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 Iowa corporation, then you apply for tax-exempt status from the IRS and the State of Iowa. Here are the details.
Form Your Nonprofit Corporation
1. Choose who will be on the initial board of directors for your nonprofit corporation.
In Iowa, your nonprofit corporation must have one or more directors.
2. Choose a name for your Iowa nonprofit corporation.
The name of your nonprofit corporation cannot be the same as the name of another nonprofit or business corporation on file with the Iowa Secretary of State. To see if your proposed name is available, search the business entities name database on the Secretary of State's website. See Iowa Code 504.401 for other corporate name use restrictions.
3. Prepare and file your nonprofit articles of incorporation.
You will need to create and file nonprofit articles of incorporation with the Iowa Secretary of State office. Unlike most states, the Iowa Secretary of State's office does not provide a sample or fillinable nonprofit articles of incorporation form. Instead, the Secretary of State directs you to the Iowa Nonprofit Corporation Act, which lays out the requirements for what to include in Iowa nonprofit articles of incorporation. Specifically, articles must contain:
- the nonprofit's name
- the address of the corporation’s initial registered office and the name of its initial registered agent at that office
- the name and address of each incorporator
- whether the corporation will have members, and
- provisions regarding the distribution of assets on dissolution.
See Iowa Code 504.202 for more on Iowa nonprofit articles of incorporation, including optional provisions.
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 include:
- a statement of purpose that qualifies your organization for IRS tax-exempt status
- statements that your nonprofit will not engage in certain 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 articles of incorporation, 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.
4. Prepare bylaws for your Iowa nonprofit corporation.
You'll need to prepare bylaws that comply with Iowa 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 Iowa. Your bylaws do not need to be filed with the Iowa Secretary of State -- they are your internal operating manual. For sample bylaws and 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:
- electing directors (if not named in the articles)
- 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.
Be sure to create minutes of the meeting.
6. Set up a corporate records binder.
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 Iowa 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 Iowa state tax exemptions.
Once you have your federal IRS tax exemption, you are automatically exempt from Iowa income tax.
Your nonprofit may still be subject to other state taxes such as sales, use, and property taxes. Check the Iowa Department of Revenue website (see Iowa Tax Issues for Nonprofit Entities) for information on how to obtain exemptions from state taxes for nonprofits.
3. Other state reporting and registration requirements.
Iowa 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.