Question

Explain the legal requirements and process for becoming a nonprofit.

o Consider both federal and state requirements needed to establish the nonprofit.

 Research and report what agencies you will need to contact in order to establish your nonprofit.

 Research and report what forms are needed to establish your nonprofit

Answer 1

Answer: A business organization that serves some public purpose and therefore enjoys special treatment under the law are known as Non-profit corporations. Contrary to their name, non-profit corporations can make a profit but can't be designed primarily for profit-making.

A company fall into one of these 8 broad categories in order to apply for tax exemption:

• Charitable (including poverty relief, combating discrimination, advancing education, etc.)
• Religious
• Educational
• Testing for public safety
• Literary
• Youth/amateur sports competition
• Scientific
• Cruelty prevention for children and animals.

Federal requirements and forms:

The IRS requires nonprofit organizations seeking tax-exempt status to file Form 1023. To get the most out of tax-exempt status, Form 1023 needs to be filed within 27 months from the date of filing the nonprofit articles of incorporation. The user fee will be $275 or $600, depending on the application method. It also can take 3-12 months for the IRS to return its decision, depending on how many questions the IRS has about the application.

Before starting to fill out form 1023, be sure that the:

• Articles of incorporation has been filed
• Bylaws have been prepared
• First nonprofit meeting has been held

1) First, a request must be placed to obtain an Employer Identification Number (EIN) and then application for recognition of exemption by filing Form 1023 (Charitable Organizations) or 1024 (Other Tax-Exempt Organizations), with the necessary filing fee.

2) An exempt organization with $1,000 or more of gross income from an unrelated business must file Form 990-T and pay tax on the income.

3) If the nonprofit has revenues of more than $25,000 a year, an annual report (Form 990) must be filed with the IRS.

4) Form 990-EZ is a shortened version of 990 and is designed for use by small exempt organizations with total assets at the end of the year of less than $25,000.

State requirements and forms:

If a charitable nonprofit is an incorporated entity, it must follow state law requirements for annual or periodic registrations.

1. Each state’s law is slightly different, but most require nonprofit corporations to periodically confirm or update their basic contact information, such as mailing address, names of responsible parties, and registered agent.

2. If a charitable nonprofit has employees, there are initial and periodic employment forms to file with the state Department of Labor. In some states charitable nonprofits need to apply for sales/use or property tax exemptions, separately from other corporate registrations.

3. The majority of states require charitable nonprofits that are engaged in soliciting donations to register with the state to report on the nonprofit’s fundraising activities.

Additional requirements:

a. Fundraising filing requirements - States require charitable nonprofits that are soliciting contributions/donations to submit an initial registration and to follow-up with annual renewal registrations that describe the type of fundraising activities the nonprofit is engaged in. These state law requirements are known as “charitable solicitation” regulations.

b. Annual Corporate Filings - Nonprofit corporations that are incorporated in the state (and/or registered to conduct business in the state) need to file an annual or bi-annual corporate "report" with the state.

c. Annual financial returns - Many states require not only a renewal or update of corporate status but also special financial disclosures. Most states will accept the form that tax-exempt charitable nonprofits complete and file with the federal government each year: the annual information return (known as the IRS “Form 990”), but each state has its own requirements.

d. Tax-exempt status in the state - Some states require periodic renewal of the state’s recognition of a nonprofit's tax-exempt status. For example, many states issue their own "tax-exempt certificate" for sales and use tax purposes that nonprofits must apply for and periodically renew.