Starting a 501(c)(3), or any type of Section 501(c) organization, is a big step and carries with it lots of responsibilities. But with the right legal advisor and firm grasp of the basics, you can be well on your way to a successful new charity.
So – you’ve recently found a cause that you’re passionate about, and are inspired to DO something about it. You want to start a charity. CONGRATULATIONS! This bright spark of goodwill is the first step of launching your successful 501(c)(3), and one that many well intentioned folks never arrive at.
First, try to figure out if you will realistically be able to raise enough funding to make this endeavor worth your while. For some groups, this means enough to ensure that proceeds from the donations you solicit for your charitable work will actually be able to sustain that work, as well as the effort you and others are putting into it (if you plan to compensate yourselves). Will you be able to find a good group of directors who care about your mission and want to see the group succeed?
What are the steps?
First, you’ll need a good attorney who knows what to look out for in your filings with the IRS. Second, you’ll need a properly formed legal entity (ideally a non-stock or nonprofit corporation), though it generally doesn’t matter which state law that entity was organized under. It should be in the jurisdiction (state) that makes the most sense from an administrative standpoint for your group. For most of our clients, that state is Colorado. You’ll then need properly written articles of incorporation and bylaws, as well as policies drafted to make sure your officers and directors comply with the IRS’s private inurement doctrines. Finally, your attorney will help you file your Form 1023 with the IRS.
What is the difference between a Form 1023EZ and the regular Form 1023?
Some nonprofits fall within certain exemptions that allow them to apply for tax-exempt status recognition using the Form 1023EZ, a shorter form of the standard Form 1023 traditionally used for this process. The 1023EZ involves relatively minimal paperwork. The application fee is lower, and there are fewer documents that must be filed with the IRS (though each organization must still have proper governance documents in place and on file).
Many people think receiving the 501(c)(3) status determination letter is the end game for nonprofits, but it’s not. Most states, including Colorado, have a number of requirements related to properly registering your nonprofit with an oversight agency and raising funds from state residents. You’ll want to get a handle on these requirements to make sure you’re compliant in every state where you’re soliciting, and you need to be sure to confirm requirements relating to online fundraising as well. The requirements, which are designed to protect donors from scam artists, become all the more true in the current age of online fundraising.
Are you ready?
Starting a nonprofit is a commitment, but often a worthwhile endeavor once you’re able to see all the good you can bring into the world. While the State of Colorado has many helpful resources to help guide the way, it’s important to consider your goals. If securing a favorable nonprofit status determination from the IRS is your goal, don’t go down this road without a guide, or you can end up with an adverse determination letter and a long road ahead in terms of getting recognized. We’d love to help you get started.