- Becoming a non-profit: Introduction
- Do You Need A 501(c)(3) Status?
- How Much Will It Cost
- Create A Friends of the Shelter Group
- Choose A Meaningful Name
- Obtain an Employer Identification Number (EIN)
- Create A Board of Directors
- Articles of Incorporation
- Complete Form 1023 To Apply for Non-Profit Status
- Do You Need A Lawyer Or Accountant?
- Will We Need To File Taxes Once We’re Non-Profit?
- Online Resources
- Contact Us
If there is ever a busy person, it’s someone who is involved in animal welfare. You already meet yourself coming and going, and then someone suggests that you ought to file for tax-exempt status. You probably realize it would offer you some advantages, but how will you ever find time to do the research and fill out the paperwork. Is it worth it?
That’s where Petfinder.com comes in. We’re here to help you. This article will
- explain what is meant by state incorporation and federal tax-exempt (“nonprofit” or “charity”) status,
- explain how much work (and money) it will take to obtain this status,
- answer many of your questions,
- provide you with links to the state and federal resources that will help shorten your search for other answers, and
- share opportunities that will be available to you once your organization has 501(c)(3) status.
There are three basic steps on the road to a 501(c)(3):
- Obtain an Employer Identification Number (EIN = Federal tax ID number)
- File your Articles of Incorporation with your state.
- Apply for tax-exempt status under Internal Revenue Service Section 501(c)(3).
Do You Need A 501(c)(3)?
When you have formal tax-exempt status, many doors open for you! Most agencies that provide grants to animal welfare organizations require a 501(c)(3) determination letter (a letter that is issued by IRS that states an agency is a 501(c)(3) organization). For example, the Petfinder.com Foundation Sponsor-A-Pet program is open only to organizations with tax-exempt standing or municipal shelters with a fund dedicated to animal care.
Pet store-based adoption centers often require a 501(c)(3) determination letter to utilize adoption cages within their store. Some animal shelters require a 501(c)(3) determination letter from groups with whom they partner to move animals from the shelter environment to foster care.
Your group will not only be free from paying taxes on all income from activities related to its nonprofit purpose, but people and organizations that donate to a nonprofit can take a tax deduction for their contributions (the burden of proof for tax deductibility is on them should they be audited). Donors are hesitant to donate large sums to groups without 501(c)(3) status.
That’s a powerful incentive for many people, and you can more actively reach out for financial support from your community based on the nonprofit status. The process of filing for tax-exempt status will also force your group to clearly identify its mission and goals, making it easier to engage people in the community who share your vision.
IRS exempt status provides credibility to the public and to other organizations you might partner with in the future. If you do not have 501(c)(3) status, people ask “why not?” If you say “It’s too much work,” or “We don’t understand the process” or “We can’t afford it,” it may cast public doubt on your ability to improve your sheltering or rescue programs in the future.
Your organization is not required to file for federal tax-exempt status if your average gross receipts are less than $5,000 per year. Gross receipts are all the funds your organization brings in during the year, before deductions for animal care and other costs of your work. If your average gross receipts suddenly exceed $5000, your organization will need to submit an application for tax-exempt status to the IRS within 90 days of the end of that tax year.
The IRS has a “Gross receipts test” to assist you in determining if you must file for 501(c)(3) status, and the fee you must pay. Go to http://www.irs.gov/publications/p557/ch03.html and search (control F) for “gross receipts test.”
Even without tax-exempt status, you need to keep track of funds that are given to you by donors. Completing the 501(c)(3) process provides you with a template for what the IRS wants and expects from a public charity. It is an education process as well as an application.
An alternative: “fiscal sponsorship?”
You may have heard about groups that are “under the umbrella” of another organization that already has tax-exempt status. This umbrella is called fiscal sponsorship.
For example, a local trap/neuter/return group that works closely with the local SPCA may “use the SPCA’s 501” to show their pets for adoption at a pet supply store that requires 501(c)(3) standing.
Fiscal sponsorship is the affiliation of an individual or organization with another tax-exempt 501(c)(3) organization, enabling the first group to gain access to funding opportunities and other resources that are available to 501(c)(3) organizations. Fiscal sponsorship helps new and growing organizations that are acting in a nonprofit manner, but don’t have the legal status of a nonprofit organization.
Most foundations or sources of corporate funding restrict grants to 501(c)(3) tax-exempt organizations. Individual donors will often only make a charitable contribution if it is clearly tax-deductible. A fiscal sponsorship permits your group to apply for grants from organizations which normally would only fund projects for groups with nonprofit status.
The “fiscal agent” is responsible for insuring that all projects are conducted according to IRS regulations. This means your sponsoring organization will request some control over your project. In some cases, the fiscal sponsor may ask your group to submit a written contract that clearly outlines your relationship with them. The sponsoring organization is legally responsible for the donations or grants your group receives.
Every fiscal sponsorship program is different. In some cases, the sponsoring organization’s board of directions may want to be closely involved in your decisions. In other cases, the fiscal agent may be happy to allow your group to retain your own identity and independence. In all cases, trust and responsibility are expected and required.
HOW MUCH WILL IT COST?
State incorporation fees for nonprofit entities are generally under $100, although a few states exceed that. Many states charge a fee between $25 and $50.
Federal tax-exempt status
When filing for 501(c)(3) tax-exempt status, fees are higher. If your organization’s average gross receipts have exceeded or will exceed $10,000 annually over a four-year period, the fee when submitting your Form 1023 is $850. If your average gross receipts have not exceeded or will not exceed $10,000 annually over a four-year period, the fee is $400 (as of October 2010).
Note: The IRS is planning the future release of an on-line filing tool called Cyber Assistant. Cyber Assistant is designed to help organizations prepare a complete and accurate Form 1023 application. Applicants will send their Form 1023 electronically to the IRS. The IRS planned for Cyber Assistant to be available in 2010, but it has been delayed until at least 2011.
Once Cyber assistant is available, fees will change again to:
$200 for organizations using Cyber Assistant, regardless of their size
$850 for all organizations not using Cyber Assistant, regardless of their size.
The IRS will announce the availability of Cyber Assistant and the effective date the change in user fees. You can sign up for the IRS’s Exempt Organization (EO) Update newsletter at www.irs.gov/charities, and you will be notified when Cyber Assistant is up and running. Current application fees can be found at this IRS link.
If you are a small group or an individual and you’re thinking, “Wow, that’s a lot of money,” remember that if you are currently limiting your fundraising efforts due to your lack of tax-exempt status, the cost of a few spay surgeries will open doors to greater resources for your group and the homeless pets you save. How quickly might you recover that $400 if you were able to actively solicit donations and apply for grant opportunities?
If you are thinking “Hey, it’s worth it, but I never have $400 in my pocket at one time when there are so many animals to save,” that should not stop you from beginning the process by seeking state incorporation and completing IRS Form 1023.
Sometimes $400 does come your way. You may find a supporter who would be willing to provide the fee to help your organization grow. When you do, you can have the paperwork ready and won’t have to start at square one.
CREATE A FRIENDS OF THE SHELTER GROUP
Municipal agencies (city, town, county) are not eligible to become 501(c)(3)s. What can they do to garner grants available to nonprofits?
One answer is to reach out to your community to form a “Friends of the Shelter” group whose mission is to increase adoptions, provide volunteer support, and seek alternative sources of funding for your municipal shelter.
A “Friends” group is distinct from the shelter, but its mission is bound to it. The shelter is included by name in the group’s organizational documents when the Friends group seeks and obtains state incorporation and 501(c)(3) status. The director of the shelter often is a member of the board of directors for the Friends group. Funds raised by the Friends group are then used to benefit the physical building and programs of the shelter. Enter “Friends of the Shelter” into any Web browser and a wealth of examples will appear!
CHOOSE A MEANINGFUL NAME
If your group is newly formed, you may still be at a point where you have some flexibility in choosing a name for your shelter or animal placement organization. When it comes to picking a name, choose one that describes what you do, is distinctive or easily remembered, and won’t cause confusion with other groups with similar names. Keep in mind you will want your name to be used in URLs (Web addresses) etc. Shorter names are more memorable and flexible than long ones.
Once you have a few options, do some Web searches to see if anyone else has already taken your desired name. Check for (Yourname).org, (Yourname).com, (Yourname).net, etc.
If your chosen name or a name very similar to it is trademarked by another group, they may contact you about infringing on their trademark if you begin to use “their” name. Check with the U.S. Patent and Trademark Office trademark database at http://www.uspto.gov/ .
Stay away from common acronyms such as P.A.W.S, B.A.R.K., etc. If you will be using initials to shorten your group’s name, check to see if that acronym is already in common use. To check to see if another organization close to home may be using a name similar to yours, visit your county clerk’s office to review your county’s list of registered fictitious names.
Your name describes your mission! Words used in the names of animal welfare organizations have a specific meaning. Be sure you describe your group accurately! Here are some examples:
- Foundation: A foundation is an entity that is established as a nonprofit corporation or a charitable trust whose primary purpose is to provide grants to other organizations, institutions or individuals. If you are not a foundation, don’t call yourself one or you’ll find other organizations knocking on your door asking for your help!
- Society: Implies that you have a membership and welcome the participation of others.
- SPCA: Implies that your organization is a society that investigates cruelty situations and provides shelter to animal victims of cruelty or neglect.
- Rescue: Implies that you physically respond to remove animals from hazardous situations and provide housing while a home is sought or that you partner with shelters that have limited space to remove animals when they need your help.
- Geographic names: “Indiana Dog Rescue” implies you are able to provide services throughout Indiana. “Indianapolis Dog Rescue” implies that you operate in a more limited area.
NOTE: When filing for incorporation in your state, your state may require you to include certain terminology in your name (“Corporation” “Inc.” “Ltd.,” etc.) Do not use terminology of this sort in your name if you are not yet incorporated with your state.
You’ll be living with your chosen name for a long time, so spend some time beforehand picking one that is the best fit for your group.
OBTAIN AN EMPLOYER IDENTIFICATION NUMBER (EIN)
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number. All nonprofit organizations must have an EIN, whether or not you have employees. It is also required of businesses and other entities.
Your bank will probably ask for your group’s EIN when you open a checking account in the name of your organization. If your rescue group or animal shelter already has a bank account, someone from your organization may already have obtained an EIN number in the past.
Having an EIN number does not in any way indicate whether or not your organization is exempt from taxes. All manner of groups, whether for-profit or nonprofit, with employees or without, may have an EIN number. If you are ever asked to send proof of your tax-exempt status in the future, do not send your Employer Identification Number!
The IRS makes it as easy as possible to obtain your EIN. You can obtain one by toll-free phone service, fax, mail, or online. The IRS online instructions and IS Form SS-4 can be found here.
If you have misplaced your EIN, the IRS or your bank may be able to help you track it down. Click here for the IRS page on misplaced EINs.
Once you have your Employer Identification Number, Step One is complete!
CREATE A BOARD OF DIRECTORS
What exactly is a board of directors? What do they do? How do you form a board that is right for your organization?
Board members are volunteer leaders who advance their organization’s mission. They provide expertise, community perspective, time, money and organizational credibility.
You may be tempted to just sign on a friend or relative to fill in the blanks on state and federal forms. However, a make-shift board won’t help your organization, and it can hold it back if opportunities arise that they are unable to handle.
Once an individual agrees to become part of your board, they have obligations of allegiance, care and duty to the mission of your group. If you do not look for board members who have this expectation, having a board will become an encumbrance, rather than a benefit.
Allegiance: Board members should demonstrate faithfulness to the mission of the organization.
Care: Board members should exhibit due diligence and attention and be informed participants in the organization.
Duty: Board members have a responsibility to obey laws and regulations that govern the organization, including federal, state and local laws, the bylaws of your organization, any licensing regulations that may exist in your state or locality, and any contractual obligations that a board member agrees to with the organization.
WHAT DO YOU WANT FROM A BOARD OF DIRECTORS?
First, look at what you need for your organization and your community, and then identify what you need from your board.
If you are a very small group or a one-person effort, it’s tempting to invite someone who is willing to help clean cages and kennels or help run off-site adoptions now and then. But is that what you really need in the long run? Non-board volunteers can help with day-to-day operations.
Do you need someone with fundraising ability? Public relations savvy? Legal help? Identify the needs of your organization and look for board members who support your mission and can help fill that need.
HOW DO YOU FIND POTENTIAL BOARD MEMBERS OUTSIDE FAMILY AND FRIENDS?
Consider looking at your list of adopters and current supporters. Think of all the people who have shown an interest in your work, including local businesses and veterinarians who have helped you in the past. You may be surprised to learn how large your circle of supporters has become.
Do you have adopters and neighbors who have been particularly supportive, but you don’t know what they do for a living? Make a point of finding out! Their skills may be just what you need, and they may have already shown you they care by staying in touch after an adoption, sending a donation, bringing gifts to your shelter, and showing up at your special events.
If they have shown a commitment to your group simply as a member of the community, think how they might help as a member of your board.
HOW IS THE BOARD ORGANIZED IN RELATION TO THE ENTIRE ORGANIZATION?
The board chair coordinates the work of the board, committees and the executive director.
Other board members usually include at least a secretary and treasurer. At minimum, three board members are expected. Organizations may have a larger board to provide a wide range of expertise, assistance in committees, fundraising outreach and an exemplary community reputation.
Committees are formed to carry out special functions of the board. Committees are made up of board members and sometimes staff or volunteers.
The executive director carries out the wishes of the board, is accountable for the work of the staff, and is the bridge between the day-to-day operations of the shelter or placement group and the board’s broader goals.
Staff members manage day-to-day operations, report to the executive director and may be involved in committees.
Volunteers are unpaid, assist staff, may serve on committees and are also under the direction of the executive director.
WHAT DOES A BOARD ACTUALLY DO?
It is the responsibility of the board of directors to ensure that your organization is fulfilling its mission statement. The people who have started the shelter or adoption group have usually already provided the initial vision and mission statement. The role of the board is to provide the organization with advice and direction on implementing this vision.
They will be closely involved with budgeting, financial reports and capital goals (new equipment, building improvements, etc.).
In a nonprofit organization, the board is also deeply involved with fundraising. There is an expectation that board members not only will reach out to the community for aid, but will support the organization with their own time and money.
The board is also your organization’s eyes and ears in the community. As community members themselves, your board will receive feedback from citizens as they go about their work and lives outside of the organization.
FOR WHAT CAN BOARD MEMBERS BE HELD RESPONSIBLE?
Board members can be held responsible for violations of law. Board members should therefore be aware of state and federal animal care and sheltering regulations. If questions arise about animal care, the board will be approached to justify their oversight of, or response to, these actions.
They are also responsible for gross error or neglect of legal and financial duties, especially if the organization holds 501(c)(3) status. The board will be expected to have approved the budget and be aware of the ongoing financial health of the organization.
The board can be held responsible for unpaid payroll and other taxes.
The board also must attend to outstanding debt if the organization dissolves.
It is very important to outline the accountability of the board. Decision-making roles and tasks should be defined at the board and staff levels, so it is clear who is responsible for what and to whom staff and board members are accountable.
HOW IS A “BOARD OF ADVISORS” DIFFERENT FROM A BOARD OF DIRECTORS?
A board of advisors is a small group of people which meets periodically to offer special guidance to an organization and its board of directors. Members of the board of advisors do not bear legal responsibilities for the company’s actions. They are usually community members with specific expertise and a good reputation which forwards the cause of your organization. For example, an animal welfare organization may want a veterinarian, a nearby university’s animal behavior expert, or the editor of your local newspaper on a board of advisors.
Not all organizations have a board of advisors, and a board of advisors is not required for state or federal tax-exempt status.
STRATEGIC PLANNING: WHAT IS IT AND WHAT DOES IT HAVE TO DO WITH YOUR WORK?
The board of directors is responsible not only for what your organization is now, but for what it will become in three, five, 10 or 20 years!
Strategic planning–sometimes called “planning and priorities”–looks at your organization as it is now, as well as your vision for the future (usually 3-5 years), and determines how you will get from one to the other in a successful and organized way.
The day-to-day efforts of animal care, adoption, immediate public outreach and problem solving seem to take up every moment of your time. However, it is important to keep long-range goals in mind. This is a primary responsibility of your board.
Why plan for the future? First, strategic planning provides your staff, volunteers and board with an opportunity to work together for the benefit of your organization rather than on just their own specific tasks. A board will revisit strategic planning every few years, and this exercise usually includes the input of board, staff and volunteers. Second, strategic planning improves your immediate and long-term decision making. Finally, it makes very clear what you are capable of changing (so you can get started!) but also identifies what you can’t change. You can then dismiss these past roadblocks and move toward more productive efforts.
A well-planned board is vital to the current success and future development of your shelter or adoption group. In making the step from an independent group to a board-led organization, it is important to keep in mind that the board you initially invite to lead you will determine whether your effort succeeds or remains static. The board has legal obligations to your organization and will be actively involved in financial planning, fundraising, and both the short and long-term goals of your shelter or adoption group. They will work closely with the executive director and will oversee her or his actions and results.
The board you choose now will determine the future success of the shelter or adoption effort you originally inspired and nurtured.
ARTICLES OF INCORPORATION
You have your name and have a board selected. Now it’s time to get incorporated.
Articles of Incorporation are the primary rules governing the management of a corporation or organization in the United States. The articles are written in legal language that can sound quite intimidating. Don’t let words scare you away.
You will submit your Articles of Incorporation when you incorporate as a nonprofit entity in your state. The IRS will also request that you include your Articles of Incorporation when you file for federal 501(c)(3) status.
The process of writing your Articles of Incorporation will help you define the mission and structure of your organization.
Each state has its own procedure and form that your organization will need to file to incorporate. The forms for each state will vary widely. On the IRS Web site, there is a list of each state’s incorporation information at http://www.irs.gov/charities/article/0,,id=167760,00.html. You can also locate your state form by contacting your Department of State, Division of Corporations. An Internet search for “your state name” and “incorporation” is a good start. Your state will grant a charter (or similar terminology) once your application has been approved. Your charter is a document that proclaims that your organization is now a corporation and defines your privileges and purposes.
What all states have in common is the requirement that you include your “Articles of Incorporation”, “Certificate of Incorporation” or “Corporate Charter”. These are all different names for the same thing.
A good way to start is to contact other shelters and rescue organizations in your state and ask if they would share their Articles of Incorporation or even their original 501(c)(3) application with you. You can also run a search on the Internet for “Articles of Incorporation” and other key words like “humane society” or “SPCA”. Seeing what others with a similar mission have set down in writing will help you compose your own articles.
However, don’t just copy another group! Your articles are a legal document, and it is very important that you include your own organization’s actual purpose.
While each state’s requirements may vary, the Articles of Incorporation will generally include
- Your corporation’s name
- The names of the persons organizing your corporation
- A statement that your organization is incorporating as a nonprofit corporation
- Whether your corporation will be permanent or limited in duration
- The initial director(s) of the corporation
- The location of the corporation’s office
- Your corporation’s name should be different from any other corporation in your area. Certain words, such as “incorporated,” “limited,” “corporation,” or their abbreviations, may be required by your state to indicate to people that your group is a corporation (with limited liability) as opposed to an individual or partnership (with unlimited liability).
- The persons organizing your corporation would usually be you or your board of directors.
- You will need to clearly state that your organization is incorporating as a non-stock nonprofit corporation.
- You will need to indicate whether your corporation will be permanent or limited for a specific period of time. For example, if you are creating a group that is dealing with the impact of a single hurricane in a single region and you plan to dissolve the organization once this effort is complete, your corporation will be limited. Generally most organizations are permanent.
In some cases, a corporation must state the purposes for which it is formed. Some jurisdictions permit a general statement such as “any lawful purpose,” but some require explicit specifications concerning your activity as a charitable animal shelter or rescue group.
If you plan to seek 501(c)(3) tax-exempt status with the Internal Revenue Service, certain specific wording must be included, stating no part of the assets of the corporation are to benefit the members. (Sample 3 from the IRS Web site is included below).
- You will need to list the initial director(s) of the corporation.
- Include the location of the corporation’s “registered office”. This must be a physical location where legal papers can be served if necessary.
Each state’s requirements will be different. Some states may provide you with a simple form to complete. Other states may ask for more involved information. The samples that follow are Articles of Incorporations submitted by actual organizations to their states. They are provided for illustrative purposes only.
Sample 1. Articles of Incorporation for a Rescue Group for state incorporation
Article I : The name of the corporation is ABC Animal Refuge.
Article II: The duration of the corporation is perpetual.
Article III: The corporation has been organized for charitable, humane and educational purposes, including providing refuge for stray, abandoned, lost or injured animals, to place adoptable pets in permanent homes, to educate the public about animal welfare, to make funds available to pet owners and caretakers to have their pets spayed or neutered, and to promote awareness of the mission of Sunset Farm Animal Refuge.
Article IV: The corporation has no members. (Note: a corporation may also have members. In that case the manner of election or appointment and the rights of the members will be included.)
Article V: The corporation shall not have the authority to issue any capital stock.
Article VI: The street address of the registered office is 1234 Any Street, Any Town, Any State, 12345, and the name of the registered agent at that office is Deborah Director.
Article VII: The names and addresses of the Directors are
Deborah Director, 1234 Any Street, Any Town, Any State, 12345
David Person, 543 Any Street, Any Town, Any State, 12345
Jane Doe, 765 Any Street, Any Town, Any State, 12345
Article VIII: The name and address of the incorporator is Deborah Director, 1234 Any Street, Any Town, Any State, 12345.
Sample 2. Articles of Incorporation for a
Trap-Neuter-Return Group for state of MA incorporation
Article I: The name of the corporation is ABC Feline Rescue.
Article II: The purpose of the corporation is to engage in the following activities:
- To aid in humanely reducing the number of feral cats in the area to be serviced by the corporation, and further to aid in the humane treatment of those cats remaining by providing shelter, sustenance, veterinary examination, inoculation, spaying/neutering and the adoption of such cats as pets by individuals in the community whenever possible;
- To provide for the raising of funds through public and private donations in order to further the purpose of the corporation;
- For any other lawful, civic, educational, charitable or benevolent purpose
Article III: The corporation has one or more classes of members, the designation of such classes, the manner of election or appointments, the duration of membership and the qualification and rights, including voting rights, of the members of each class, may be set forth in the by-laws of the corporation or may be set forth below
- Set forth in By-Laws
Article IV: other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or members, or of any class of members, are as follows:
The corporation shall indemnify each of its directors, officers, employees and other agents (including persons who serve at its request as directors, officers, employees or other agents of another organization in which it has an interest) against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which he may be involve or with reason of his being or having been such a director, officer, employee or agent, except with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation; provided, however, that as to any matter disposed of by a compromise payment by such director, officer, employee or agent, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the corporation, after notice that it involves such indemnification.
- By a disinterested majority of the directors then in office; or
- By a majority of the disinterested directors then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such director, officer, employee or agent appears to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation.
Expenses including counsel fees, reasonably incurred by any such director, officer, trustee, employee or agent in connection with the defense or disposition of any such action, suit or other proceeding may be paid from time to time by the corporation in advance of the final disposition thereof upon receipt of an undertaking by such individual to repay the amounts so paid to the corporation if he shall be adjudicated to be not entitled to indemnification under Massachusetts General Laws, Chapter 180, Section 6. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director, officer, employee or agent may be entitled. Nothing contained herein shall affect any rights to indemnification to which corporate personnel may be entitled by contract or otherwise under law. As used in this paragraph, the terms “directors”, “officer”, “employee” and “agent” include their respective heirs, executors and administrators and an “interested” director is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending.
Upon the liquidation or dissolution of the corporation, after payment of all of the liabilities of the corporation or due provision thereof, all of the remaining assets of the corporation shall be distributed to one or more organizations exempt from Federal income tax under the Internal Revenue code, in a manner consistent with the procedures for dissolution set forth under Massachusetts B.L. c.180 S11A (*Dissolution of Corporation Constituting Public Charity).
Sample 3. Articles of Incorporation Provided by the Internal Revenue Service
Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of (your state), do hereby certify:
First: The name of the Corporation shall be (name of your organization)
Second: The place in this state where the principal office of the Corporation is to be located is the City of (your city), County (your county).
Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.
Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows:
(You will list the names and addresses of your directors here)
Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code.
If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation.”
Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes.
In witness whereof, we have hereunto subscribed our names this (number) day of (month/year):
You will include the names and signatures of directors.
This and other examples are included on the IRS site at http://www.irs.gov/charities/charitable/article/0,,id=122728,00.html
Again, you can find a link to your state’s incorporation requirements on the IRS site at http://www.irs.gov/charities/article/0,,id=167760,00.html.
Approach the composition of your Articles of Incorporation as an opportunity to clearly define the structure of your organization. Your finished document will present your organization and your mission clearly to your community and help guide you in the future.
COMPLETE FORM 1023 TO APPLY FOR NON-PROFIT STATUS
A BRIEF OVERVIEW OF FORM 1023, “APPLICATION FOR RECOGNITION OF EXEMPTION”
Have you been thinking about applying for your 501(c)(3) but haven’t jumped in to really look at the application? Here’s a brief overview to warm you up!
To apply for tax-exempt status with the Internal Revenue Service, your organization will need to complete Form 1023 Application for Recognition of Exemption. This form is available online at http://www.irs.gov/charities/article/0,,id=139465,00.html. The form will ask many straightforward questions that you can easily answer (name of organization, address, Web site address, etc.). It will also ask questions that are more involved and will require some work (your organization’s specific activities, Articles of Incorporation, financial data, etc.).
Don’t panic at the size of Form 1023 when you view it online. Download it, print it out and make copies for your fellow board members, so you can all review it comfortably.
Compared to your personal or business income tax form, the questions on Form 1023 are surprisingly clear! One reason the form is so long is because it includes some instruction on the form itself. There are also line-by-line instructions at http://www.irs.gov/instructions/i1023/index.html
You will discover that there are pages of the form that may not apply to your organization. You can remove them from the packet. However, hang onto any pages you ultimately plan to discard. If you misplace a needed page while you are working, you can then assure yourself you did not toss it in the recycling bin.
Don’t panic at the wording on Form 1023! If you are a small, newer organization, you may find that many of the questions do not apply to your group. Don’t jump into the middle of the document and tell yourself “I can’t do this” because the language in a certain paragraph is foreign to you. It may be unfamiliar because it is not applicable to your shelter or animal adoption group. You may simply need to check “no” for that question.
Read the document from beginning to end with your board before attempting to complete it. Refer to the instructions when you have questions.
Mark any questions that use language you do not understand or that require information that you have not yet prepared. For example, Part III asks for questions about your “Organizing Document” and “state filing certification.” If you have not incorporated with your state or prepared an organizing document, flag this question. When you are done reviewing the form, you’ll have a better idea of the steps your group still needs to take to apply for federal tax-exempt status. This will make the form seem far more manageable, with tasks that can be taken step by step or assigned to different board members.
NARRATIVE DESCRIPTION OF YOUR ACTIVITIES
You will be asked to include an attachment listing your organization’s past, present and planned activities.
If you have incorporated with your state and have completed a mission statement, goals and bylaws, these completed documents will aid you in completing this section.
If you are looking into state incorporation and the federal 501(c)(3) process at the same time, completion of your state’s incorporation process first will make your 501(c)(3) process more straightforward. Please visit our page on Articles of Incorporation.
Form 1023 mentions that you may include representative copies of newsletters, brochures or similar documents. Include only clean, professional documents that provide evidence of your organization’s activity. A thicker packet is not necessarily better if what results is a confusing, hard-to-handle collection of materials.
Form 1023 provides you with a table for financial data. The questions are already provided, so you do not necessarily need to create a template for a financial report of your own.
If your organization has been in existence for four or more years, you will be expected to provide accurate data. If you have been in existence for less than four years, you will be asked for good faith estimates for current and future years.
COMPLETING AND SENDING FORM 1023 TO THE IRS
The IRS Form 1023 includes a checklist–aptly named “Form 1023 Checklist”– to help you assemble your final packet and ensure that you have included all the requested forms and information.
If the required information and documents are not submitted with payment of the appropriate fee, the application may be returned to you. Hang onto that checklist! It tells you exactly what you need to know.
AFTER YOU SUBMIT FORM 1023
The IRS will acknowledge receiving your application in writing within 21 days of the postmark date of Form 1023.
After the IRS receives and reviews your Form 1023 application, they will respond in one of three ways: A) They will grant your request for tax exemption, or B) they will ask you for additional information, or C) they will refuse to issue a determination letter. This refusal is called an “adverse determination.” Your organization can appeal this decision.
Please be certain you are using a current Form 1023, and send it to the correct address (as of 11/01/10):
Internal Revenue Service
P.O. Box 12192
Covington, KY 41012-0192
In general, approval takes from two months to a year, depending on whether or not the IRS has questions after submission of your application.
If the IRS determines that they need additional information or changes, an IRS specialist will contact you.
If the IRS concludes that you do not qualify for exemption, you will be sent a letter that explains their position and your right to appeal.
RESOURCES FROM THE IRS
For a brief overview direct from the IRS, download their two new brochures:
- Publication 4220, Applying for 501(c)(3) Tax-Exempt Status (PDF 285K)
- Publication 4221, Compliance Guide for 501(c)(3) Tax-Exempt Organizations (PDF 298K)
For a thorough overview of the application process, visit the IRS Web page on the Life Cycle of a Public Charity at http://www.irs.gov/charities/charitable/article/0,,id=122670,00.html.
DO YOU NEED A LAWYER OR ACCOUNTANT?
Many groups shy away from starting the 501(c)(3) process because they have heard that they have to seek professional guidance and that this will cost hundreds of dollars.
It costs you nothing to start the process on your own. You can only answer the question “do I need a lawyer or an accountant” after you have reviewed Form 1023 and have actually jumped into writing the narrative description of your activities, started working out your financial data statement, etc. You may then find you are able to complete the process on your own as well. Nolo.com is a great online location for legal resources.
If you have questions once you are actually completing the form, utilize the IRS Exempt Organizations Customer Account Services toll-free line at 1-877-829-5500. They are very helpful. If after speaking with the IRS toll-free line, you still just don’t understand the process or certain questions still confuse you, it may be time to seek local help through a lawyer, an accountant or the officers of a group that has already completed the 501(c)(3) process.
It will also be helpful to check with state animal welfare or animal control associations, animal law organizations and universities that have law programs. These organizations may have free resources to aid you.
By closely reviewing Form 1023 and beginning the process on your own, if your board ultimately decides to utilize a professional, your interaction will be shorter and more productive and, therefore, less costly. Remember, we all reach a point in our lives where a lawyer and an accountant become necessary even for our personal affairs. If you don’t already have access to these professionals, it may be time to look. An initial consultation with a lawyer is often free or low-cost.
If you already have a lawyer or accountant, give her or him a call! The person may or may not be familiar with the 501(c)(3) process. If not, he or she will be able to refer you to professionals in your area who can best help you.
When we interview new Petfinder.com members, we sometimes ask about the organization’s experience with the 501(c)(3) process. We receive a wide range of replies. Many groups managed the process from beginning to end on their own. Some used a lawyer throughout. Others just asked a lawyer to review their completed document before it was submitted to the IRS.
WILL YOU NEED TO FILE TAXES ONCE YOU’RE NON-PROFIT
Though they are exempt from income taxation, tax-exempt organizations are generally required to file an annual return (Form 990 or Form 990 EZ) of their income and expenses with the Internal Revenue Service.
Starting in 2008, small tax-exempt organizations that previously were not required to file Form 990 may be required to file an annual electronic notice (Form 990-N).
Note! Most tax-exempt organizations must file a yearly return or notice with the IRS. It is very important to keep up-to-date on your reports to the IRS. If an organization fails to file its annual return or notice for three consecutive years, it loses its tax-exempt status! Filing requirements for charities can be found at http://www.irs.gov/charities/article/0,,id=217087,00.html
If your group brings in income that is unrelated to your nonprofit mission, you will need to file an unrelated business income tax return. If you have employees, you may be required to pay Federal Income Tax Withholding, Social Security tax, and Medicare taxes. In addition, some tax-exempt organizations are responsible for Federal Unemployment Tax.
The IRS has just published a new brochure that provides a brief overview of what will be required of you once you have obtained tax-exempt status:
- Publication 4221, Compliance Guide for 501(c)(3) Tax-Exempt Organizations (PDF 298K)
- Visit the IRS site at http://www.irs.gov/charities/charitable/article/0,,id=123310,00.html for additional in-depth information.
There are countless resources on the Internet to help you in your progress toward tax-exempt status. So many, in fact, that you may find the options overwhelming! We have narrowed it down to two major resources. If you want in-depth information on establishing a nonprofit organization, try these sites first:
- The Foundation Center Web site is designed to guide you quickly to instruction on funding research, help with proposal writing, tools for locating prospective funders, news and research on the field, or a library or training class near you. The Foundation Center has a tutorial on Establishing a Nonprofit Organization at http://foundationcenter.org/getstarted/tutorials/establish/index.html.
- The Internal Revenue Service. Their “Life Cycle of a Public Charity” at http://www.irs.gov/charities/charitable/article/0,,id=122670,00.html is the definitive Web page for answers involving the 501(c)(3) process and your responsibilities after your organization has acquired tax-exempt status.
Obtaining 501(c)(3) tax-exempt status will open new doors for your organization in the form of grant opportunities, special programs and community support. We look forward to congratulating you when you are notified by your state and the federal government that you have successfully obtained tax-exempt status.
We hope these resource pages have proven to be helpful in guiding you in this important next step for your organization! If you have feedback or suggestions to enhance this information provided, please email firstname.lastname@example.org.