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 New Mexico nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of New Mexico. Here are the details.
Form Your New Mexico Nonprofit Corporation
First, you need to form a nonprofit corporation under New Mexico state law (Chapter 53-8 of the New Mexico Statutes).
1. Choose the initial directors and officers for your nonprofit
In New Mexico, your nonprofit corporation must have three or more directors. The initial directors must be named in your articles of incorporation.
2. Choose a name for your New Mexico nonprofit corporation
The name of your nonprofit corporation cannot be the same as, or confusingly similar to, the name of any other nonprofit or for-profit corporation existing or authorized to do business in New Mexico. To see if your proposed name is available, you can search the New Mexico business name database on the Secretary of State’s website.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the New Mexico Secretary of State. Your articles of organization must include basic information such as:
- your nonprofit’s name
- its duration
- its purpose
- any provisions relating to the nonprofit’s internal affair, including distribution of assets on dissolution
- the address of its initial registered office and the name of its initial registered agent at that address
- the names and addresses of the persons who will serve as initial directors
- the name and address of each incorporator.
The Secretary of State has a fillinable nonprofit articles of incorporation form on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided on the Secretary of State’s website.
The articles form on the state's website does not include language required by the IRS to obtain your 501(c)(3) federal tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, you'll need to have certain 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 activitiy, 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 both the state and federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your New Mexico nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with New Mexico 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 New Mexico. 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 of the meeting.
6. Set up a corporate records binder
You should set up a corporate records binder for your nonprofit to hold important document 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 New Mexico 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 New Mexico state tax exemptions.
Once you obtain federal 501(c)(3) tax-exempt status from the IRS, your nonprofit is automatically exempt from New Mexico Corporate Income Tax and Franchise Tax. For exemptions from other state taxes and filing requirements, see the New Mexico Taxation and Revenue Department website.
3. Other state reporting and registration requirements.
Depending on your activities and the size of your organization, you may need to register with the New Mexico Attorney General before doing any fundraising activities. Check the Attorney General’s website for information and rules about fundraising and registration requirements for nonprofits.