How to Create a 501(c)(3)

Jennifer discovered her passion for music in high school at an outdoor Christian festival. Through college, a few job changes, and her marriage, Jennifer sang in a worship band on Sundays, performed at local coffee shops, and volunteered as the talent at a fundraiser for a local shelter. And it was here, while watching others raise money for a worthy cause, that she first thought about turning her passion into a career. Of course, to succeed, she’d need to start a nonprofit and raise enough financial support to make her dreams a reality. “So how do I do this and where do I start,” she thought. Well, as she would soon learn, it’s easier than one might expect … but it also requires a lot of attention to details and patience.

Each year, thousands of organizations and individuals in the United States like “Jennifer” start a nonprofit, or a 501(c)(3), so they can raise tax exempt funds from donors for a personal or corporate charitable effort. Setting up a 501(c)(3) involves several steps including ...

Create a name for your nonprofit
Write a purpose statement
Set up a board of directors and preparing bylaws
File your organization’s articles of incorporation
Apply for federal tax-exempt status as a 501(c)(3)
File for your state’s recognition of tax exemption

Why Should I Make a 501(c)(3)?

Benefits of a 501(c)(3)

Creating a 501(c)(3) organization, also known as a non-profit, can provide several benefits for individuals or groups who are looking to make a positive impact in their communities. Some of the key benefits of creating a 501(c)(3) include:

Tax-exempt status: 501(c)(3) organizations are exempt from paying federal income tax, and in many cases, state and local taxes as well.
Eligibility for grants and donations: As a non-profit, 501(c)(3) organizations are eligible for a variety of grants and donations from individuals, corporations, and foundations.
Credibility and legitimacy: Having 501(c)(3) status can enhance an organization's credibility and legitimacy in the eyes of donors, volunteers, and the public.
Ability to advocate: Non-profit organizations are allowed to engage in certain types of advocacy work, including lobbying for specific policy changes.
Ability to provide tax deductions: Donors to 501(c)(3) organizations can receive tax deductions for their contributions, which can be a significant incentive for individuals and businesses to support the organization.

Drawbacks to a 501(c)3

While creating a 501(c)(3) organization can provide many benefits, there are also some potential drawbacks to consider. These can include:

Complex setup and ongoing requirements: Creating a 501(c)(3) requires a significant amount of paperwork and ongoing record-keeping and reporting obligations to maintain compliance with the IRS and state regulations.
Restrictions on activities: Non-profits are subject to certain restrictions on their activities, such as limitations on lobbying and political campaigning.
Potential for conflicts of interest: Non-profit board members and officers are subject to strict conflict-of-interest rules that can limit their ability to engage in certain activities or transactions.
Public scrutiny: As non-profits are subject to public reporting requirements, they may face public scrutiny and criticism if they do not operate transparently or effectively.
Difficulties in securing funding: While non-profits are eligible for grants and donations, securing consistent and reliable funding can be a challenge, especially for smaller or newer organizations.
ACT Intl can help you set up and maintain your nonprofit. Contact us to learn how you can focus on the ministry that matters most.

7 Steps to Creating Your 501(c)3 Nonprofit

Create a name for your nonprofit

For a nonprofit, your name should not only convey your purpose to potential donors, but it must also be set up according to certain rules and regulations.

Your nonprofit’s name must be unique. It cannot be the same as another corporation on file with your state, which is usually managed by the Secretary of State’s office. Your state’s corporation’s office will help you research the availability of your name.
You should check that website domain names and social media handles with your organization's name are available.
Your name must end with a corporate designator, such as “Corporation” or “Incorporated” or an abbreviation of these words.

Write a purpose statement

For many, this task is the easiest. Why? Because a nonprofit’s purpose has probably been refined for months or years, fueled by the founder’s desire to make a difference in the world. So, what are some things to consider when writing a purpose statement? Here’s a partial list:

It should tell why an organization exists as a necessary entity.
It should include the nonprofit’s bylaws since it will be used to qualify the nonprofit for tax-exempt status.
It should be a statement that the board of directors and the nonprofit’s supporters can look to as a foundation for fulfilling the organization’s purpose.
It should be no more than 50 words long and include a classification of the type of services the organization will provide.
It should allow for organizational growth but be specific enough that it identifies why your organization is different than others.

Set up a board of directors and prepare your bylaws

If a nonprofit founder is a person with passion for a cause, then the board of directors are the men and women who have the courage to ask the tough questions and hold the founder accountable – both financially and to the nonprofit’s purpose statement. In brief, a nonprofit's directors make the major policy and financial decisions for the nonprofit. Some states allow nonprofits to have just one director, but other states require at least three. Your state will have this information available online. At the first meeting of the board of directors, at least four things should happen:

The directors adopt the nonprofit’s bylaws,
They elect officers,
They record the receipt of federal and state tax exemptions, and
After each meeting, minutes should be created and filed in the nonprofit’s records binder.

As for the nonprofit’s bylaws, these are the rules and procedures for holding meetings, electing board members, voting on issues, and other duties. Usually, the bylaws are adopted by the corporation's directors at their first board meeting. To learn more about the roles and responsibilities of a board, watch the attached video.

How Can ACT Intl Help?

Starting a nonprofit can be complicated. You should be doing the ministry you’re best at – not worrying about paperwork and bookkeeping. ACT Intl comes alongside nearly 700 Christian artists, speakers, and musicians to provide the support their nonprofit needs to do the work they are called to.

We can help get your nonprofit set up, equip you for fundraising, and provide all the back-office support, bookkeeping, tax preparation, and more.

Get freed up to do the work God is calling you to. Talk with a nonprofit guide to see how ACT can help.

File your organization’s articles of incorporation

It's time for your nonprofit to become official. Filing your articles of incorporation for a nonprofit establishes it as a legal entity, but that doesn't mean it's automatically a tax-exempt business.

Your articles of incorporation must be submitted to the business filing agency in the state where you plan to set-up your nonprofit business. In most states, this is the Secretary of State's office. Be sure to check with your state’s filing procedures to find out how you will need to submit your paperwork (i.e., online or through the mail), the amount of the filing fee, and the requirements for filing your articles of incorporation. It's typically a smart idea to hire a business incorporation attorney to help you walk through this process so you can file your documents correctly.

Lastly, you will need an employer identification number (EIN). You can apply for an EIN online at the IRS website, and you will receive it immediately after your application is submitted. You can also get an EIN by downloading IRS Form SS-4, filling it out, and faxing or mailing it to the IRS at:

Internal Revenue Service

Attn: EIN Operation

Cincinnati, OH 45999

Apply for federal tax-exempt status as a 501(c)(3)

To receive your 501(c)(3) nonprofit status you (or your attorney) will need to fill out and file IRS Form 1023 (see the attached video). Doing this allows the IRS to examine your nonprofit’s structure, its purpose, and whether donor dollars are being used for the donors' intended purposes. From this, they will determine if your organization qualifies as tax-exempt.

Locate the EIN assigned to your corporation. To file for your 501(c)(3) tax-exempt status, most organizations must use this number to fill out IRS Form 1023 electronically on Pay.gov. This form is called an Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The submission fee is $600 and must be paid through Pay.gov at the time of filing.

One thing to know is that if your organization has three years of gross receipts under $50,000 and assets of less than $250,000, you may be able to file the simpler Form 1023-EZ. To file this form, you must first fill out the Form 1023-EZ Eligibility Worksheet in the Instructions for Form 1023 to determine your eligibility. If your organization is eligible to use Form 1023-EZ, the user fee is $275 and is due at the time of filing on Pay.gov.

As you can see, all of this is a fairly complex process so don’t hesitate to hire a qualified attorney to assist in the process.

File for your state’s recognition of tax exemption

After you receive a determination letter stating that you are federally tax-exempt, you still are not ready to solicit donations in every state. You will need to register with each state in which you fundraise before receiving donor dollars from the residents of those states. And almost every state mandates some type of registration.

The forms and requirements to register for soliciting donations vary by state. You’ll need to find the government office that handles registrations by searching by state on the National Association of State Charity Officials, or NASCONET. Forms associated with charitable solicitation registration often must be filled out annually and many states will also request that a copy of the IRS Form 990 is attached. Check with your state department of consumer affairs (or similar state licensing agency) for information concerning state licensing requirements for your type of organization.

And don’t forget … consider hiring an attorney

Several times throughout this article, we’ve suggested that you seriously consider hiring an attorney to walk you through the entire nonprofit 501(c)(3) process. Attached is a brief video, The Five Pitfalls of Starting a Nonprofit Without a Lawyer, that clearly explains why an attorney will help you save lots of time and effort, not to mention headaches, later.

Discover CCM United

Do you find the process of creating a 501(c)(3) somewhat overwhelming? If you are a gifted Christian artist, songwriter, or worship leader (whether you are well-known or just getting started), consider CCM United to help you make your vision a reality. If you need a not-for-profit “home base” to receive tax-deductible donations from friends, family, and other donors, visit CCM United today!