Most nonprofits are 501(c)(3) organizations, which means they are formed for religious, charitable, scientific, literary, or educational purposes and are eligible for federal and state tax exemptions. To create a 501(c)(3) tax-exempt organization, first you need to form a Arizona nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Arizona. Here are the details.
Form Your Arizona Nonprofit Corporation
To form a nonprofit in Arizona, first you need to form a nonprofit corporation under Arizona state law. See Arizona Revised Statute (ARS), Title 10, Chapters 24 – 35, Chapters 36 -40.
1. Choose the initial directors for your corporation
In Arizona, you must have at least one director on your board.
2. Choose a name for your Arizona nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of other business entities on file with the Arizona Corporation Commission. To see if your proposed name is available or to reserve a name for 120 days, go to the name database on the Arizona Corporation Commission’s website. Reserving a name will prevent another corporation from registering the name while you prepare and file your articles.
See the Corporation Commission website and Instructions C011i to Articles of Incorporation – Nonprofit Corporation for more information on name restrictions for nonprofits.
3. Prepare and file your nonprofit articles of incorporation
You create your nonprofit entity by filing articles of incorporation for a nonprofit with the Arizona Corporation Commission. Your articles of incorporation must include basic information such as:
- the nonprofit’s name
- the “character of affairs” it intends to conduct in Arizona
- whether it will have members or not
- its business address (physical or street address) if different from the statutory agent address
- the name and business address of each director
- the physical or street address of the statutory agent in Arizona, and
- the name and address of each incorporator.
You must submit a Statutory Agent Acceptance form M002 and a Certificate of Disclosure at the time you file your articles with the Corporation Commission.
There is a articles of incorporation form for nonprofit corporations on the Corporation Commission’s website. Use this form to create your Arizona nonprofit. Complete and file your articles following the instructions provided. The articles form available from the state has the minimal information necessary to create a nonprofit corporation in Arizona. It does not include language required by the IRS to obtain 501(c)(3) federal tax-exempt status. To receive tax-exempt status from the IRS, you'll need to have additional specific language in your articles, including:
- a statement of purpose that meets IRS requirements
- statements that your non-profit will not engage in prohibited political or legislative activity, and
- a dissolution of assets provision dedicating your assets to another 501(c)(3) organization upon dissolution.
For more information on IRS requirements for tax exemption, including sample language, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Make sure you include the tax-exempt language required by the IRS in the articles you create.
4. Prepare bylaws for your Arizona nonprofit corporation
Before you file your articles of incorporation, you’ll need to have bylaws that comply with Arizona law. Your bylaws contain the rules and procedures your corporation will follow for holding meetings, electing officers and directors, and taking care of other corporate formalities required in Arizona. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
5. Hold a meeting of your board of directors
Your first board meeting is usually referred to as the organizational meeting of the board. The board should take such actions as:
- approving the bylaws
- appointing officers
- setting an accounting period and tax year, and
- approving initial transactions of the corporation, such as the opening of a corporate bank account.
After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board.
6. Set up a corporate records binder
You should set up a corporate records binder for your nonprofit to hold important documents such as articles of incorporation, bylaws, and minutes of meetings. For more information, as well as minutes forms, consent forms, and other resolutions, see Nonprofit Meetings, Minutes & Records, by Anthony Mancuso (Nolo).
Obtain Your Federal and State Tax Exemptions
Now that you have created your nonprofit corporation, you can obtain your federal and Arizona state tax exemptions. Here are the steps you must take to obtain your tax-exempt status:
1. File your Form 1023 federal tax exemption application
To obtain federal tax-exempt status from the IRS, you will need to complete and file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This long and detailed form asks for lots of information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. For line-by-line instructions on how to complete the Form 1023, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Smaller nonprofits may be eligible to file Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This is a much simpler, shorter form that is filed online. Only smaller nonprofits--those with projected annual gross receipts of less than $50,000 and total assets of less than $250,000--are eligible to use the streamlined 1023-EZ application.
See the IRS website for more information on the Form 1023 and Form 1023-EZ filing requirements.
2. Obtain your Arizona state tax exemptions
Once a nonprofit receives 501(c)(3) tax-exempt status from the IRS, it should be automatically exempt from Arizona income tax. Check with the Arizona Department of Revenue for information on state tax requirements for nonprofits, including its guide for nonprofits.
3. Other state reporting and registration requirements
Arizona repealed its charitable solicitation registration laws in 2013 so nonprofits are no longer required to register to solicit or fundraise in the state. However, Arizona nonprofits that solicit or receive donations in other states may have filing and reporting obligations in those states.