Understanding Nonprofit Filing Requirements

If you are interested in creating a tax-exempt, nonprofit organization, it is important to understand filing requirements. Most nonprofit entities are non-stock corporations qualified as tax-exempt under Section 501 (c)(3) or (c)(4) of the Internal Revenue Code. They are often religious, charitable, scientific, literary and educational, and in some cases they are social organizations, clubs, business leagues and the like.

Starting a Nonprofit

Nonprofit organizations have different purposes and missions but are created in a similar manner with two major components: (i) state incorporation as a non-stock corporation, and (ii) applying for and securing tax-exempt status from the Internal Revenue Service (IRS). Incorporation can be accomplished quickly, while securing IRS tax-exempt status may take several months. Once you’ve incorporated and secured tax-exempt status, the organization will enjoy the benefits of tax-exempt status, limited liability, and perpetual existence.

Incorporating

The first step toward creating a nonprofit is state incorporation. In Virginia, non-stock corporations require the founder(s) to:

• Select a name.
• Adopt articles of incorporation, bylaws, and required resolutions.
• Appoint a registered agent and registered office.
• Choose Officers and a Board of Directors.
• Hold an initial meeting of the Board of Directors.
• Obtain a Federal Employer Identification (FEIN) Number and any required business license(s).
• In later years, the Board of Directors must ensure that Annual Reports and tax returns are filed.

This list can become overwhelming. An attorney experienced with nonprofit, tax-exempt entities can navigate these steps and ensure the organization is properly created.

Federal and State Tax Exemptions

Once incorporated, the entity prepares and files an application for exempt status, as follows:

1. Filing the appropriate IRS application form, e.g., Form 1023 for charities, Form 1024A for social welfare entities and Form 1024 for most other entities. The application, which must be filed online, asks for a lot of information, some of which is not readily apparent from the form, such as history, finances, structure, operations, activities, and much more.
2. Some nonprofits that received federal tax-exempt status also obtain state tax-exempt status to cover sales and use taxes. The state process is less rigorous once the entity has received federal tax-exempt status.
3. If the entity plans on fundraising it must register with the appropriate state regulatory agencies both in the domestic state and any other states that the entity seeks contributions.

Help Understanding Nonprofits

Establishing tax-exempt nonprofit entities can be complicated and time consuming.  An experienced attorney can help you ensure that you are taking the correct steps and completing all the necessary forms for your organization. To learn more, please contact Cook, Craig, and Francuzenko today.