- Forming a Nonprofit Organization: Before an entity may quality for tax-exempt status with the IRS, it must be created as a corporation, a trust, or an unincorporated association (note: partnerships generally do not qualify). In California, the nonprofit formation process includes filing articles of incorporation, adopting bylaws, obtaining an employer identification number, and documenting formation activities at the first meeting of the board of directors. Several of these formation documents will be included with the entity’s tax-exempt application to the IRS and must contain specific provisions. This is one important reason that you should utilize an attorney that is familiar with tax-exempt nonprofit organizations.
- Complete the Tax-Exempt Application: Once the nonprofit is formed under California law, the organization must submit an application to be recognized as exempt under section 501(c)(3) of the Internal Revenue Code. The Form 1023 and required worksheets need to be completed and submitted, as incomplete applications will not be processed by the IRS. While a simple application seems straightforward, many people will soon realize that the Form 1023, like most IRS documents, is anything but simple.
- Continued Compliance: After the organization has obtained tax-exempt status, it must be sure to comply with ongoing federal and state compliance regulations. Specifically, it’s very important that the nonprofit organization remains focused on the exempt purpose of the organization. If the organization ceases to further that exempt purpose in a substantial way, it may risk its exempt status. As experienced nonprofit attorneys, we help guide our clients to avoid these potentially debilitating issues before they ever arise.
If you are a member of the Board of Directors on a nonprofit or if you’re considering forming a nonprofit for the first time, we’d love to speak with you.
Ariel Bedell is a Shareholder at The Loftin Firm. For questions relating to any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at 760-814-9649.