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 Virginia nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Virginia. Here are the details.
Form Your Virginia Nonprofit Corporation
To form a nonprofit corporation in Virginia, you need to form a nonstock corporation under Virginia state law (Title 13.1, Chapter 10 of the Virginia Code).
1. Choose the initial directors for your corporation
In Virginia, you must have one or more directors on your board.
2. Choose a name for your Virginia nonprofit corporation
The name of your nonprofit corporation must be distinguishable from any name that has been designated, registered, or reserved for use by another business entity in Virginia and the names of all active business entities on file with the Virginia State Corporation Commission.
To see if your proposed name is available, you can check with the Clerk’s Office at the Virginia State Corporation Commission or you can search Check Name Distinguishability on its website. You can reserve a name which will prevent another nonprofit or business from registering the name while you prepare and file your articles.
See Virginia Code §13.1-829 for more information on name restrictions for nonprofits.
3. Prepare and file your nonstock articles of incorporation
You create your nonprofit entity by filing articles of incorporation for a nonstock corporation with the Virginia State Corporation Commission. Your articles of incorporation must include basic information such as:
- your nonprofit’s name
- whether your nonprofit will have members
- how directors will be elected
- information regarding the corporation’s initial registered agent
- the nonprofit’s initial registered office address
- the name and address of the initial director or directors (if named in the articles), and
- the name of each incorporator.
The Virginia State Corporation Commission has an articles of incorporation form for a nonstock corporation on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided. Nonprofits must mail in their articles to the state; they cannot use the online filing service to file articles of incorporation.
The articles form available from the state has the minimal information necessary to create a nonprofit in Virginia. It does not include language required by the IRS to obtain 501(c)(3) federal tax-exempt status. To receive 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 nonprofit 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, including sample language, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Make sure you include the tax-exempt language required by the IRS in the articles you create.
4. Prepare bylaws for your Virginia nonprofit corporation
Before you file your articles of incorporation, you’ll need to have bylaws that comply with Virginia 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 Virginia. 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
- electing directors (if not named in your articles)
- 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 Virginia 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 Virginia state tax exemptions.
Nonprofits who receive 501(c)(3) tax-exempt status from the IRS are automatically exempt from Virginia’s income tax. For information and filing requirements for exemptions from other state taxes, including sales and use tax, check with the Virginia Department of Taxation.
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. The Virginia Department of Agriculture and Consumer Services, Office of Consumer Affairs, has information and forms about fundraising and registration requirements for nonprofits.