To start a nonprofit in the United States, you incorporate the organization in your state, obtain an Employer Identification Number from the IRS, and then apply for federal tax-exempt status under Section 501(c)(3). One deadline shapes the timing of everything else: file the federal exemption application within 27 months of the end of the month your organization was formed, and your exempt status is retroactive to the formation date. Miss that window and the exemption only starts on the date the IRS receives your application, which can leave donations in the gap period non-deductible.
Incorporate in Your State
Incorporation is the first legal step. It creates the corporate entity that will hold the exemption, sign contracts, and take on liability separately from its founders.
Name and Registered Agent
Your name must be distinguishable from every other corporation on file with your state’s secretary of state. Most states offer an online database to search existing names before you commit. Some states require a corporate designator like “Inc.” or “Corporation” in the name.
You also need a registered agent: a person or commercial service authorized to accept legal documents and official notices for the organization. The agent must have a physical street address in the state of incorporation and be available during normal business hours. You can serve as your own agent, appoint a board member, or hire a professional service.
Articles of Incorporation
The articles of incorporation are the document that legally creates your nonprofit. Most secretary of state offices provide fillable templates. Filing fees run from roughly $20 to $195 depending on the state, and most states accept online submissions. When approved, you receive a certificate of incorporation. Keep it: you will need it for the EIN and the federal exemption application.
Two clauses in the articles get close IRS scrutiny when you later apply for tax-exempt status. The purpose clause must limit the organization’s activities to purposes that qualify under Section 501(c)(3). The IRS suggests language stating that the organization is “organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code.”1Internal Revenue Service. Suggested Language for Corporations and Associations per Publication 557 A purpose that is too broad or too vague gives the IRS reason to deny the application.
The dissolution clause must state that if the organization shuts down, remaining assets go either to another 501(c)(3) or to a federal, state, or local government for a public purpose. Acceptable language reads: “Upon the dissolution of this organization, assets shall be distributed for one or more exempt purposes within the meaning of IRC Section 501(c)(3), or shall be distributed to the federal government, or to a state or local government, for a public purpose.”2Internal Revenue Service. Does the Organizing Document Contain the Dissolution Provision Required Under Section 501(c)(3) Without this clause, your tax-exemption application will be denied.
Adopt Bylaws and a Conflict of Interest Policy
Bylaws are the internal rulebook for how your nonprofit operates. They aren’t filed with the state, but the IRS expects to see them with your exemption application. At a minimum, they should cover the size and structure of the board, how officers are elected and removed, voting procedures, meeting frequency, and notice requirements. The IRS generally expects a board of at least three members, with the majority unrelated to one another.3Charitable Allies. Board Members 101 for New Nonprofits
A conflict of interest policy is not technically required for tax-exempt status, but the IRS strongly encourages every organization to adopt one.4Internal Revenue Service. Instructions for Form 1023 It sets procedures for situations where a board member, officer, or insider could benefit personally from an organizational decision: the person discloses the conflict, recuses from the vote, and the remaining disinterested members decide. Organizations without such a policy risk loss of tax-exempt status in serious cases where private interests appear to have been served over charitable ones.5Internal Revenue Service. Form 1023 Purpose of Conflict of Interest Policy
Get an Employer Identification Number
Apply for an EIN through the IRS website after your state incorporation is approved, not before. The IRS presumes your organization exists once you have an EIN, and annual filing obligations start running from that point.6Internal Revenue Service. Obtaining an Employer Identification Number for an Exempt Organization
The online application is free. You have to finish it in one session because the system times out after 15 minutes of inactivity and won’t save progress. If approved, the IRS issues the nine-digit EIN immediately on screen.7Internal Revenue Service. Get an Employer Identification Number You need this number to open a bank account, hire staff, and file nearly every tax form the organization will ever encounter.
Apply for 501(c)(3) Status
IRS recognition under Section 501(c)(3) is what exempts your organization from federal income tax and makes donations tax-deductible for donors. Two application forms exist, and which one you use depends on your organization’s size.
Form 1023-EZ or Full Form 1023
Smaller organizations may qualify for the streamlined Form 1023-EZ if they project annual gross receipts of $50,000 or less for each of the next three years and hold total assets under $250,000.8Internal Revenue Service. Instructions for Form 1023-EZ You complete an eligibility worksheet first. Answer “yes” to any of its questions and you have to file the full Form 1023 instead.
The full Form 1023 is more involved. It requires three years of financial data. If your organization has existed for less than one year, you provide projections for the current year plus the next two.4Internal Revenue Service. Instructions for Form 1023 You also submit a detailed narrative describing every program you plan to run, who you serve, and how those activities accomplish your charitable mission. The IRS uses the narrative to confirm you won’t engage in prohibited activities like political campaigning or substantial lobbying. You also disclose the backgrounds and relationships of all initial board members.
Filing, Fees, and Timing
Both forms are filed electronically through Pay.gov.9Internal Revenue Service. Applying for Tax Exempt Status You create an account, upload the completed form along with your articles of incorporation and bylaws, and pay the user fee at submission. The fee is $275 for Form 1023-EZ and $600 for the full Form 1023. Both are non-refundable.10Internal Revenue Service. Form 1023 and 1023-EZ Amount of User Fee
Processing times vary. The 1023-EZ can be approved within a few weeks. The full 1023 often takes several months, and follow-up questions from the IRS can stretch the timeline. When approved, you receive a determination letter. This is the single most important document your nonprofit will hold. Donors, grant-makers, and state agencies will all ask to see it.
The 27-Month Rule
File within 27 months after the end of the month your organization was formed and your exempt status is retroactive to the formation date. File later and the exemption only starts on the day the IRS receives your application, which means donations received in the gap may not be tax-deductible.4Internal Revenue Service. Instructions for Form 1023 You can request an earlier effective date by showing you acted reasonably and in good faith, but the IRS grants these requests at its discretion. Filing well before 27 months is safer.
Public Charity or Private Foundation
Every 501(c)(3) is presumed to be a private foundation unless it demonstrates it qualifies as a public charity.11Internal Revenue Service. EO Operational Requirements Private Foundations and Public Charities Private foundations face stricter rules on self-dealing, mandatory annual distributions, and excise taxes that public charities avoid.
Most founders want public charity status. To qualify, an organization generally needs to show that at least one-third of its financial support comes from small donors (each contributing less than 2 percent of total revenue), other public charities, or government sources. Support is calculated over a rolling five-year period. Organizations that fall below 33 percent but stay above 10 percent may still qualify under a facts-and-circumstances test. You indicate your classification on Form 1023, and the IRS confirms it in your determination letter.
Handle State Exemptions and Solicitation Registration
Federal 501(c)(3) recognition does not automatically exempt you from state taxes. Nonprofit status under state law and federal tax-exempt status are separate.12Internal Revenue Service. Frequently Asked Questions About Applying for Tax Exemption Most states require a separate application for exemption from state income tax, sales tax, or property tax. In many states, you submit a copy of your IRS determination letter along with a state-specific form. Operating without state exemptions means paying taxes you may not owe.
Before your nonprofit asks the public for donations, roughly 40 states require registration with the state attorney general or a designated charities office.13Internal Revenue Service. Charitable Solicitation Initial State Registration This is separate from incorporation. You typically submit your determination letter, recent financial statements, and information about any professional fundraisers you plan to use. Most states charge a registration fee, and many require annual renewal. Soliciting donations without proper registration can lead to fines or a fundraising ban in that state. If you plan to fundraise in multiple states, including through a website accessible nationwide, you may need to register in each state that requires it. The Unified Registration Statement consolidates much of the required information into a single form accepted by many participating states, though not all.
On employment taxes, 501(c)(3) organizations are exempt from federal unemployment tax (FUTA). Wages are subject to Social Security and Medicare taxes once payments reach $100 or more per year to any employee, but not to FUTA.14Internal Revenue Service. Section 501(c)(3) Organizations FUTA Exemption State unemployment tax rules vary.
Stay Compliant After Approval
Getting the determination letter is not the finish line. The IRS requires annual information returns from virtually every tax-exempt organization, and failing to file for three consecutive years triggers automatic revocation of tax-exempt status. The IRS enforces this without discretion, and there is no warning letter.15Internal Revenue Service. Automatic Revocation of Exemption for Non-Filing Frequently Asked Questions
Which form you file depends on financial size:
- Form 990-N (e-Postcard) if gross receipts are normally $50,000 or less. This is a brief electronic notice, not a full return.
- Form 990-EZ if gross receipts are under $200,000 and total assets are under $500,000.
- Form 990 (full) if gross receipts are $200,000 or more, or total assets are $500,000 or more.
- Form 990-PF for private foundations, regardless of size.16Internal Revenue Service. Form 990 Series Which Forms Do Exempt Organizations File Filing Phase In
The return is due on the 15th day of the 5th month after the end of your tax year. For calendar-year organizations, that is May 15.17Internal Revenue Service. Exempt Organization Filing Requirements Form 990 Due Date
You must also make your exemption application and your three most recent annual returns available for public inspection at the principal office during regular business hours, and provide copies on written request (you may charge a reasonable fee for copying and postage).18Internal Revenue Service. Public Disclosure and Availability of Exempt Organizations Returns Most states also require an annual corporate report on top of the federal return. Filing fees are usually modest, but missing the deadline can lead to administrative dissolution of the corporation.
One boundary to keep in mind: tax-exempt status does not mean every dollar you earn is tax-free. Income from a trade or business that is regularly carried on and not substantially related to your exempt purpose can be subject to unrelated business income tax, and gross unrelated income of $1,000 or more triggers a Form 990-T filing.19Internal Revenue Service. Unrelated Business Income Defined20Internal Revenue Service. Instructions for Form 990-T Track revenue sources by category from the start so you can tell related from unrelated income when the question comes up.