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 an Illinois not-for-profit corporation. Then you apply for tax-exempt status from the IRS. Here are the details.
In Illinois, your nonprofit corporation must have three or more directors. You must have at least one incorporator and the incorporator can be an individual (age 18 or older) or a corporation (domestic or foreign).
The name of your not-for-profit corporation must be distinguishable from the name of any business entity on file with the Illinois Secretary of State. To see if your proposed name is available, you can search Illinois's corporate name database on the Illinois Secretary of State's website. You can also write or call the Secretary of Stateʼs office in Springfield to find out if a name is available. You may reserve a name for up to 90 days by filing an Application for Reservation of Name (Form NFP 104.10). The filing fee is $25.
Although not required, the name may contain the words "corporation," "incorporated," "company," "limited," or an abbreviation of one of those. The name must end with the letters "NFP" if the corporate name contains any word or phrase that indicates or implies that the corporation is organized for any purpose other than a purpose authorized under the Illinois General Not For Profit Corporation Act. The name may not contain the words “regular democrat,” “regular democratic,”“regular republican,” “democrat,” “democratic,” “republican,” or the name of any other established political party, unless consent is given by the State Central Committee of the established political party.
Every Illinois 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 Illinois, 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 create and file not-for-profit articles of incorporation with the Illinois Secretary of State's office. The articles of incorporation must include:
The Illinois Secretary of State has a fillable not-for-profit articles of incorporation (Form NFP 102.10) on its website which you can use to form your not-for-profit Illinois corporation. You may not file your articles online.
The fillable articles form on the Secretary of State’s website has the minimal information necessary to create a nonprofit in Illinois. It does not include language required by the IRS to obtain 501(c)(3) federal tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
You'll need to add these clauses to your articles yourself. You can add the purpose clause in the blank space in Article 4. You can add the prohibited activities and dissolution clauses in Article 5, which is for "other provisions." You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II).
For more information on IRS requirements for tax exemption, including sample language, consult How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo). For more information on preparing your Illinois not-for-profit articles, see A Guide for Organizing Not-for Profit Corporations (Form C 165) available on the Illinois Secretary of State's website.
You'll need to prepare bylaws that comply with Illinois 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 Illinois. Your bylaws do not need to be filed with the Illinois Secretary of 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, 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 state business license. For local licenses, check with the clerk for the city where the nonprofit's primary office is located (or county if it is in an unincorporated area). For state licenses, check the Illinois Department of Commerce First Stop Business Information Center.
All nonprofit corporations in Illinois must file an annual report with the Secretary of State. The report is due each year prior to the first day of the corporation's anniversary month (the month in which it was organized). For example, if your corporation was created on July 15 then your report would be due by July 1. The report can be filed online or by mail with Form 114.05. The filing fee is $10.
Now that you have created your nonprofit corporation, you can obtain your federal IRS and Illinois 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 exempt from Illinois income tax. You do not need to file any documents to obtain the exemption.
Some not-for-profit corporations may qualify for an exemption from state sales taxes. To find out if your nonprofit qualifies, write a letter of request to the Illinois Department of Revenue, Sales Tax Exemption Section, and enclose photocopies of your articles of incorporation, bylaws, IRS exemption letter, or any other document that may help in determining your status. Check the Illinois Department of Revenue website for more information.
Depending on your activities and the size of your organization, you may need to register with the Illinois Attorney General before doing any fundraising activities. Check the Illinois Attorney General's website for rules and information about fundraising registration requirements. For more information about fundraising registration requirements in all 50 states, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.