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 Colorado nonprofit corporation, then you apply for tax-exempt status from the IRS and the state of Colorado. Here are the steps you need to take.
In Colorado, your nonprofit corporation must have one or more directors.
The name of your nonprofit corporation cannot be the same as the name of another nonprofit corporation on file with the Colorado Secretary of State. To see if your proposed name is available, you can search Colorado Secretary of State business name database. An available name may be reserved for 120 days by filing a Statement of Reservation of Name with the Colorado Secretary of State. The form must be filed online at the Secretary of State website.
Every Colorado 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 Colorado, not a post office box. Small nonprofit corporations typically name a director or officer to serve as the initial agent. A different agent can always be named later. The agent must consent to the appointment.
Your corporation is legally created by filing Articles of Incorporation for a Nonprofit Corporation with the Colorado Secretary of State. The articles must include:
To ensure that you’ll receive 501(c)(3) tax-exempt status when you apply with the IRS, you must include in the articles:
The online articles form on the Colorado Secretary of State’s website does not contain the tax-exempt language required by the IRS. You must add it to the form yourself. You can add the dissolution clause in Section 7, Distribution of Assets, which includes a large blank space to be filled in. The other clauses can be added as an attachment in the "Additional information" section. You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II).
The articles must be filed online at the Secretary of State's website; paper articles are not accepted. It costs $50 to file the Colorado nonprofit articles of incorporation online.
You’ll need to prepare bylaws that comply with Colorado 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 Colorado. For more information, see Nolo’s article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes or, for help creating your bylaws, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo). Your bylaws do not need to be filed with the Colorado Secretary of 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, minutes of the meeting should be created. Set up a corporate records binder to hold the corporation's articles, bylaws, consent forms, minutes and other important documents. For more information, as well as minutes forms, consent forms, and other resolutions, see Nonprofit Meetings, Minutes & Records, by Anthony Mancuso (Nolo).
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, contact your county and city clerk's office. For state-wide licenses and permits, see the Colorado Office of Economic Development License Database and the Colorado Department of Regulatory Agencies.
Colorado nonprofit corporations must file a Periodic Report with the Colorado Secretary of State each year. The report is due during the three-month period beginning with the first day of the corporation's anniversary month of formation. If you sign up for the Business Division’s email notification service, an email notice that a Periodic Report is due will be sent at the beginning of the three-month period for filing the Periodic Report on time. The report must be filed online at the Secretary of State's website.
Now that you have created your nonprofit corporation, you can obtain your federal and Colorado 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.
Upon receipt of your 501(c) determination letter from the IRS, your organization is automatically exempt from Colorado corporate tax. However, you must file an application with the Colorado Department of Revenue to obtain an exemption from state sales taxes. Contact local taxing authorities for exemptions from local sales and property taxes.
Depending on your activities and the size of your organization, you may need to register with the Colorado attorney general before doing any fundraising activities. Check with Colorado's Secretary of State's Charities and Fundraisers website for forms and information. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman (Nolo).