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 Montana nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Montana. Here are the details.
Create Your Montana Nonprofit Corporation
1. Choose who will the initial directors on your board
In Montana, your nonprofit corporation must have three or more directors.
2. Choose a name for your Montana nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of any other business entity on file with the Montana Secretary of State. To see if your proposed name is available, you can search Montana's name database on the Secretary of State’s website.
3. Prepare and file your nonprofit articles of incorporation
You will need to create and file nonprofit articles of incorporation with the Montana Secretary of State’s office. The articles of incorporation contain basic information about your nonprofit, including:
- your nonprofit’s name
- the name and address of your registered agent
- your incorporator’s name and address, and
- information regarding what type of nonprofit you are and whether you are applying for IRS 501(c)(3) tax-exempt status.
The Secretary of State has a sample nonprofit articles of incorporation form on its website which you can use to create your Montana nonprofit corporation. The articles form includes the minimal information needed to create a nonprofit corporation in Montana. It does not include certain language required by the IRS to obtain your federal tax-exempt status.
To ensure you get 501(c)(3) tax-exempt status from the IRS, you will need to have additional specific language in your articles including:
- a statement of purpose that meets IRS requirements
- statements that your nonprofit will not engage in prohibited political or legislative activity, and
- a dissolution of assets provision dedicating your assets to another 501(c)(3) organization upon dissolution.
For more information on IRS requirements for tax exemption, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Be sure to include the additional language required by the IRS for 501(c)(3) tax-exempt status.
4. Prepare bylaws for your Montana nonprofit corporation
You'll need to prepare bylaws that comply with Montana 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 Montana. Your bylaws do not need to be filed with the Montana Secretary of State -- they are your internal operating manual.
For more information, 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).
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.
Be sure to keep minutes that accurately record your board’s actions.
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).
Obtain Your Federal and State Tax Exemptions
Now that you have created your nonprofit corporation, you can obtain your federal and Montana state tax exemptions. Here are the 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 Montana state tax exemptions
Once you have your federal tax exemption, you need to obtain your Montana state tax exemptions. In Montana, you must file a tax-exempt request form with the Department of Revenue to obtain your state tax-exempt status. Check the Montana Department of Revenue to find out how to obtain your state tax exeptions.
3. Other state reporting and registration requirements.
Montana does not require nonprofits to register with the state before soliciting contributions from state residents. You may have to register your nonprofit in other states before you engage in any out-of-state solicitations.