Starting a non-profit



docs/f1023.pdf   Form 1023 

docs/i1023.pdf    Form 1023 instructions


Applying for Exemption - Where to Send Application

Where do I send my exemption application?

Send your completed exemption application to the address stated in the instructions to the application form:

Internal Revenue Service
P.O. Box 12192
Covington, KY 41012-0192

To send your application using express mail or a delivery service, use the following address:

Internal Revenue Service
201 West Rivercenter Blvd.
Attn: Extracting Stop 312
Covington, KY 41011




Process Time

Most charities must file for 501(c)(3) status, a process that usually takes several months and comes only after the charity has completed the lengthy incorporation process in its home state. The IRS 501(c)(3) application form (Form 1023) is approximately 30 pages long, which the IRS advises takes approximately eight hours to complete. But charities can only complete this paperwork after its leadership has compiled the necessary records and understands enough about tax-exempt law. Often, a lawyer must be consulted. According to author Anthony Mancuso in "How to Form a Nonprofit Corporation," the IRS may take anywhere from two to six months to determine whether to grant 501(c)(3) status. When it does, it sends a "determination letter" to the charity. However, a few weeks after receiving the paperwork, the IRS sends a letter saying the charity's status is "pending," which provides temporary proof of tax-exempt status.

Reasons for Delay

Application approval can be delayed for several reasons, from simple application errors to issues concerning whether the organization meets the standards for exemption. According to the IRS, the top three reasons why application reviews are delayed are that the application is sent in with no or an incorrect user fee, the organization neglects to attach its organizing document and amendments, or the organization neglects to attach a copy of its adopted by-laws or rules of operations.

Expedited Application Processing

Applications are generally processed in the order the IRS receives them. However, there are times when the IRS will review applications more quickly. Expedited processing is granted only when there is a compelling reason to leapfrog an application ahead of others. The IRS says these reasons include a pending grant, where failure to receive the grant may force the organization to close; when the charity is a new organization created to provide disaster relief to emergency victims; or if IRS errors have caused undue delays in issuing a determination letter. Requests for expedited processing must be made in writing and fully explain the compelling reason.

Tax-Exempt Status Without Filing

There are two ways of having 501(c)(3) status tax-exempt status without an IRS filing: automatic recognition and a fiscal conduit. Automatic recognition goes to groups that are subordinate organizations evaluated by parent groups, or that are covered by a group exemption, such as local chapters of national charities that already have 501(c)(3) status. It also goes to churches, parts of churches or associations of churches, and to organizations not private foundations, but which normally have annual gross receipts of not more than $5,000. The Community Toolbox cites as an example of this as a group of citizens trying to convince its city council to create bike lanes on major streets. Groups that are automatically tax-exempt may file anyway, just to have the official letter of determination.

Fiscal Conduits

A charity may also receive automatic tax-exemption if it is under the administration of a "fiscal conduit." Fiscal conduits are nonprofits that are already tax-exempt that administer funding for another organization. For example, a fiscal conduit will handle the organization's accounting and can vouch for what the organization has done with its funding. It may also perform other administrative tasks, such as handling personnel matters for the group and providing it with office space. Local United Ways often serve as fiscal conduits.


What forms & documents do we have to file?

1. Order incorporation materials from the Secretary of State, or call (860) 509-6200. This office has a wealth of sample documents that allow you to secure a registered agent, perform a name search and reserve your corporate name.

2. Contact the Secretary of Stateís office and prepare & file Articles of Information. Keep in mind you need to file the Non-Stock Certificate of Incorporation. Be sure to ask for any other materials that explain the rules, etc. governing charitable solicitations, hiring employees, employer payroll and unemployment taxes, registering for taxes and for sales and/or income taxes under state and local law (if any), and matters of interest for setting up and managing a nonprofit in your state. These may come from several different offices at both the state and local levels.

3. Prepare and file your organization's bylaws. (There are many, many good books in  libraries and bookstores to help you). In general, the IRS looks at the bylaws to determine whether a group is what it claims to be. This is a critical document, and of at all possible, should be reviewed by an attorney.

4. Order, prepare and file your Federal tax exemption application.

This includes Form 8718 (User fee for Exempt Organization Determination Letter request),

Package 1023 Application for Recognition of Exemption with instructions),

Form SS-4 (Application for Employer Identification Number),

Publication 557 (Tax-Exempt Status for Your Organization),

and if you are filing as a foundation order Publication 578 (Tax Information for Private Foundations and Foundation Manager).

It is assumed you will be applying for 501(c)(3) tax exempt status, and therefore you must file Form 1023, if not, you need to file Form 1024.

If your organization is a church, or church-affiliated auxiliary or an association of churches, you are not required to file Form 1023.

You must file your Form 1023 within 15 months after the end of the month in which you filed your Articles of Incorporation to ensure that your organization is tax exempt from inception. If not, your tax exemption does not become effective until the postmark date.

5. Apply for Federal Nonprofit Mailing Permit to qualify for lower rates on bulk mailings.

Visit a big post office, or call the nearest Postal Service administrative office, and request the information packets for nonprofit mailers. The postal service will require a copy of each of the items mentioned above, plus copies of your literature, newsletters, or promotional materials before approving your request.

6. Set up corporate checking account with local bank. They will require a copy of your organization's Employer Identification Number, Articles of Incorporation, etc.

Reprinted with permission Delaware Association of Nonprofit Agencies


Who can I contact at the IRS that can help?

Help Line at the IRS for Nonprofit Organizations

In keeping with its goal of becoming more customer friendly the IRS has established a toll-free help line for non-profit organizations. If you have a question you can call: (877) 829-5500. You will be connected with a customer service representative at the IRS Cincinnati office (where applications for tax exempt status are processed). A second line for non-profits is being planned. The IRS is advising callers that the new toll free exchange (877) may not yet be recognized by some systems, and callers should ask an operator to connect them if they have problems.

Printed with permission of Delaware Association of Nonprofit Agencies


What Is a Faith-Based Nonprofit?

By , Guide

Image of open hands at a religious ceremony  Joanne Fritz

Photo Courtesy of Franciscan Renewal Center

Question: What Is a Faith-Based Nonprofit?

A reader asked: "I am helping a new non-profit organization get started, and I'm dealing with their incorporation issues and web page startup. In the course of our discussions, they said they are contemplating becoming a "faith-based" nonprofit vs. a non-faith based one. Is there any difference in these two designations? Is there any benefit to being a faith-based organization, in terms of availability of grants or anything else? Any insight would be appreciated."


I asked Emily Chan, of the NEO Law Group and the Nonprofit Law Blog to explain the differences between faith-based nonprofits and regular nonprofits. Chan provided the following:

A Faith-based organization (FBO) is not a legally defined term but it is often used to refer to religious organizations and other charitable organizations affiliated or identified with one or more religious organizations. For example, the Corporation for National and Community Service defines an FBO to include:

  • A religious congregation (church, mosque, synagogue, or temple);
  • An organization, program, or project sponsored/hosted by a religious congregation (may be incorporated or not incorporated);
  • A nonprofit organization founded by a religious congregation or religiously-motivated incorporators and board members that clearly states in its name, incorporation, or mission statement that it is a religiously motivated institution; and
  • A collaboration of organizations that clearly and explicitly includes organizations from the previously described categories.

Accordingly, the decision of whether to be an FBO may depend more on whether the primary purpose or activities of the organization are religious or explicitly religiously motivated than on any advantages or disadvantages associated with such label. If the primary purpose and activities of the organization are not religious, but religiously motivated, the organization may want to consider the pro and cons of identifying itself as a FBO and/or a specific type of FBO (e.g., church, religious corporation). Perhaps the main considerations are how its chosen identity will affect its donors, funders, supporters, targeted beneficiaries, and other stakeholders.

There are no direct legal benefits associated with being identified as an FBO. However, there are benefits and drawbacks associated with being a certain type of FBO. For example, churches that meet the requirements of Section 501(c)(3) of the Internal Revenue Code can claim tax-exemption without a determination from the Internal Revenue Service (IRS) and have special protections that limit how and when the IRS may audit them. Additionally, certain religious organizations, including churches, are exempt from filing IRS Form 990 and may be exempt from filing state information returns and charitable solicitation registrations.

FBOs may not be eligible to receive grants from certain grantmaking entities that do not want to advance or be associated with a, or any, particular religion or religious purpose. However, FBOs that do not propagate a belief in a specific faith may be eligible. FBOs without an IRS determination of 501(c)(3) status may also be ineligible to receive grants because of the possibility that they do not actually qualify as a 501(c)(3) entity.

The Arizona Grantmakers Forum in 2005 noted that "information on foundation and corporate funding of faith-based organizations is limited." The best source is research conducted by The Roundtable on Religion and Social Welfare Policy, which is a research project of The Rockefeller Institute of Government.

One study of large private and community foundations (total annual giving of $1 million or more) suggests that a substantial percentage (12%) expressed interest in funding both social services and religiously affiliated organizations. An examination of the grants issued by the 50 largest "faith friendly" foundations indicates they provided $68.8 million to support faith-based social services in 1999 and 2000. This represents around 3% of the total annual philanthropic giving for these foundations. Little is known about the giving patterns of smaller foundations, but it is likely that their grants to faith-based organizations are significant.

FBOs are generally referenced in several laws that recognize their eligibility to receive grants under certain specified conditions and their continued right to consider religion when hiring staff. "Charitable Choice" laws, signed into law by former President Clinton during the period of 1996-2000, specify that FBOs cannot be excluded from the competition for federal funds simply because they are religious. But they do not set aside funds for FBOs. Generally, federal grant funds may not be used for inherently religious activities such as worship, prayer, proselytizing, or devotional Bible study. The funds are to be used to further the objectives established by Congress such as creating the conditions for economic growth and prosperity.

Note: This communication was not written or intended to be used, and may not be used, by any taxpayer for the purpose of (i) avoiding any tax-related penalty under the Internal Revenue Code, or (ii) promoting, marketing or recommending a tax-related transaction described herein.

Publication 557 (10/2011), Tax-Exempt Status for Your Organization


Revised: October 2011

Table of Contents









Mission Statements

How to Write a Nonprofit Mission Statement

From Mundane to Memorable

By , Guide

Mission statements have often been ponderous things, suitable mainly for an internal audience and to impress institutional funders.

Today, mission statements are often shortened to a few, pithy words that can easily be used across communication channels. The best ones both express the authentic purpose of the charity and serve as a building block of its branding and marketing.

An effective mission statement is more important than ever. Donors, supporters, volunteers look for them. Indeed, they should be right up front on your website, in your annual report, and in your fundraising materials.

There is no one way to write a mission statement. Studying many examples will broaden your thinking about what is possible and what makes a good one. The best are highly readable and inspirational, but still answer the why, how, and for whom your charity exists.

The Benefits of a Compelling Mission Statement

  • Focuses your energy and clarifies your purpose. When you try to write your mission statement, you will find that you have to really define what you are going to do. Many questions will come up that must be resolved. For instance, whom will you serve? Are you concerned about just your local area? Be careful to keep your mission narrowly focused to ensure that you don't bite off more than you can chew.


  • Motivates board, staff, volunteers, and donors. A mission statement is not just for internal use or to submit to the IRS for tax-exempt status. It is a beacon that will attract new people and more resources to your cause. Make your mission statement compelling as well as clear. It will be your best public relations tool.


  • Helps to get IRS approval as a tax-exempt organization. If you plan to apply for tax-exempt status--501(c)(3) or some other IRS classification--the IRS will be looking at your mission statement to see if your organization matches its requirements for that type of entity. Know what you are applying for and draft your mission to match the requirements.




How to Write a Mission Statement That Is Memorable, Not Mundane

  • Bring in many perspectives. Get lots of input from the community you plan to serve, as well as from your board, staff, and volunteers. This will help you develop a broad base of support. You can get this input through meetings, surveys, or phone calls. Ask people what they think or need in regard to the area of services you plan to offer.


  • Allow enough time. Time spent now will pay off later. So don't rush the process. Provide time to reflect on the information you gather, to write an initial draft, to allow key participants to read it, and to make changes.


  • Be open to new ideas. This is especially important for the founders of the organization. You may have had tunnel vision while getting your organization set up, but now it is time to get some fresh perspective. Be open to different interpretations of what you should be doing and new ideas about how to accomplish your goals. Use brainstorming techniques to ensure that all ideas come forward freely. You can winnow them down later.


  • Write short and only what you need. The best mission statements are short and state the obvious. Your statement's length and complexity depend on what your organization wants to do, but keep it as brief as possible. As Tony Ponderis says, the mission statement should be "...short enough to remember and easily communicate. Strong enough to inspire."

    Get help from a professional writer. A well-written mission statement can be the foundation for your organization's marketing and branding program. Consequently, it should not be written in a way that only managers and insiders understand. A good writer can help you avoid jargon and language that is stilted. The goal should be a mission statement that you are proud to display on your website and in your publications, and that everyone can understand and remember.


  • Review your mission statement frequently. The American Heart Association, for instance, reviews its mission statement every third year, but it is changed only every few decades. Cass Wheeler, long-time CEO of the American Heart Association, says in his book, You've Gotta Have Heart: Achieving Purpose Beyond Profit in the Social Sector,"The environment changes and the organization changes, so a periodic review is important to ensure that there is alignment of purpose and reality."



5 Things to Avoid in a Mission Statement

  1. jargon that only professionals in your particular field will understand.
  2. stilted, formal language.
  3. passive voice (passive: "xyz is an organization that helps women achieve independence"; active: "xyz helps women achieve independence.")
  4. a focus on the organization, rather than the people it serves.
  5. generalities, such as "saving the world" or "eradicating poverty."

Your mission statement is worth the time and attention you'll lavish on it. It could be the toughest writing assignment you ever take on, but the result will provide the bones for everything else you communicate about your charity.




What are Articles of Incorporation? Why Does My Nonprofit Need Them?

By , Guide


Question: What are Articles of Incorporation? Why Does My Nonprofit Need Them?

When you incorporate as a nonprofit, the state in which you incorporate will require Articles of Incorporation. What is required may differ from state to state. It is important to contact the state office (usually the Secretary of State) responsible for incorporations to find out what the requirements are. Many state offices will provide a packet of information about how to incorporate as a nonprofit and even samples of articles of incorporation or fill-in-the-blank forms that you can use.


Articles of Incorporation provide information such as:

  • The corporation's name
  • The name of the person(s) organizing the corporation
  • Purposes for which the corporation is formed
  • Wording that states that no part of the assets of the nonprofit corporation are to benefit the members.
  • Number and names of the corporation's initial board of directors.
  • The initial director(s) or registered agent.
  • Location of the corporation's registered office where legal papers can be served to the corporation if necessary.

The Articles of Incorporation do not go into the details of how the corporation will be run. That is spelled out in the corporation's bylaws.




Question: What Are Bylaws? Why Does My Nonprofit Need Them?


Bylaws are developed during the incorporation phase of a business or nonprofit.

Bylaws are the rules that govern the internal management of an organization. They are written by the organization's founders or directors and cover, at minimum, topics such as how directors are elected, how meetings of directors are conducted, and what officers the organization will have and their duties.

In the past, organizations often had constitutions and bylaws but today bylaws are usually sufficient. The organization does not formally exist until the bylaws have been approved by the board of directors.

Bylaws and the Articles of Incorporation, are the primary official documents for a corporation, whether a business or a nonprofit. The particular requirements for bylaws are set by the state in which the organization incorporates.

In an article in Nonprofit World, Henry Sollenberger recommends the following actions for a nonprofit organization's founders:

  • Find an attorney who isnít a member of the board to help draft the organizationís initial bylaws and to examine any major subsequent changes.
  • Tailor bylaws to meet the organizationís mission.
  • Consider the organizationís potential short-term growth, and build flexibility into the bylaws. Then, as growth dictates, the board can propose changes.

As the organization grows and matures, board members should:

  • Review bylaws on an ongoing basis, and revise as needed.
  • Contact an attorney to sign off on any substantial revisions to your bylaws.
  • If bylaws arenít upheld during a dispute, board members could be held liable for breaching their duty to the organization.
  • Be sure to re-evaluate bylaws whenever the organization creates a major subsidiary program.



Nonprofit Incorporation

Incorporation Begins at the State Level

By , Guide


Before applying to the IRS for tax-exempt status, most organizations first become incorporated (an unincorporated association is sometimes an exception). Incorporation will protect board members and other individuals in your organization from being held personally liable in case of a lawsuit.

Nonprofit incorporation is very similar to creating a regular corporation except that a nonprofit must take the extra steps of applying for tax-exempt status with the state in which it incorporates and with the IRS.

Nonprofit incorporation usually involves these steps:

  • Choose a business name that is legally available in your state.
  • Prepare and file your "articles of incorporation" with your state's corporate filing office, and pay a filing fee.
  • Apply for federal and state tax exemptions.
  • Create bylaws that will dictate how the corporation is run.
  • Appoint an initial board of directors.
  • Hold the first meeting of the board of directors.
  • Apply for any licenses or permits that your corporation will need to operate in your state and local municipality.

Your state's corporate filing division is usually part of the secretary of state's office. You can request a packet of nonprofit materials from that office which will include sample articles of incorporation, the state's laws on nonprofit corporations, and instructions on how to find an available business name.

After you have filed all the paper work for nonprofit incorporation in your state, and received a copy of your articles of incorporation, you can move on to submitting your application to the IRS for your federal nonprofit status as a 501(c)(3) organization. It is best to file within 27 months after the date of your incorporation.

The form you must complete for the IRS: IRS Package 1023, Application for Recognition of Exemption.

IRS publication 557, Tax-Exempt Status for Your Organization, provides instructions on filling out the proper forms. You can get by calling 800-TAX-Form, or they can be downloaded from the IRS website, The IRS also provides a help line: 1-877-829-5500.

The IRS will review your application and send you a "determination letter" indicating that it has approved your nonprofit status. Or, the IRS might ask you for more information. It can also deny your application. If that happens, don't give up; contact a lawyer who specializes in nonprofits.

You may need to apply to your state for tax-exempt status as well. Some states require a separate application to get a state tax exemption; some states are satisfied with your federal tax-exempt status; and in others, you will need to send a copy of your IRS determination letter. To find out what your state requires, contact your state tax agency.

Check to see if your city requires you to have a solicitation license before you can fundraise.





Nonprofit Boards - Find Them, Feed Them, Put Them to Work

By , Guide


Nothing will have such an impact on the success of your nonprofit as your board of directors. A great nonprofit board is essential to the legality of your enterprise, how much money it raises, and the quality of the leadership it hires. Finding directors that will exercise the best mix of responsible oversight and appropriate level of control means locating and recruiting people with the best skills, as well as the wisdom, honesty, and spirit of public service to guide your organization through the good times and the bad.

Responsibilities of a Nonprofit Board

How to Find Nonprofit Board Members

Characteristics of a Good Nonprofit Board






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Starting a not for profit
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