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 Massachusetts nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Massachusetts. Here are the details.
First, you need to form a nonprofit corporation under Massachusetts state law (Chapter 180 of the Massachusetts General Laws ("M.G.L")).
In Massachusetts, your nonprofit corporation must have one or more directors. In addition, you are required to name your president, treasurer, and clerk in your articles of organization.
The name of your nonprofit corporation cannot be the same as, or deceptively similar to, the name of any other existing corporation or other entity authorized to do business in Massachusetts. To see if your proposed name is available, you can search the Massachusetts name database on the Secretary of the Commonwealth of Massachusetts website. You may reserve a name for 60 days by filing an Application for Reservation of Name. The filing fee is $30. The reservation can be extended by an additional 60 days by paying an additional $30 fee before the initial 60 day period expires.
In Massachusetts, your nonprofit corporation name must include "Limited," "Incorporated," "Corporation," or an abbreviation thereof.
Every Massachusetts 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 Massachusetts, 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 corporation, you must create and file nonprofit articles of organization with the Corporations Division of the Massachusetts Secretary of the Commonwealth. Massachusetts requires that your articles include:
The incorporator who signs the articles of organization must be at least 18 years old.
To receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
The Secretary of the Commonwealth has a fillable articles of organization form on its website which you can use to create your Massachusetts nonprofit corporation. It does not contain the three clauses required by the IRS, but includes spaces in which you can add them. The purpose clause can be added in Article II; and the prohibited activities and dissolution clauses can be added in Article IV. You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II). Make sure you include the required tax-exempt language in the articles you create.
For more information on IRS requirements for tax exemption, including sample language, consult How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
You can file your articles online or by mail, fax, or hand delivery. Complete and file your articles following the instructions provided on the Secretary of Commonwealth’s website. There is a $35 filing fee, $40 for online filings.
Before you file your articles of organization, you’ll need to have bylaws that comply with Massachusetts 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 Massachusetts. Your bylaws do not need to be filed with the Massachusetts Corporations Division -- they are your internal operating manual. The specific rules regarding bylaw provisions for nonprofits in Massachusetts are set forth in M.G.L. 180, Sec. 6A.
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 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, check with the city in which the nonprofit's primary office is located (or county if it is in an unincorporated area). For state licenses, check the Commonwealth of Massachusetts business licenses web page.
Every Massachusetts non-profit corporation must file a non-profit annual report with the Corporations Division on or before November 1st of each year. The report may be filed online or the form may be filed by postal mail. The filing fee is $15.
Now that you have created your nonprofit corporation, you can obtain your federal and Massachusetts 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 corporation has its IRS 501(c)(3) exemption, it is eligible for an exemption from Massachusetts state income taxes. To qualify, you must register your nonprofit online with the Massachusetts Department of Revenue. You must supply a copy of your nonprofit's IRS exemption letter.
To obtain an exemption from Massachusetts sales taxes, you must apply for a Certificate of Exemption (Form ST-2) from the Department of Revenue. You must apply on online through MassTaxConnect. See the Mass.gov Sales and Use Tax Guide for more information.
To apply for exemptions on local property taxes, you must fill out an application supplied by your local assessor. Submit this form to your local assessor with a copy of the IRS exemption letter. Some local assessors automatically grant exemptions if the IRS does; others may not do so without further investigation. For more information, see the Taxpayer's Guide to Local Property Tax Exemptions.
Depending on your activities and the size of your organization, you may need to register with the Massachusetts Attorney General before doing any fundraising activities. Check the Massachusetts's Attorney General website for information and rules about fundraising by nonprofits. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman (Nolo).