by Ron Milliman
There are actually two steps involved to obtain your 501(c)(3) tax-exempt status. First, you must become incorporated as a non-profit organization in your state. Second, you must apply for 501(c)(3) status to the IRS. Below, I will discuss both of these steps in more detail.
The First Step: Incorporating in Your State
A non-profit incorporates so that it exists as a separate legal entity in order to own property and open a bank account; ensure that the non-profit continues on its own after the original leadership is gone; and protect board and staff from liability from the non-profit's operations, among other benefits. Incorporation is handled by filing articles of incorporation with the appropriate office in your particular state. This is normally with your state's Department of State or the Secretary of State's office. Go to your state's Department of State or Secretary of State web site to find out the procedures required in your state and to obtain the necessary forms for the articles of incorporation.
You must be incorporated in your state before applying to the IRS for 501(c)(3) status. The incorporation process can be a bit costly and may require assistance from a lawyer. However, the complexity and costs vary widely from state to state. Often attorneys will give your non-profit organization a special fee to assist you with this process.
Also, if you want your organization to be recognized as tax-exempt in your state, you need to determine if your state requires a separate tax exemption form for its non-profit tax-exempt program. States like California and Pennsylvania do not recognize the IRS tax exemption for non-profits, requiring another layer of oversight in an attempt to prevent taxpayer fraud. Tax-exempt status in your state is also useful to avoid having to pay state sales taxes on purchases made by your organization for the organization's benefit, e.g. food for a holiday party, a vehicle to transport members, etc.
It is extremely important to read and follow all of the directions and instructions precisely. It will save you lots of headaches. It is not difficult; it is just tedious, and takes some time and plenty of patience.
You will most likely need to:
- Draft a mission statement that is succinctly stated, one or two sentences, of the purpose of your organization that your members can use as a guide for your organization.
- Have a governing board, usually at least three people. Some states require these people to be non-related; that is, they cannot be husband and wife, brother and sister, etc. (Note: we see numerous exceptions to this latter issue among our ACB affiliates and chapters; so, be sure you know the requirements of your particular state.)
- If you don't already have them, write your articles of incorporation and a set of bylaws. You can often obtain an example from your Secretary of State's office, or you can find examples of these documents online if you search for them using Google. Consult a lawyer to help you if necessary. You'll need to state the official name of your organization and the "office" address of the organization; this can be the home of an officer or a post office box. You will also need to give the name of your agent and his/her address; he/she must be a resident of your state. You will need the name of the incorporator and his/her address; this can be any board member willing to keep up with the filing of any future forms required by the Secretary of State's office, and a list of all of the officers and their addresses. These documents establish the structure of your organization and define its purpose. In order to become an affiliate or a chapter of an ACB affiliate, you should already have a constitution, which can be the basis for your articles of incorporation and bylaws. Again, legal advice here will help avoid frustrations.
- Send the articles into the Secretary of State's office with the appropriate filing fee.
- Get an Employer Identification Number (EIN) from the federal government. After you have your certificate of incorporation, you can get an EIN, which you will need when filing forms to the federal government and to obtain a bank account. One of the first questions on the application for your 501(c)(3) tax-exempt status is your employer ID. If you don't have one, you will need to get it from the IRS. The easiest way to do this is to apply online. Or, you can download Form SS4 from the IRS web site and follow the instructions.
- Apply to the IRS for 501(c)(3) tax-exempt status as soon as possible -- no later than 27 months after you've incorporated. This filing is rather lengthy. We'll talk about this later on.
It is recommended that you put the minutes of the board's organizational meeting, the articles of incorporation and bylaws in a corporate record, such as a large three-ring binder available at most office supply stores. Keep this record at your organization's office and add the minutes of each annual meeting to it. Also add minutes of meetings where decisions are made to change bylaws, board members, officers or make any capital improvements.
Once you are incorporated in your state as a non-profit organization, you are ready to take the next big step in the process of getting your 501(c)(3) tax-exempt status from the IRS.
A detailed description of how to obtain 501(c)(3) tax-exempt status for your ACB affiliate or chapter will be covered in part two, which will appear in a future edition of "The Braille Forum."