Most nonprofits are 501(c)(3) corporations, 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 Tennessee corporation, then you then apply for tax-exempt status from the IRS and the State of Tennessee. Here are the details.
1. Choose who will be on the founding board of directors for your nonprofit corporation.
In Tennessee, a nonprofit corporation must have three or more directors.
2. Choose a name for your Tennessee nonprofit corporation.
The name of your nonprofit corporation cannot be the same as the name of another nonprofit corporation on file with the Tennessee Department of State. To see if your proposed name is available, you can search Tennessee's name database at www.state.tn.us/sos/bus-svc/corporations.htm.
3. Prepare and file your nonprofit charter.
You will need to create and file a nonprofit charter with the Tennessee Department of State. The charter needs to include basic information such as your nonprofit's name, your nonprofit's statement of purpose, certain provisions required for state and federal tax-exempt purposes, and the name and address of your registered agent (the person to whom legal notices should be sent).
The Tennessee Department of State should have a nonprofit charter form -- either a fill-in-the-blank form or a sample on which you can base your charter. To ensure that you'll receive 501(c)(3) tax-exempt status when you apply with the IRS, you'll need to include specific language to ensure that you'll receive tax-exempt status, such as a clause dedicating the nonprofit's assets to another 501(c)(3) nonprofit organization should your nonprofit end. Your state form may include these provisions already, but if yours doesn't, consult a legal self-help guide such as How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo), to make sure your charter complies with Tennessee's nonprofit laws.
4. Prepare bylaws for your Tennessee nonprofit corporation.
You'll need to prepare bylaws that comply with Tennessee 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 Tennessee. For more information, see Nolo's article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes, or, for help creating your bylaws, see Nolo's book How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo). Your bylaws do not need to be filed with the Tennessee Department of 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, minutes of the meeting should be created.
6. Set up a corporate records binder.
You should set up a corporate records binder for your nonprofit to hold important document such as your charter, 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).
Now that you have created your nonprofit corporation, you can obtain your federal and Tennessee state tax exemptions. Here are the three 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, you need to complete and file IRS Form 1023 with the IRS. 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 more information, see Nolo's article How to Obtain 501(c)(3) Tax-Exempt Status for Your Nonprofit, or for line-by-line instruction on how to complete the form, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
2. Obtain your Tennessee state tax exemption
Once you have your federal tax exemption, you need to obtain your Tennessee state tax exemption. This may include exemptions from income, property, sales, and other state taxes. Tennessee's tax agency will have a form you need to file to obtain your state tax exemption.
3. Other state reporting and registration requirements
Depending on your activities and the size of your organization, you may need to register with the Tennessee attorney general before doing any fundraising activities. Check with the Tennessee attorney general's website at www.state.tn.us/sos/charity/co-info.htm for additional rules, or for more information about fundraising registration requirements, see Nonprofit Fundraising Registration: The 50-State Guide, by Stephen Fishman (Nolo).
That's it! That's all it takes to become a Section 501(c)(3) tax-exempt nonprofit corporation in Tennessee.
Last updated on 03/08/2011.