A 501(c)(3) organization is a nonprofit, typically a charity, that has been deemed tax-exempt by the Internal Revenue Service (IRS). Starting a 501(c)(3) organization begins like most new activities--with a mission, a plan, and the inclusion of like-minded participants. Designation by the IRS is simply a governmental process, and it requires that the organization have a goal, etc.
Establish a mission statement, bylaws, and a corporate structure for the charity. The charity must have a charitable purpose in order to be a 501(c)(3), and the best way to assure this is simply to find a goal for the organization. Draft bylaws so those involved with the charity understand how the charity will operate to meet its goals. Lastly, the charity should decide what type of corporate structure it should take. This step will likely benefit from pro bono assistance from a corporate lawyer.
Recruit volunteers. Most likely, the charity will need a board of directors, and it will almost certainly benefit from volunteer labor. These volunteers may also be a source of start-up money for the charity. Presumably, people who are willing to give time to a cause agree with the goals of the charity and therefore are likely to contribute financially and in other ways as well.
File Form 1023 with the IRS. In order to be a 501(c)(3) and therefore tax-exempt, the organization must complete Form 1023 with the IRS and get approval from the IRS. The form itself seeks information about the goals and mission of the organization, financial reports on the charity, reports on any financial benefit to those involved in the charity (e.g., salaries, etc.), and a description of the corporate structure of the organization. The filing fee for very small charities is $300, and this money will likely need to come from the volunteers who have been recruited or from a fundraising activity. As with the corporate structure issue, the charity should seek pro bono assistance from a lawyer in dealing with the IRS.
Maintain good financial records. Keeping 501(c)(3) designation requires financial records that show that the organization actually has not been for the financial benefit of those involved with it. As such, recordkeeping on how the moneys of the charity are spent and what is owned by the charity are essential.
File form 990 annually. Every year, the charity must file Form 990 or Form 990-N (also called "the postcard"). Small start-up charities must file Form 990-N, which can be done electronically; the form simply reports on the address, mission, and ongoing work of the charity. It does not delve into the finances of the charity deeply. If the charity grows, however, it may need to file Form 990, which requires a more complete financial filing and disclosures about the financial benefits paid by the charity to employees, board members, and others.
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