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 Rhode Island nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Rhode Island. Here are the details.
Form Your Rhode Island Nonprofit Corporation
First, you need to form a nonprofit corporation under Rhode Island state law (Section 7-6-34 of the General Laws of Rhode Island (“GL”)).
1. Choose the initial directors for your nonprofit
You must have at least three directors on your board in Rhode Island. Your initial directors are named in your articles and need not be residents of Rhode Island.
2. Choose a name for your Rhode Island nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of any entity, name reservation, or registration on file with the Secretary of State. To see if your proposed name is available, you can search Rhode Island’s online business name database or you can call the Secretary of State.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the Rhode Island Secretary of State. Your articles of organization include basic information such as:
- the nonprofit’s name
- its duration
- its purpose or purposes
- any provisions regarding the regulation of its internal affairs
- the address of its initial registered office, and the name of its initial registered agent at the address
- the number of directors constituting the initial board of directors, and their names and addresses
- the name and residence or business address of each incorporator
See GL §7-6-34 for additional information about your articles.
The Secretary of State has a fillinable articles of incorporation form for nonprofits on its website which you can use to create your nonprofit corporation. You can also file your articles online. Complete and file your articles following the instructions provided.
The articles form on the Secretary 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 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 both the state and federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your Rhode Island nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with Rhode Island 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 Rhode Island. 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 that accurately record the actions taken by the board.
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 Rhode Island 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 Rhode Island state tax exemptions
To obtain an exemption from sales and use tax, you will need to file an application with the Department of Revenue, Division of Taxation. Check with the Rhode Island Department of Revenue for information on 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 Department of Business Regulation for information and forms about registration requirements for nonprofits in Rhode Island.