How to Apply for 501c3 Status for a New Nonprofit

Are you ready to turn your passion project into a 501(c)(3) tax-exempt nonprofit? Maybe you’ve heard about the benefits of having 501(c)(3) status but aren’t exactly sure what it means. Or you have a full-time job and you’ve been working on your nonprofit on nights and weekends, and you’re finally ready to take the leap. It can be scary, daunting, and exciting all at once. We know, we’ve been there before. But we’re here to guide you every step of the way. Here’s what you need to know about applying for your 501(c)(3) tax-exempt status before you get started.

1. Incorporate as a Domestic Nonprofit

The first step to becoming a 501(c)(3) tax-exempt nonprofit is incorporating in your state as a domestic nonprofit corporation (or a non-stock corporation if you’re a resident of Virginia) and obtaining your Articles of Incorporation through your Secretary of State’s office. Articles of Incorporation are your nonprofit’s organizing documents that include where your organization is located, who sits on its board, and what its purposes are.

2. Obtain an EIN

The next step after incorporating and obtaining your Articles of Incorporation is obtaining an EIN. EIN stands for Employer Identification Number. It’s a unique nine-digit number that is assigned to a business by the IRS for identification purposes. (*Note that if your nonprofit is based in Louisiana, you’re going to have to do this before incorporating.) 

Be sure your nonprofit organization is formed legally before you apply for an EIN. Nearly all organizations exempt under section IRS code section 501(a) are subject to automatic revocation of their tax-exempt status if they fail to file a required annual information return or notice for three consecutive years. When you apply for an EIN, the IRS presumes that you are legally formed and the clock starts running on this three-year period.

You can apply for an EIN through the IRS website between the hours of 7a.m. - 10p.m. ET Monday-Friday.

3. Hold an Organizational Meeting With Your Board

While this is not an official requirement, it’s ideal to begin by holding an organizational meeting for your nonprofit before applying for 501(c)(3) tax-exempt status to ensure that the necessary board of director positions are filled (president, secretary, and treasurer), your mission statement has been agreed upon, and all parties agree to pursue tax-exempt status. 

One of the most important things about being a 501(c)(3) nonprofit, is your board. As a tax-exempt organization, your board is your keeper. They are the ones who are looking to make sure that all of those funds that you are collecting are being used for the correct purposes, that you’re following guidelines, and that you’re being a responsible organization. To get started, you generally need three board members. And as a founder, you can be one of those first board members. Your state may have additional restrictions or guidance on nonprofit board membership.

4. Determine if you will need to submit a Form 1023 or 1023 EZ

Once you’ve filed for incorporation with your Secretary of State and obtained an EIN with the IRS, it’s time to apply for 501(c)(3) tax-exempt status! There are two applications used to apply for 501(c)(3) tax-exempt status: Form 1023 and Form 1023 EZ. 

Smaller nonprofits who anticipate raising $50,000 or less in their first-year qualify for a 1023 EZ, which is a streamlined version of the 1023 application. 

Some organizations are not eligible to use the 1023 EZ including churches, schools, hospitals, private operating foundations, organizations predicting to make more than $50K in its first three tax years, among many others. If you are planning to form a bigger, more complex organization,  you will need to submit the longer version of the 1023. And because you’re a bigger organization with larger parts, the IRS needs a little more information. 

5. Apply for your 1023 or 1023-EZ

After you’ve determined whether your organization is going to file Form 1023 or Form 1023-EZ, it is time to get to work on the paperwork.  Below are items that are required when filing Form 1023 and 1023-EZ. *Note: the EZ does not require that you attach these documents but that you attest to having them:

•Certificate of proof of state incorporation

•Purpose clause and dissolution clause listed in your Articles of Incorporation. A dissolution clause is a description of how the organization’s assets will be distributed in the case that the organization is dissolved. Note: an amendment will need to be made to your Articles of Incorporation before applying for tax-exempt status if the purpose and dissolution clauses are not written in your organizing documents.

•A copy of your organization’s bylaws

•Details about your organization’s financial statements (including revenue and expense statements for the current and future three years) 

•Proposed budget for the next two years 

•Detailed description of all planned activities (broad public benefits)

•Name and physical address of each member of your board of directors and registered agent

•What your fiscal year will be 

•Whether your organization is a private foundation or a public charity 

•A filing fee of $275 is required with your 1023-EZ form or a fee of $600 is required for filing the regular 1023 form

6. Wait for Your Determination Letter

After filing the necessary paperwork with the IRS, you will receive a determination letter for 501(c)(3) tax-exempt status if your organization has been approved. The approval time takes up to 3 months for organizations that file form 1023 EZ, and approximately 5-8 months for organizations that file form 1023. 

But don’t worry, it won’t be time lost. This is a great time to build the foundation for your nonprofit and begin fundraising. And the good news is the IRS backdates your determination letter to the date of application and you’re able to acknowledge any donations you receive as tax-deductible as soon as your application is approved. 

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