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 an Indiana nonprofit corporation. Then you apply for tax-exempt status from the IRS and the State of Indiana. Here are the details.
Form Your Nonprofit Corporation
1. Choose who will be on the founding board of directors for your nonprofit corporation.
In Indiana, your nonprofit corporation must have three or more directors.
2. Choose a name for your Indiana nonprofit corporation.
The name of your nonprofit corporation cannot be the same as the name of another corporation on file with the Indiana Secretary of State. To see if your proposed name is available, you can search Indiana's name database available on the Indiana Secretary of State's website.
In Indiana, your nonprofit corporation name must include "corporation," "incorporated," "limited," "company," or an abbreviation.
3. Prepare and file your nonprofit articles of incorporation.
You will need to create and file nonprofit articles of incorporation with the Indiana Secretary of State. The Indiana Secretary of State has a fillinable articles of incorporation form on its website which you can use to create and mail in your articles. Or, you can file your articles online. Follow the instructions on the Secretary of State's website for completing and filing your articles.
You must include the following statement in your articles: "This corporation is a public benefit corporation." Your articles also must contain the street address of the corporation's initial registered office in Indiana and the name of the corporation's initial registered agent; the name and address of each incorporator; and whether or not the corporation will have members. See Ind. Code 23-17-3-2 for more on what is required in nonprofit articles of incorporation under state law.
In addition to what's required in your articles under state law, you'll need to include certain provisions in your articles to meet IRS requirements for 501(c)(3) tax-exempt status. For IRS purposes, your articles must have:
- a statement of purpose that qualifies for tax-exempt status
- statements that your nonprofit will not engage in prohibited political or legislative activity,
- a dissolution of assets provision dedicating your assets to another 501(c)(3) organization upon dissolution.
For more information on IRS requirements for articles of incorporation, including sample provisions, see IRS Publication 557, Tax-Exempt Status for Your Organization (available on the IRS website). You can also refer to How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo) for guidance on drafting articles that satisfy both state and IRS rules for 501(c)(3) nonprofits. Be sure to include both the state and federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your Indiana nonprofit corporation.
You'll need to prepare bylaws that comply with Indiana 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 Indiana. Your bylaws do not need to be filed with the Indiana Secretary of State -- they are your internal operating manual.
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).
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 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).
Otain Your Federal and State Tax Exemptions
Now that you have created your nonprofit corporation, you can obtain your federal and Indiana 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 Indiana state tax exemptions.
Once you have your federal tax exemption, you can obtain your Indiana state tax exemptions by providing the Indiana Department of Revenue with a copy of the IRS Federal Determination letter showing your exemption from federal tax. Nonprofits who want a sales tax exemption must file a Nonprofit Application for Sales Tax Exemption (Form NP-20A) with the Indiana Department of Revenue (Form NP-20A) and then annually thereafter a Nonprofit Organization’s Annual Report (Form NP-20). Check the Indiana Department of Revenue website for more information on exemptions from income, property, sales, and other state taxes for Indiana 501(c)(3) nonprofits.
3. Other state reporting and registration requirements.
Indiana does not require nonprofits to register with the state before soliciting contributions from state residents. You may have to register your nonprofit in other states before you engage in any out-of-state solicitations.