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 D.C. corporation, and then you then apply for tax-exempt status from the IRS and the District of Columbia. Here are the details.
1. Choose who will be on the founding board of directors for your nonprofit corporation.
In the District of Columbia, a nonprofit corporation must have three or more directors.
2. Choose a name for your D.C. nonprofit corporation.
The name of your nonprofit corporation cannot be the same as the name of another nonprofit corporation on file with the District of Columbia Department of Consumer & Regulatory Affairs. To see if your proposed name is available, you can search D.C.'s name database at http://mblr.dc.gov/corp/index.shtm.
3. Prepare and file your nonprofit articles of incorporation.
You will need to create and file nonprofit articles of incorporation with the office of D.C.'s Department of Consumer & Regulatory Affairs. The articles of incorporation need 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 D.C. Department of Consumer & Regulatory Affairs should have a nonprofit articles of incorporation form -- either a fill-in-the-blank form or a sample on which you can base your articles. 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 when your nonprofit ends.
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 articles comply with D.C.'s nonprofit laws.
4. Prepare bylaws for your D.C. nonprofit corporation.
You'll need to prepare bylaws that comply with D.C. 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 the District of Columbia. 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 D.C. Department of Consumer & Regulatory Affairs -- 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 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).
Now that you have created your nonprofit corporation, you can obtain your federal and District of Columbia 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 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 District of Columbia tax exemption
Once you have your federal tax exemption, you need to obtain your District of Columbia tax exemption. This may include exemptions from income, property, sales, and other state taxes. D.C.'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 D.C. attorney general before doing any fundraising activities. Check with the D.C. attorney general's website at http://dcra.dc.gov/dcra/site/default.asp for their 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 D.C.