Starting a Nonprofit: Understanding the 501C3 Application Process

Tips on how to handle the 501c3 application.  

Receiving a tax-exempt 501(c)(3) status from the IRS is one of the most important steps in starting your nonprofit organization. Official recognition as a nonprofit means that it will be exempt from tax but it also allows your donors to deduct any contributions they make to your cause. In turn, this can become a major marketing point as your organization grows and attracts larger donations. To help you navigate the 501(c)(3) application process, read on.

Be clear on your purpose

At first glance, this may not seem like an essential task when discussing the practicalities of registering a nonprofit. However, getting clear on your purpose is essential. When you’re able to clearly and efficiently communicate your purpose, each subsequent step will be simpler.

Decide what type of nonprofit you want to establish

Generally, you must fall into one of these 8 broad categories to apply for tax exemption:

You must 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

Form a board

Recruiting a board prior to incorporating is helpful and you may need to list the names of your board members in documents. Your board can help you with the incorporation and the rest of the sometimes-challenging process of establishing a nonprofit.

Prepare your bylaws

The bylaws contain the operating rules and provide a framework for your management procedures. They are the tools of internal accountability and they outline the inner workings of your nonprofit.

Prepare and file your incorporation paperwork

Within your incorporation paperwork, you will be officially declaring your organization’s name, location, purpose, the initial board of directors and more. Note that incorporating your nonprofit does not make it 501(c)(3) exempt. The IRS requires you to include specific language in your articles of incorporation for those intending to apply for federal tax-exempt status.

File for 501(c)(3) tax-exempt status

To get the most out of your tax-exempt status, file your Form 1023 within 27 months of the date you file your nonprofit articles of incorporation. Be sure to start this process as soon as possible, since it can take 3-12 months for the IRS to return its decision.

It is also possible that you can use a shorter application form (1023-EZ):

  • Form 1023: The traditional 26-page application that is used by larger nonprofits
  • Form 1023-EZ: A condensed 3-page application that can be used by organizations with gross receipts of less than $50,000 and less than $250,000 in assets

Check the IRS website and instructions to the form which include an Eligibility Worksheet you must complete to determine if your nonprofit meets the requirements for using the shorter streamlined form.

While you’re thinking about building your nonprofit, don’t forget about insurance. Are you ready to secure the right coverage for your needs? Contact the experts at Colorado Nonprofit Insurance Agency, part of HUB International in Denver, Colorado at 303-894-0298.