement for many states.
  9. Get Insurance. This isn't a hard and fast requirement, but it might shield your board members from potential liability down the line. Look into it.
  10. Get local business licenses and/pr permits. Depending on the type of nonprofit you plan to run, you might be required to get some zoning clearance from the local authorities. This might be the case if you plan to own real estate which you plan to use for nonprofit activities.

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