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 Michigan nonprofit corporation. Then you apply for tax-exempt status from the IRS. Here are the details.
First, you must form a nonprofit corporation under Michigan state law.
In Michigan, your nonprofit corporation must have at least three directors. The initial board of directors will play a key role in determining the purpose and goals for the organization.
The name of your nonprofit corporation cannot be the same as, or confusingly similar to, the name of another corporate name on file with the state. To see if your proposed name is available, you can search Michigan's name database available on the Department of Licensing and Regulatory Affairs (“LARA”) website. You may reserve a name for six months by filing an Application for Reservation of Name with LARA. The application may be postal mailed or you can file online. The filing fee is $10.
Every Michigan 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 Michigan, 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 nonprofit articles of incorporation with the Michigan Department of Licensing and Regulatory Affairs. The articles of incorporation must include the following basic information about your nonprofit:
To receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
There is a fillable articles form on the LARA website. It does not include the three clauses required by the IRS to obtain tax-exempt status. However, it has spaces in which you can add the clauses yourself. Add the purpose clause in Article II and the prohibited activities and dissolution clauses in a new Article VI at the end of the form. You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II).
The articles may be filed online or by postal mail. The filing fee is $20.
For more information on IRS requirements for tax exemption, including sample language, consult How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
You'll need to prepare bylaws that comply with Michigan 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 Michigan. Your bylaws do not need to be filed with the Michigan Bureau of Commercial Services -- 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 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 State License Search at the State of Michigan website.
Every Michigan non-profit corporation must file a non-profit annual report with the Michigan Department of Licensing and Regulatory Affairs on or before October 1st of each year beginning the year after incorporation. A preprinted annual report, CSCL/CD-2000 is postal mailed or emailed to the corporation’s resident agent at the registered office approximately three months prior to the due date. The report may be filed online or by postal mail. The filing fee is $20.
Now that you have created your nonprofit corporation, you can obtain your federal and Michigan state tax exemptions. Here are the steps you must take to get 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 you have your federal tax exemption, you are automatically exempt from Michigan state income tax. IRS exempt nonprofits are also automatically exempt from Michigan sales and use tax. To claim this exemption with each vendor/seller, submit a completed Certificate of Exemption (Form 3372), with a copy of the IRS 501(c)(3) determination letter.
See the Michigan Department of Treasury for more information on state tax exemptions for nonprofits.
Depending on your activities and the size of your organization, you may need to register with the Michigan Attorney General before doing any fundraising activities in the state. Check with Michigan's Attorney General website for registration rules. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.