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 Connecticut corporation, then you then apply for tax-exempt status from the IRS and the State of Connecticut. Here are the details.
Form Your Connecticut Nonprofit Corporation
1. Choose who will be on the founding board of directors for your nonprofit corporation.
In Connecticut, your nonprofit corporation must have 3 or more directors.
2. Choose a name for your Connecticut nonprofit corporation.
The name of your nonprofit corporation cannot be the same as the name of another nonprofit corporation on file with the Connecticut Secretary of State. To see if your proposed name is available, you can search Connecticut’s name database on the secretary of state's website.
In Connecticut, your nonprofit corporation name must contain "corporation," "company," "incorporated," or an abbreviation.
3. Prepare and file your nonprofit certificate of incorporation.
You will need to create and file a nonprofit certificate of incorporation with the Connecticut Secretary of State. The certificate of incorporation needs to include basic information such as your nonprofit’s name, your nonprofit’s statement of purpose, certain provisions required for state and federal tax-exempt purposes, and the name and address of your registered agent (the person to whom legal notices should be sent).
The Connecticut Secretary of State has a nonprofit certificate of incorporation form on its website which you can use to create your nonprofit corporation (look for the CERTIFICATE OF INCORPORATION/NONSTOCK CORPORATION). Fill the articles form out following the instructions provided.
The articles form includes the minimal information needed to create a nonprofit corporation in Connecticut. It does not include certain language required by the IRS to obtain your federal tax-exempt status. To ensure you get 501(c)(3) tax-exempt status from the IRS, you will need to have additional specific language in your articles including:
- a statement of purpose that meets IRS requirements
- statements that your nonprofit 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, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Be sure to include the additional language required by the IRS for 501(c)(3) tax-exempt status.
4. Prepare bylaws for your Connecticut nonprofit corporation.
You’ll need to prepare bylaws that comply with Connecticut law and 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 Connecticut. For more information, see Nolo's article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes, or, for help creating your bylaws, see Nolo’s book How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo). Your bylaws do not need to be filed with the Connecticut Secretary of 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, minutes of the meeting should be created.
6. Set up a corporate records binder.
You should set up a corporate records binder for your nonprofit to hold important document such as your certificate 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 Federal and State Tax Exemptions
Now that you have created your nonprofit corporation, you can obtain your federal and Connecticut state tax exemptions. Here are the three 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 Connecticut state tax exemption
Once you have your federal tax exemption, you need to obtain your Connecticut state tax exemption. This may include exemptions from income, property, sales, and other state taxes. Connecticut’s tax agency will have a form you need to file to obtain your state tax exemption.
3. Other state reporting and registration requirements
Depending on your activities and the size of your organization, you may need to register with the Connecticut attorney general before doing any fundraising activities. Check with the Connecticut attorney general's website at www.ct.gov/ag/site/default.asp for additional rules, or for more information about fundraising registration requirements, see Nonprofit Fundraising Registration: The 50-State Guide, by Stephen Fishman (Nolo).