Structuring Nonprofits & Other Tax-Exempt Entities

Nonprofit organizations play an important role in our communities – both locally and nationally. As the name suggests, these entities are not meant to bring on extreme profits, unlike large corporations that exist to provide goods and services for max profits. A lot of good-hearted people seek out nonprofit work and eventually decide to start their own organizations to be a part of progress in the world around them.

Structuring these entities is a mostly straightforward process. After going through the typical steps of discovering a need, understanding how you can fill it, and determining the feasibility of your venture, you will need to officially file for nonprofit status. We want to walk through how this process looks and why the main hurdle comes when certifying tax-exempt status with the Internal Revenue Service (IRS).

File for Incorporation

Before you can seek out tax-exempt status, you must first follow guidelines in your state to incorporate your organization. This will involve following any filing and funding requirements that apply to your organization.

This step does not guarantee you tax-exempt status. Instead, you are establishing your organization as a legal entity that can become eligible for tax-exempt status as long as the proper steps are followed. The IRS details these steps on its website.

Determine Your Tax-Exempt Status

This is where the work truly begins for finalizing your goal to become a nonprofit, tax-exempt organization. The first step is determining what type of tax-exempt status you’re seeking.

The most common types are 501(c)(3) organizations which are charitable, religious, and educational entities. However, there are nearly three dozen organization structures that can qualify.

Apply for Tax-Exempt Status With the IRS

Once you have determined what status you will be applying for, the IRS has specific forms you must fill out. It’s imperative that you have all your information organized and consistently represented on all forms to avoid slowing or failing the process.

Another option for companies that believe they will raise below a certain threshold is to streamline the application process. This is for rare situations and not ideal for those who plan to establish an entity that serves for a long period of time and eventually will raise significant funds for their cause.

Many end up being frustrated by this point in the process, but these checks and balances exist for a reason. Oversight is necessary to ensure the IRS’ tax-exempt status isn’t being abused by nefarious actors.

At CLARK.LAW, we help people turn their ideas into reality by helping set up and structure these organizations. If you have a non-profit idea that you want to get off the ground, contact our office and we’ll come up with solutions for your growing organization.

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