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 an Alabama nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Alabama. Here are the details.
To form a nonprofit in Alabama, first you need to form a nonprofit corporation under Alabama state law (Alabama Code, Title 10A, Chapter 3).
In Alabama, you must have three or more directors on your board.
In Alabama, you must file a name reservation request form with the Secretary of State before you file your certificate of formation. You must include the name reservation certificate you receive back from the Secreatary of State with the certificate of formation you file to create your nonprofit. To check if your proposed name is available, follow the instructions on the name reservation request form.
You create your nonprofit entity by filing a certificate of formation for a nonprofit with the Alabama Secretary of State. As of May 2020, the filing fee is $100. Your certificate of formation must include basic information such as:
The Alabama Secretary of State has a fillable nonprofit certificate of formation form on its website which you can use to create your nonprofit corporation. Complete and file your certificate of formation following the instructions provided. See AL Code § 10A-1-3.05 and 10A-3-3.02 for more information on the certificate of formation requirements.
The certificate of formation form available from the state has the minimal information necessary to create a nonprofit in Alabama. 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 certificate, including:
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 certificate of formation you create.
Before you file your certificate of formation, you’ll need to have bylaws that comply with Alabama 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 Alabama. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
Your first board meeting is usually referred to as the organizational meeting of the board. The board should take such actions as:
After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board.
You should set up a corporate records binder for your nonprofit to hold important documents such as your certificate of formation, 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).
An EIN is a unique tax identification number for your business, which you will need before you can submit your federal and state tax exemption applications. You can submit the free application online, via the IRS website.
You do not need a state-wide business license to operate your nonprofit in Alabama. However, many counties and towns require business licenses, depending on the types of goods or services you will offer. Check with your county's licensing commission to determine the requirements for your nonprofit.
Now that you have created your nonprofit corporation, you can obtain your federal and Alabama state tax exemptions. Here are the steps you must take to obtain your tax-exempt status:
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.
Once your nonprofit receives 501(c)(3) tax-exempt status from the IRS, you are automatically eligible for exemption from Alabama’s income tax. For information and filing requirements for exemptions from this and other state taxes such as sales and use tax and property taxes, check with the Alabama Department of Revenue.
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 Office of the Attorney General for information and forms about fundraising and registration requirements for nonprofits. The state does not require nonprofits to file an annual report, but if you have a charitable solicitation registration, you must renew it annually.