To register a charity and get tax-exempt status in the United States, you form a nonprofit entity under your state’s law, obtain a federal Employer Identification Number, adopt governing documents that meet IRS requirements, and then file Form 1023 or Form 1023-EZ with the IRS to be recognized under Section 501(c)(3). Before you solicit donations, you also register separately with your state. The IRS user fee is $275 for Form 1023-EZ or $600 for the full Form 1023, and the process from incorporation through a determination letter typically runs several months.
Form the Entity and Get an EIN
A charity has to exist as a legal entity before the IRS will consider it for exemption. Most founders incorporate as a nonprofit corporation because that structure gives directors and officers limited liability protection. Trusts and unincorporated associations are also allowed but less common. You incorporate by filing articles of incorporation with your state’s Secretary of State. Filing fees generally fall between $30 and $90.
Once the entity exists, apply for an Employer Identification Number by filing IRS Form SS-4. Federal law requires any non-individual entity to have one.1Office of the Law Revision Counsel. 26 USC 6109 – Identifying Numbers The online application at irs.gov issues the number immediately.2eCFR. 26 CFR 301.6109-1 – Identifying Numbers The form asks for a “responsible party” — an individual with significant control over the organization’s finances — identified by name and Social Security Number or ITIN. Enter these details carefully so they match your later filings.
If you plan to operate under a name different from the corporate name on your articles, you may also need to register that “doing business as” name with your county clerk or state government. Fees for a DBA are usually under $100.
Write Articles and Bylaws the IRS Will Accept
Your articles of incorporation and bylaws are the legal spine of your organization, and the IRS reviews them against what it calls the organizational test. Two clauses in the articles do most of the work:
- A purpose clause limiting the organization to one or more exempt purposes — charitable, religious, educational, scientific, and similar categories — and not authorizing more than an insubstantial amount of other activity.3eCFR. 26 CFR 1.501(c)(3)-1 – Organizations Organized and Operated for Religious, Charitable, Scientific, Testing for Public Safety, Literary, or Educational Purposes, or for the Prevention of Cruelty to Children or Animals
- A dissolution clause providing that if the organization shuts down, any remaining assets go to another tax-exempt organization, a government entity, or a public purpose determined by a court. Assets cannot revert to members or shareholders.3eCFR. 26 CFR 1.501(c)(3)-1 – Organizations Organized and Operated for Religious, Charitable, Scientific, Testing for Public Safety, Literary, or Educational Purposes, or for the Prevention of Cruelty to Children or Animals
Bylaws then cover day-to-day governance: how directors are elected, how meetings run, and what officers can do.
Political Activity Limits
Section 501(c)(3) organizations are absolutely prohibited from intervening in any political campaign for or against a candidate for public office, and they cannot devote a substantial portion of their activities to lobbying.4Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. Your articles and bylaws should not authorize either activity. Violating the rules can cost the organization its exempt status.
Conflict of Interest Policy
The IRS encourages every board to adopt a written conflict of interest policy. A workable policy identifies what counts as a conflict, sets a procedure for handling one when it arises, and requires directors and covered staff to disclose financial interests they or family members hold in entities doing business with the charity.5Internal Revenue Service. Governance and Related Topics – 501(c)(3) Organizations The instructions to Form 1023 include a sample policy you can adapt.
File Form 1023 or Form 1023-EZ
With the entity formed and documents in place, you apply for federal recognition through the IRS Pay.gov portal.6Internal Revenue Service. About Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code The full Form 1023 asks for a detailed narrative of your past, present, and planned activities: how much time each activity takes, whether volunteers or paid staff carry it out, who benefits, and how services reach them.
You also submit three years of financial data. Existing organizations provide actuals; new ones provide good-faith projections for the current year plus two more.7Internal Revenue Service. Instructions for Form 1023 The application requires revenue sources, expenses, and the names and compensation of officers and directors. The IRS uses that compensation data to police excess benefit transactions, which can trigger a 25 percent penalty tax on the insider who received the excess.8Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions
Who Can Use Form 1023-EZ
Smaller organizations may qualify for the shorter Form 1023-EZ. To be eligible you must meet all three of these limits: projected annual gross receipts of $50,000 or less in each of the next three years, actual gross receipts of $50,000 or less in each of the past three years (where applicable), and total assets with a fair market value of $250,000 or less.9Internal Revenue Service. Instructions for Form 1023-EZ A “yes” to any disqualifying question on the eligibility worksheet sends you back to the full Form 1023.
Fees, Review, and the Determination Letter
The user fee is $600 for Form 1023 and $275 for Form 1023-EZ, paid through Pay.gov before the application is accepted.10Internal Revenue Service. Form 1023 and 1023-EZ: Amount of User Fee Applications are generally processed in the order received, and times vary.11Internal Revenue Service. Frequently Asked Questions About Form 1023 An IRS agent may ask follow-up questions about specific activities or figures. When review is complete, the IRS issues a determination letter — the official document confirming your tax-exempt status.
Public Charity or Private Foundation
Every 501(c)(3) is classified as either a public charity or a private foundation, and you make that election on the application. Unless the IRS is satisfied that you qualify as a public charity, it defaults you to private foundation status, which carries stricter rules and additional excise taxes on transactions between the foundation and its insiders.12Internal Revenue Service. Taxes on Self-Dealing: Private Foundations
The most common path to public charity status is meeting a public support test. Broadly, that means receiving a substantial part of your support from government or the general public, or receiving more than one-third of your support from gifts, grants, and program-related revenue while taking no more than one-third from investment income. The IRS calculates this over a five-year period.13Internal Revenue Service. EO Operational Requirements: Requirements for Publicly Supported Charities Choosing the right classification on Form 1023 sets the rules your organization lives under afterward.
Register With Your State Before You Fundraise
A federal determination letter does not, by itself, authorize you to solicit donations. Most states require a separate charitable registration, usually filed with the Attorney General’s office or the Secretary of State. You typically disclose the organization’s financial condition, the names and addresses of board members, and in some states background information on principal officers.
You also need a registered agent in each state where you incorporate or register — a person or service with a physical address in the state to receive legal notices on your behalf. The agent’s name and address appear on your registration documents.
Registration fees, renewal schedules, and disclosures vary widely. Some states charge as little as $15 to register initially; others charge considerably more. Soliciting donations before registering can lead to administrative fines and, in some states, personal liability for directors.
Online Donations Across State Lines
Accepting online donations can pull you into other states’ registration systems. Under the Charleston Principles, the framework used by state charity regulators, a charity soliciting through an interactive website may need to register in another state if it specifically targets that state’s residents or receives contributions from the state on a repeated or substantial basis. If your website has a “donate” button and receives meaningful donations from more than one state, evaluate registration in each. A unified registration statement accepted by many states can reduce the paperwork.
State Sales and Property Tax Exemptions
Federal 501(c)(3) status does not automatically exempt you from state or local taxes. Most states require a separate application for sales tax exemption, generally requiring a copy of your IRS determination letter along with a state form, and some require periodic renewal. Property tax exemptions run through the county or local assessor and follow their own process. Check with your state department of revenue and local assessor to see what applies.
What You Have to Do Every Year
The determination letter is not the finish line. Tax-exempt organizations file an annual information return with the IRS, and the form depends on size:
- Form 990-N (e-Postcard), for organizations with gross receipts normally $50,000 or less. Private foundations and certain supporting organizations cannot use it.14Internal Revenue Service. Annual Electronic Notice (Form 990-N) for Small Organizations FAQs: Who Must File
- Form 990-EZ, for organizations with gross receipts under $200,000 and total assets under $500,000.
- Form 990, for organizations above those thresholds.
- Form 990-PF, required for every private foundation regardless of size.
Miss three consecutive annual returns and the IRS automatically revokes your exempt status, effective on the due date of the third missed return.15Internal Revenue Service. Automatic Revocation of Exemption After revocation the organization owes federal income tax on earnings, donors lose their deduction, and the name comes off the IRS public list. The IRS cannot undo an automatic revocation; you have to apply for reinstatement.
Most states also require annual reports or renewals for both the corporation and the charitable solicitation registration. Fees range from around $10 to several hundred dollars. Missing a deadline can lead to administrative dissolution or suspension of your fundraising authority.
Donor Acknowledgments
For any single contribution of $250 or more, you must give the donor a written acknowledgment identifying your organization, the cash amount (or a description of any non-cash property, but not its value), and a statement about whether you provided goods or services in return.16Internal Revenue Service. Charitable Contributions: Written Acknowledgments Without it, the donor cannot claim the deduction. Separate disclosure rules apply when a donor pays more than $75 and receives something of value in return, such as a fundraising dinner; the disclosure must tell the donor only the amount above fair market value is deductible and give a good-faith estimate of that value.17Internal Revenue Service. Charitable Contributions: Quid Pro Quo Contributions
Unrelated Business Income
Exempt status doesn’t shelter every dollar the charity earns. If you take in $1,000 or more of gross income from a trade or business regularly carried on and not substantially related to your exempt purpose, you file Form 990-T and pay tax on it.18Internal Revenue Service. Unrelated Business Income Tax Advertising revenue in a nonprofit publication and income from debt-financed rental property are typical examples. If your estimated unrelated business income tax reaches $500 for the year, quarterly estimated payments are required. Track unrelated activities in a separate accounting bucket from the start so you’re not untangling them at filing time.