How to Start a Non-Profit
Getting government approval can be tough. Here's what to know.
Application
The main document that must be filed in order to apply for non-profit recognition under section 501(c)(3) is IRS Form 1023, a substantive and complex web of an application. If exemption is not requested, then contributions to the organization are not tax deductible and the organization could be subject to income tax even though it would have qualified if the appropriate Form 1023 application was filed.
Exempt Groups
A select group of organizations are exempt from filing Form 1023. These include churches, synagogues, temples and mosques, and associations of those organizations, as well as any organization other than a private foundation, that has gross receipts in each taxable year of normally less than $5,000.
Time For Filing
An organization that files Form 1023 within 27 months after the end of the month in which it was legally formed is eligible for tax exemption from the date of incorporation. If any organization that is required to file Form 1023 fails to do so within 27 months of formation, exempt status will only be effective from the postmark date of the application.
Fees
A user fee must accompany all Forms 1023 submitted to the IRS. The amount of the fee is based upon the actual or anticipated gross receipts of the organization. If gross receipts have not exceeded and will not exceed $10,000 annually over a four-year period, the user fee is $400. In all other cases, the user fee is currently $850.
Additional Forms
In addition to filing the basic Form 1023, the following additional items may need to accompany the filing:
1) Form 2848--Power of Attorney and Declaration of Representative, if there is a desire to authorize any person to communicate with the IRS as an advocate regarding the request for recognition of exemption (such as an attorney or accountant);
2) Form 8821—Tax Information Authorization, if the filers want basic information to be shared with a person other than an organization’s officers.
Filing a 501(c)(3) application is a complex process for which an attorney or experiences CPA can provide invaluable advice and assistance. In addition, there are a number of ongoing requirements that must be met in order to preserve the tax-exempt status of the corporation with which an experienced practitioner will be able to assist.
Michael F. Brennan is an attorney at the Virtual Attorney™ a virtual law office helping clients in Illinois, Wisconsin, and Minnesota with estate planning and small business legal needs. He can be reached at michael.brennan@mfblegal.com with questions or comments, or check out his website at www.thevirtualattorney.com .
The information contained herein is intended for informational purposes only and is not legal advice, nor is it intended to create an attorney-client relationship. For specific legal advice regarding a specific legal issue please contact me or another attorney for assistance.
