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Applying for Nonprofit Status – a Brief Overview

Posted by Michelle Hansen on Mon, Jun 9, 2014 @ 07:06 AM

If you are considering forming a nonprofit organization, there are several things to take into account before starting the process. You will need to understand how to structure your organization, what tax exemptions you may qualify for, how to approach various sources of funding, and much more. There is a wealth of information out there to help you achieve this knowledge, and this blog will give you an  overview of some of the main steps invopenlved.

TheGrantHelpers.com has the expertise needed to negotiate the steps toward becoming a nonprofit organization. We can do more than just find you grants. Our experts can assist you in negotiating the legal process to become a recognized nonprofit organization, including filing paperwork, creating bylaws, and obtaining any necessary licenses. Our services are completely customizable to your needs no matter where you are in the process.

Incorporation

Incorporating your nonprofit organization will help protect your personal assets, since otherwise you are personally responsible for the handling of donated money. Also, contributions are generally not tax-deductible without a 501(c)(3) designation from the IRS. Becoming an incorporated nonprofit organization is similar to creating a regular corporation except for an additional level of specificity that the IRS and, in some states, additional governmental agencies require. 

To qualify for a 501(c)(3) status, organizations must be created for one or more of the following purposes: charitable, religious, educational, scientific, literary, public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals. In order to be eligible for the 501(c)(3) status, none of an organization’s earnings must benefit an individual or private shareholder. Salaries and contracts necessary to conduct the work of the organization are certainly allowable expenses, however. The organization also may not attempt to influence legislation as a substantial part of its activities or participate in any campaign activity for or against a political candidate.

Once you have determined that your organization meets the requirements to become tax-exempt, you can submit an application online.

Below is a list of the basic steps required to incorporate your nonprofit, assuming you decide to incorporate as a 501(c)(3):

  • Choose a business name. Naming laws vary by state and the U.S. Small Business Administration (SBA) website can be of assistance with regulations by state.

  • File your incorporation paperwork, which requires basic information about your organization. The IRS requires specific language in your state paperwork regarding non-profit activities and dissolution. A fee to your state may also be required. Again, the paperwork varies by state, and the SBA can direct you to your state’s office.

  • Once your paperwork has been approved and your organization is officially incorporated, apply for your 501(c)(3) tax-exempt status from the IRS. Be advised that a fee to the IRS, usually $850, is required. The tax-exempt process can also be very extensive, and an IRS backlog of applications only adds to the lengthy time frame.

  • At this point, you may also need to obtain additionally licenses and permits. These needs vary by state.

This can be a rather involved process, and our experts can assist you throughout the entire procedure. Unfortunately, the IRS is backlogged in approving tax-exempt applications. According to the IRS website, the average date of pending applications is August 2013.  If you have submitted your application after August 2013, check this web page (http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Where%27s-My-Application) for updated information on the average date of assigned applications. Updates will be made on the first Thursday of each month.

Given the timeframe with the IRS, you will likely want to start raising funds before you are officially designated a nonprofit by the IRS. You might want to consider a fiscal sponsor that can receive contributions for you. A fiscal sponsor is simply another nonprofit, such as a local community foundation, that is willing to handle your donations for you. We can assist you in determining the best way to start raising funds as soon as possible.

You may hear about a new structure in some states, theLow-Profit Limited Liability (L3C) Company. This hybrid structure allows a company to earn a small profit but still receive tax-deductible contributions, and may have advantages in some cases. However, this is only available in a few states, and most foundations are unfamiliar with it. Therefore, many are reluctant to grant or lend to these L3Cs.

We offer a full range of services to help nonprofits succeed, everything from creation of the organization to grant acquisition. See a complete list of our services here. Remember, the first consultation is always free.

Topics: nonprofit grants, 501(c)(3), nonprofit funding, nonprofit, nonprofit resource, nonprofit resources, incorporation