Establishing 501(c)(3) status for nonprofit organizations

Establishing tax-exempt status under 501(c)(3) can be a complicated, difficult and often confusing process. But, with assistance and persistence, prospective applicants should not be deterred from seeking the tax-exempt status. Applicants need to be thorough when completing the forms to ensure that they complete all the necessary steps. Failure to complete the steps could lead to a denial of exemption status, possibly hindering the progress of the group and its cause.

This website and abbreviated summary are intended to serve only as a guide to potential applicants, and is not intended as a substitute for legal counsel, nor should it be considered legal advice.  A lawyer should be consulted to ensure that the individual needs and requirements of your organization are considered.  Applicants are advised to seek professional advice before commencing the exemption process.

The Pennsylvania Association of Nonprofit Organizations (PANO) and other groups are a good starting point for new organizations that provides links and assistance. The following summary should be used only as a guide in order to start the process of becoming a tax-exempt nonprofit organization.

1. Requirements to become exempt
     a. Decide what your organization wants to accomplish and select an official name.
     b. Decide how you will organize the structure and membership of your association.
     c. Determine who will run the organization, who will have the power to make changes,
         and who will be in charge of record keeping.
     d. Determine where the funding for your group will come from and
         who will be in charge of distributing those funds.
     e. File articles of incorporation with the Department of State.
     f. Acquire an employer identification number (EIN)- Use IRS form SS-4.
     g. Write up the rules or bylaws that will govern the conduct of your organization and the members involved.
         Sample bylaws for organizations with and without members are on this website.
     h. Go through this IRS checklist to determine if your organization is eligible for Federal tax exemption,
         to locate specific sections.
     i. Request tax-exempt status from the IRS- Use IRS form 1023.

2. Requirements once exemption has been granted
     a. Request sales tax-exempt status from the Pennsylvania Department of Revenue.
     b. Register with the Pennsylvania Bureau of Charitable Organizations.
     c. Acquire liability and business insurance for your organization by contacting an
         insurance provider or an attorney.

Sources:
Grobman, Gary M., The Pennsylvania Nonprofit Handbook, 6th edition, White Hat Communications, Harrisburg, PA, 2002.

Hodges, Charles E. II, Practical considerations in establishing a section 501(c)(3) organization, Taxation of exempts, Sept/Oct 2002.

www.pano.org

Updated June 16, 2003

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