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 Arizona nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Arizona. Here are the details.
To form a nonprofit in Arizona, first you need to form a nonprofit corporation under Arizona state law.
In Arizona, you must have at least one director on your board.
The name of your nonprofit corporation must be distinguishable from the name of other business entities on file with the Arizona Corporation Commission. For more information on name restrictions for nonprofits, see the Corporation Commission website and Instructions C011i to Articles of Incorporation – Nonprofit Corporation.
Names may be checked for availability by searching the Arizona Corporation Commission business name database. An available name may be reserved for 120 days by filing an Application to Reserve Limited Liability Company Name with the Arizona Corporation Commission (available on the Corporation Commission website). The form may be completed and filed online or by postal mail. The filing fee is $10 if done by mail or $45 if performed online ($10 filing fee plus $35 expedite fee).
Every Arizona nonprofit corporation must have an agent for service of process in the state. This is an individual or corporation that agrees to accept legal papers on the corporation's behalf if it is sued. The agent must have a physical street address in Arizona, not a post office box. Small nonprofit corporations typically name a director or officer to serve as the initial agent. The agent must consent to the appointment.
To legally establish your nonprofit corporation, you must file articles of incorporation for a nonprofit with the Arizona Corporation Commission. The Arizona Corporations Commission requires that your articles of incorporation include:
To receive tax-exempt status from the IRS, you'll need to have additional specific language in your articles, including:
There is a articles of incorporation form for nonprofit corporations on the Corporation Commission's website. This form has the minimal information necessary to create a nonprofit corporation in Arizona. It does not include language required by the IRS to obtain 501(c)(3) federal tax-exempt status or have space to add it, so it should not be used. You need to create your articles yourself including the IRS-required clauses. You can use the articles of incorporation form as a guide and add the three required clauses to it. Add each as a separate article. You can find sample language for these clauses approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II).
You can electronically file a copy of your articles through the Corporation Commission's eCorp application. This requires you to input the data in your articles and then upload the pdf copy of your articles. Alternatively, you can file by postal mail. The filing fee is $60.
You must submit a Statutory Agent Acceptance form M002 and a Certificate of Disclosure when you file your articles with the Corporation Commission. If you electronically file through eCorp, you will complete and file the certificate of disclosure online. If you file by mail, you must also include a Cover Sheet Form CFCVLR.
Within 60 days after filing your articles, you're required to publish a Notice of Incorporation three times with a newspaper in the county in which your LLC is located. Expect to pay a fee of $60 to $200 for such publication. A list of newspapers that can publish your notice is posted here.
This newspaper publication requirement does not apply if your corporation is located in Maricopa or Pima counties—in this event, you may publish your Notice at the Arizona Corporations Commission website. The approval letter you will receive from the Arizona Corporation Commission after your articles are accepted will contain information on how to publish.
Before you file your articles of incorporation, you'll need to have bylaws that comply with Arizona 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 Arizona. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
For more information on bylaws, see Nolo's article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes. For help creating your bylaws, see Nolo's book How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
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.
Your nonprofit corporation must obtain a federal employer identification number (EIN). You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.
Depending on the type of activities your nonprofit intends to carry on and where it is located, it may need to obtain a local and/or state business license or permit. For local licenses, check with the clerk for the city or town where the nonprofit's primary office is located (or county if it is in an unincorporated area). For state license information, check the Arizona Department of Commerce Licensing Guide.
Every Arizona non-profit corporation must file an annual report each year with the Arizona Corporation Commission so the information on file about your organization is kept up to date. The report is due by the anniversary date of your corporation's formation. The report may be filed online or by postal mail. The filing fee is $10.
Now that you have created your nonprofit corporation, you can obtain your federal and Arizona 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 a nonprofit receives 501(c)(3) tax-exempt status from the IRS, it should be automatically exempt from Arizona income tax. However, your nonprofit may need to file an application with the Arizona Department of Revenue to obtain an exemption from state sales and use taxes. For details, see the Department of Revenue Nonprofit and Qualifying Healthcare web page.
Arizona repealed its charitable solicitation registration laws in 2013 so nonprofits are no longer required to register to solicit or fundraise in the state. However, Arizona nonprofits that solicit or receive donations in other states may have filing and reporting obligations in those states. For more information about fundraising registration requirements in all 50 states, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.