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 Massachusetts nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Massachusetts. Here are the details.
Form Your Massachusetts Nonprofit Corporation
First, you need to form a nonprofit corporation under Massachusetts state law (Chapter 180 of the Massachusetts General Laws ("M.G.L")).
1. Choose the initial directors and officers for your nonprofit.
In Massachusetts, your nonprofit corporation must have one or more directors. In addition, you are required to name your initial directors and your president, treasurer, and clerk in your articles of organization.
2. Choose a name for your Massachusetts nonprofit corporation.
The name of your nonprofit corporation cannot be the same as, or deceptively similar to, the name of any other existing corporation or other entity authorized to do business in Massachusetts. To see if your proposed name is available, you can search the Massachusetts name database on the Secretary of the Commonwealth of Massachusetts website.
In Massachusetts, your nonprofit corporation name must include "Limited," "Incorporated," "Corporation," or an abbreviation thereof.
3. Prepare and file your nonprofit articles of organization.
You will need to create and file nonprofit articles of organization with the Corporations Division of the Massachusetts Secretary of the Commonwealth. The articles of organization must include basic information such as:
- your nonprofit's name and street address
- whether your corporation will have members
- your nonprofit's statement of purpose (as permitted by M.G.L. 180, Sec. 4)
- a statement that bylaws have been adopted and directors and officers (president, treasurer, and clerk) have been elected
- the names and addresses of your officers and directors
- the corporation’s fiscal year, and
- the name and address of your registered agent.
The incorporator who signs the articles of organization must be at least 18 years old. See M.G.L. 156B, Sec. 13 for more information on requirements for articles of organization.
The Secretary of the Commonwealth has an articles of organization form on its website which you can use to create your Massachusetts nonprofit corporation. You can file your articles online or by mail, fax, or hand delivery. Complete and file your articles following the instructions provided on the Secretary of Commonwealth’s website.
The articles form on the Secretary of Commonwealth’s website does not include language required by the IRS to obtain tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, you'll need to have certain 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, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Make sure you include the federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your Massachusetts nonprofit corporation.
Before you file your articles of organization, you’ll need to have bylaws that comply with Massachusetts 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 Massachusetts. Your bylaws do not need to be filed with the Massachusetts Corporations Division -- they are your internal operating manual. The specific rules regarding bylaw provisions for nonprofits in Massachusetts are set forth in M.G.L. 180, Sec. 6A.
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 of the meeting.
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 Massachusetts 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 Massachusetts state tax exemptions.
Once your corporation has its IRS 501(c)(3) exemption, it is eligible for an exemption from Massachusetts state income taxes. To qualify, you must send a copy of the IRS exemption letter to the Corporate Exemptions Division of the Department of Revenue. You will need to file additional forms with the Department of Revenue to obtain local property tax and state sales tax exemptions. See the Massachusetts Department of Revenue website for information on how you can obtain state tax exemptions for your nonprofit.
3. Other state reporting and registration requirements.
Depending on your activities and the size of your organization, you may need to register with the Massachusetts Attorney General before doing any fundraising activities. Check the Massachusetts's Attorney General website for information and rules about fundraising by nonprofits.