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 Pennsylvania nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Pennsylvania. Here are the details.
Form Your Pennsylvania Nonprofit Corporation
First, you need to form a nonprofit corporation under Pennsylvania state law (Pennsylvania Consolidated Statutes, Title 15, Chapters 51-59 ("PCS")).
1. Choose the initial directors for your nonprofit
You must have at least one director on your board in Pennsylvania. Directors must be at least eighteen years old but need not be residents of Pennsylvania.
2. Choose a name for your Pennsylvania nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of all other Pennsylvania corporations, foreign corporations, limited partnerships, limited liability companies, and limited liability partnerships on record with the Department of State. To see if your proposed name is available, you can search Pennsylvania’s online business name database or you can call or write the Department of State.
For more information on name restrictions, including what makes a name distinguishable, see the Department of State website.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the Pennsylvania Department of State, Bureau of Corporations and Charitable Organizations. Your articles of organization include basic information such as:
- the nonprofit’s name
- the address, including street and number, of your initial registered office in the state
- a brief statement of the nonprofit’s purpose
- a statement that the nonprofit is one which does not contemplate pecuniary gain or profit
- a statement that the corporation is incorporated under the provisions of the Nonprofit Corporation Law of 1988
- a statement as to whether or not the nonprofit will have members and additional information related to membership
- the name and address, including street and number of each of the incorporators
- the term for which the nonprofit will exist, and
- the effective date of the articles if required.
See PCS §5306 for additional information about your articles. Your incorporator can be a for profit or not-for-profit corporation or an individual 18 years of age or older.
The Department of State has a fillinable articles of incorporation form for nonprofits on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided with the form.
The articles form on the Department of State’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 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 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 tax-exempt required language in the articles you create.
4. File a Docketing Statement with your articles
When you file your articles with the state, you also file a Docketing Statement (DSCB:15-134A). It is a short form that asks for some basic information about your nonprofit. The Department of State has a fillinable Docketing Statement form with instructions on its website.
5. Comply with Pennsylvania’s advertising requirement
Under Pennsylvania law, the incorporators or the nonprofit (as applicable) must advertise their intent to file or the actual filing of articles of incorporation in two newspapers of general circulation. The Department of State has a list of preferred legal journals to use. You do not file proof of advertising with the state; instead, keep evidence that you complied with this requirement in your minutes.
6. Prepare bylaws for your Pennsylvania nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with Pennsylvania 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 Pennsylvania. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
7. 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 your 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.
After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board.
8. 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 Pennsylvania 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 Pennsylvania state tax exemptions
To obtain an exemption from sales tax in Pennsylvania, you will need to file Form REV-72 (available on the Department of Revenue website). Check with the Department of Revenue for filing requirements for exemptions from other state taxes.
3. Other state reporting and registration requirements
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. Check with the Bureau of Corporations and Charitable Organizations for information and forms about registration requirements for nonprofits in Pennsylvania.