Starting a Nonprofit Organization

Organizations seeking exempt status from federal income tax must file a written application with the director for the key district in which the organization’s principal office or place of business is located. An organization applying under IRC §501(c)(3) uses Form 1023. Other organizations use Form 1024. Some types of organizations would apply by letter to the key District Director. See the "Reference Chart", for the proper form. IRS will expedite exemptions for flood relief organizations if "Flood Disaster" is written at the top of Form 1023. [Notice 93-41]

• Employer Identification Number: Every exempt organization is required to have an employer identification number (EIN), whether or not it has any employees. If the organization does not have an EIN, the application should include a completed Form SS-4, Application for Employer Identification Number.
• Organizing Documents: Each application must include a conformed copy of the organization’s Articles of Incorporation (Certificate of Incorporation, if available), Articles of Association, Trust indenture, Constitution, or other enabling document. There must be an organizing document to qualify for exempt status.
• By-Laws: If the organization is a corporation or unincorporated association that has adopted bylaws, a conformed copy that an authorized officer certifies as current should be included.

Conformed Copy Definition: A copy that agrees with the original and all its copies. If the original required a signature the copy must be signed or be accompanied by a written declaration signed by an authorized officer of the organization. The officer must certify that the document is a complete and accurate copy of the original. A certificate of incorporation should be approved and dated by an appropriate state official.

• Description Of Activities: A full description of the purposes and activities of the organization should be included in the application. Include the standards, criteria, procedures, or other means that the organization adopted or planned for carrying out those activities.
• Financial Data: Include in the application financial documents showing the receipts and expenditures for the current year and the three preceding years (or years in existence if less than four). For each accounting period, describe sources of receipts and nature of expenditures. Include current statement of assets and liabilities. If the organization has not begun operations, or has operated for less than one year, a proposed budget for two full accounting periods and a current statement of assets and liabilities is acceptable.
• Fund-Raising Activities Description: Include sufficient detail to show how the activities will be financed. A statement of the actual and proposed fund-raising activities may be required.
• Information On Previously Filed Tax Returns: Include information on previously filed Federal income tax returns and exempt organization information returns. Note: Do not send original documents. They become part of the IRS file and will not be returned. 
• Attachments: Every attachment should show the name and address of the organization, the date, an identifiable heading, and that it is an attachment to the application form.
• Stock: If stock is issued, the following must be provided:
– Class or classes of stock.
– Number and par value of shares.
– Consideration for which the stock was issued.
– If instrument authorizes dividend payments on any class of stock.
– If any dividends have been paid.

Note: Submit a copy of the stock certificate.

Additional information may be requested:
– Representative copies of advertising placed.
– Copies of publications.
– Distributed written material used for expressing views on proposed legislation.
– Copies of leases, contracts, or agreements which the organization has entered into.

Determination Letter Request (Form 8718)
Form 8718 is used to compute the required user fee ($150–$500). The application form/letter is filed with the key District Director. An organization that has not established its exempt status by the due date for filing an information return—complete and file Form 990, Return of Organization Exempt From Income Tax; or Form 990-PF, Return of Private Foundation. Check box for "application pending."

An organization controlled by a central organization (church, Boy Scouts, Girl Scouts, fraternal organization) may already be covered by a group exemption letter. If not, the central organization may update its group exemption letter and submit it at the next annual ruling date. Each branch may not be required to apply separately.

—Central Organization: An organization that has one or more subordinates under its general supervision or control.
—Subordinate Organization: A chapter, local, post, or unit of a central organization. A subordinate may or may not be incorporated. It must have an organizing document. A subordinate described in IRC §501(c)(3) may not be included in a group exemption letter if it is a private foundation described in IRC §509(a).

A ruling or determination letter recognizing exemption is effective as of the date of formation of an organization if during the period before the date of the ruling or determination letter, its purposes and activities were those required by the law. Upon obtaining recognition of exemption, the organization may file a claim for a refund of income taxes paid for the period for which its exempt status is recognized. If an organization is required to alter its activities or substantially amend its charter to qualify, the ruling or determination letter recognizing exemption will be effective as of the date specified in the letter. A ruling or determination letter recognizing exemption may not be relied upon if there is a material change inconsistent with exemption in the character, purpose, or method of operation of the organization.

If an adverse determination letter is received, a protest may be submitted to the Appeals Office. It must be submitted to the key District Director within 30 days of the adverse determination letter. See IRS Publication 557, Tax-Exempt Status for Your Organization, for complete list of information and instructions to file an appeal.

A ruling or determination letter recognizing exemption may be revoked or modified by: 
1) Notice to organization, 
2) New legislation or ratification of a tax treaty,
3) United States Supreme Court decision,
4) Issuance of temporary or final regulation, or
5) Issuance of revenue ruling, revenue procedure, or other statement published in IRS Revenue Bulletin or Cumulative Bulletin.

Disposition of donated property within two (2) years of receiving it requires the organization to file a special return. Form 8282 must be filed within 125 days of the disposition. A copy must be given to the original donor. Charitable deduction property is any property for which the organization signed an appraisal summary as donee (does not include cash or publicly-traded securities). The original appraisal summary for value exceeding $5,000 is attached to the donor’s income tax return on Form 8283.