HOW TO START 501(c)(3) ORGANIZATION
HOW TO START 501(c) ORGANIZATION LINKS
501(c) ORGANIZATION LINKS
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Colloquially, a 501(c) organization, also referred
to as a 501(c), is an American tax-exempt nonprofit
organization. Section 501(c) of the United States
Internal Revenue Code (26 U.S.C. § 501(c)) provides
that 28 types of nonprofit organizations are exempt
from some federal income taxes.
Sections 503 through 505 set out the requirements for
attaining such exemptions. Many states refer to Section
501(c) for definitions of organizations exempt from
state taxation as well.
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501(c)(3) exemptions apply to corporations,
and any community chest, fund, cooperating
association or foundation, organized and
operated exclusively for religious, charitable,
scientific, testing for public safety, literary,
or educational purposes, to foster national or
international amateur sports competition, to
promote the arts, or for the prevention of
cruelty to children or animals.
These bodies are often referred to in shorthand
form as "Friends of" organizations.
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501(c)(4) organizations are generally civic
leagues and other corporations operated
exclusively for the promotion of social
welfare, or local associations of employees
with membership limited to a designated
company or people in a particular municipality
or neighborhood, and with net earnings devoted
exclusively to charitable, educational, or
501(c)(4) organizations may lobby for legislation,
and unlike 501(c)(3) organizations they may also
participate in political campaigns and elections,
as long as its primary activity is the promotion
of social welfare. The tax exemption for 501(c)(4)
organizations applies to most of their operations,
but contributions may be subject to gift tax, and
income spent on political activities - generally
the advocacy of a particular candidate in an
election - is taxable.
Contributions to 501(c)(4) organizations are usually
not deductible as charitable contributions for U.S.
federal income tax, with a few exceptions. 501(c)(4)
organizations are not required to disclose their
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501(c)(5) organizations include labor, agricultural,
and horticultural organizations. Labor unions, county
fairs, and flower societies are examples of these
types of groups. They share a requirement that benefits
may not "inure" to a specific member but the rules for
inurement vary among the three different types of
organizations under this segment.
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501(c)(6) organizations include Business Leagues,
Home Builders Association, Chambers of Commerce,
Real Estate Boards, etc. such as the U.S. Chamber
of Commerce political action committee and the
National Football League.
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Have you always wanted to leave the world a better than
you found it by starting a nonprofit organization? Here's
a simple, straightforward guide on how you can successfully
establish a 501(c)(3) nonprofit corporation.
1. Determine what type of nonprofit
organization you are starting by
analyzing the primary objective.
It is to support some issue or matter of private
interest or public concern such as the arts, charities,
education, politics, religion, research, or some other
endeavor for non-commercial purposes.
There are different legal statuses for nonprofits, one
of them being a 501(c)(3), which is exempt from income
and (sometimes) property tax, and able to receive
tax-deductible charitable contributions. While it can
be helpful to consult with an attorney who is experienced
in the area of nonprofit law to help avoid mistakes that
people sometimes make when they try to incorporate by
themselves, many people have been successful establishing
a non-profit on their own.
For those that are interested in proceeding without an
attorney, sources found in books and on the Internet
such as Secretary of State web sites may provide the
necessary forms and information needed to establish a
2. Formulate a mission statement.
As a non-profit organization, you exist to accomplish
your mission, which should be crafted based upon your
purpose, services and values. The mission statement
is a concise expression that covers in one or two
sentences who the organization is, what it does, for
whom and where. It should also be compelling, as it
will be used in all published materials, funding
requests and public relations. It should also portray
how your organization is distinct from others.
3. Form a Board of Directors.
Forming a board requires careful thought and extensive
recruitment efforts. Each state has regulations that
determine the minimum size of the board, typically three,
five or seven, but the optimum number of people who sit
on the board should be determined by the needs of the
organization. Based on what your organization would like
to accomplish, you should decide what special skills and
qualities you will require of the individuals on your
board. Identify qualified individuals who are supportive
of your mission and are willing to give of their talents
4. File Articles of Incorporation.
Articles of Incorporation are official statements
of creation of an organization filed with the
appropriate state agency. They are important to
protect both board and staff from legal liabilities
incurred by the organization, making the corporation
the holder of debts and liabilities, not the
individuals and officers who work for the organization.
The specific requirements governing how to incorporate
are determined by each state. You can obtain the
information you need to proceed with this step from your
state Attorney General’s office or your state Secretary’s
office. Before you spend your money, at least consult
with an attorney who is experienced in the area of
nonprofit law so that you do not make one of the many
major mistakes that people make when they try to
incorporate by themselves.
5. Draft bylaws.
Bylaws are simply the "rules" of how the organization
operates. Although bylaws are not required to file for
501(c)(3) status, they will help you in governing your
organization. Bylaws should be drafted with the help
of an attorney and approved by the board early in the
organization's development. Depending on who you use
to assist in the process, some firms require that the
Bylaws be sent to the IRS.
6. Develop a budget.
Creating a budget is often one of the most challenging
tasks when creating a nonprofit organization. A budget
is the expression, in financial terms, of the plan of
operation designed to achieve the objectives of an
organization. New organizations may start the budgeting
process by looking at potential income – figuring out
how much money they have to spend.
7. Develop a record-keeping system.
Legally, you must save all Board documents including
minutes and financial statements. It is necessary to
preserve your important corporate documents, including
board meeting minutes, bylaws, Articles of Incorporation,
financial reports, and other official records. You should
contact your appropriate state agency for more information
on what records you are required to keep in the official
8. Develop an accounting system.
If your board does not include someone with a financial
or accounting background, it is best to work with an
accountant or bookeeper familiar with non-profit
organizations. Nonprofits are accountable to the public,
their funders (contributors), and, in some instances,
government granting bodies, and it is vital to establish
a system of controls (checks and balances) when
establishing the organization’s accounting practices.
Responsible financial management requires the establishment
of an accounting system that meets both current and
9. Apply for a federal employer identification number.
Regardless of whether or not you have employees, nonprofits
are required to obtain a federal Employer Identification
Number (EIN) — also referred to as the federal ID number.
Available from the IRS, this number is used to identify the
organization when tax documents are filed and is used not
unlike an individual’s Social Security number. If you
received your number prior to incorporation, you will need
to apply for a new number under the corporate name. Ask for
Form SS-4 when applying for your EIN.
10. File for 501(c)(3) status.
To apply for recognition of tax-exempt, public charity status,
obtain Form 1023 (application) and Publication 557 (detailed
instructions) from the local IRS office or the IRS web site.
The filing fee depends upon the size of the organization’s
budget. The application is an important legal document, so it
is advisable to seek the assistance of an experienced attorney
or certified public accountant when preparing it.
11. File for state and local tax exemption.
In accordance with state, county, and municipal law, you
may apply for exemption from income, sales, and property
taxes. Contact your state Department of Revenue, your
county or municipal Department of Revenue, local
Departments of Revenue, and county or municipal clerk’s
offices for information on how to do this in your
12. Fulfill charitable solicitation law requirements.
If your organization’s plans include fundraising, be
aware that many states and few local jurisdictions
regulate organizations that solicit funds within that
state, county, or city. Usually compliance involves
obtaining a permit or license and then filing an annual
report and financial statement. Contact the state
Attorney General’s office, the state Department of
Commerce, state and local Departments of Revenue and
county or municipal clerk’s offices to get more
13. Apply for a nonprofit mailing permit.
The federal government provides further subsidies for
nonprofits with reduced postage rates on bulk mailings.
While first-class postage rates for nonprofits remain
the same as those for the for-profit sector, second-
and third-class rates are substantially less when
nonprofits mail to a large number of addresses. For
more information on eligibility, contact the U.S.
Postal Service and ask for Publication 417, Nonprofit
Standard Mail Eligibility.
Sample mission statements:
"The mission of St. Jude Children's Research Hospital
is to advance cures, and means of prevention, for
pediatric catastrophic diseases through research and
"The National Mental Health Association is dedicated
to promoting mental health, preventing mental disorders
and achieving victory over mental illnesses through
advocacy, education, research and service."
"The National Consumer Supporter Technical Assistance
Center's purpose is to strengthen consumer organizations
by providing technical assistance in the forms of research,
informational materials, and financial aid."
"The mission of Texas Mental Health Consumers is to organize,
encourage, and educate mental health consumers in Texas."
"TMHC supports and promotes the mental health recovery process
through peer directed and operated services, advocacy, economic
development, and participation in public mental health policy
What to look for in a board member: Look for individuals
whose values reflect your statement of purpose. Although
it is recommended that the majority of your board be
consumers, include the community at large, not just your
specific community of focus (e.g. the mental health
community). Consider the religious community, local service
clubs, legal professionals, and colleges and universities
as sources for a prospective Board of Directors. Do not
overload people who already serve on many committees – seek
a balance between old and new leadership.
The organization needs to open a bank account and decide
whether to use the accrual or cash method of accounting.
The difference between the two types of accounting is when
revenues and expenses are recorded. In cash basis accounting,
revenues are recorded when cash is actually received and
expenses are recorded when they are actually paid (no matter
when they were actually invoiced). In accrual basis accounting,
income is reported in the fiscal period it is earned,
regardless of when it is received, and expenses are deducted
in the fiscal period they are incurred, whether they are paid
Hire an attorney to help you with your Certificate of
Incorporation and the bylaws. Hire an attorney or
accountant, particularly one who has experience with
501(c)(3) nonprofit corporations, to help you file the
state and federal exemption forms. It will save you time
and money in the long run.
You may want to secure a domain name that matches the
name of your proposed organization.
Design a logo and tag-line that will help distinguish
your organizations from others and be representative
of what your mission is.
You could consult a nonprofit law attorney, an
experienced accountant or a professional 501(c)(3)
consulting service, but be sure to check them out.
Most paralegals, attorneys and accountants have
little experience in this area. You can usually
check out these services via the local legal bar
association, references, or the Better Business
It is important to file your 1023 within 27 months
of the date when your organization was established,
or when your Articles of Incorporation were filed.
Although the IRS may approve an additional extension
under certain circumstances, missing the deadline
may result in your charity or foundation not getting
501(c)(3) recognition retroactive to its incorporation
How to Start a 501c3 Nonprofit Organization
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Exemption Requirements - Section 501(c)(3) Organizations
How to Establish a 501c3
How to Form a 501(c)(3) Nonprofit Corporation
IRS 501c3 Applications
IRS Form 1023
IRS Publication 557
Labor and Agricultural Organizations
Look up funds in a 501(c)(3) (990 search)Foundation Center
Publication 501 (Rev. 2011)
Social Welfare Organizations
Tax Information for Charitable Organizations
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