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 New Jersey nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of New Jersey. Here are the details.
Form Your New Jersey Nonprofit Corporation
First, you need to form a nonprofit corporation under New Jersey state law (Title 15A of the New Jersey Statutes).
1. Choose the initial directors and officers for your nonprofit
In New Jersey, your nonprofit corporation must have three or more directors.
2. Choose a name for your New Jersey nonprofit corporation
The name of your nonprofit corporation cannot be the same as, or confusingly similar to, the name of any other existing corporation or other entity authorized to do business in New Jersey. To see if your proposed name is available, you can search the New Jersey business name database on the Division of Revenue and Enterprise Services website. In New Jersey, your nonprofit corporation name must include one of the following: "a New Jersey nonprofit corporation," "incorporated," "corporation," "inc.," or "corp."
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing organizational documents with the New Jersey Department of the Treasury. Your articles of organization must include basic information such as:
- your nonprofit’s name
- its purpose
- certain provisions related to members, if applicable
- how trustees will be elected
- the address of the nonprofit’s initial registered office and the name of the initial registered agent at that location
- the number of trustees and the names and personal addresses of the trustees
- the names and addresses of the incorporators and the personal address of each incorporator
- the duration of the corporation, and
- the method of distribution of assets upon dissolution.
The incorporator who signs the articles of organization must be at least 18 years old.
You can complete your certificate of incorporation online through the Division of Revenue’s Online Business Entity Filing. Or, you can create and mail in your own certificate. There is a New Jersey Complete Business Registration Package on the Department of Treasury website. It includes a Public Records Filing for New Business Entity which you can use to create (and mail in) your certificate of incorporation. Whatever method you choose to form your nonprofit corporation, be sure to complete and file the organizational documents following the instructions provided.
The incorporation forms on the Department of the Treasury’s website do not include language required by the IRS to obtain federal tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, you'll need to have certain additional specific language in your certificate of incorporation, including:
- a statement of purpose that meets IRS requirements
- statements that your non-profit 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. Make sure you include the tax-exempt required language in the articles you create.
4. Prepare bylaws for your New Jersey nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with New Jersey 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 New Jersey. Your bylaws do not need to be filed with the state -- 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, be sure to create minutes of the meeting.
6. Set up a corporate records binder
You should set up a corporate records binder for your nonprofit to hold important documents 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 New Jersey 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 New Jersey state tax exemptions
To obtain exemption from New Jersey corporation business tax, you need to send an exemption letter request to the New Jersey Division of Taxation with a copy of your articles, bylaws, and an affidavit stating that your corporation is a non-stock nonprofit corporation that does not operate for the pecuniary profit or benefit of any shareholder or individual. See the Division of Taxation website for details on how to submit your exemption request. For exemptions from other state taxes, including sales and use tax, see the publication, Tax Treatment of Nonprofit Organizations and Government Entities. You are not required to file a copy of your federal Form 990 with the state.
3. Other state reporting and registration requirements
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. Check with New Jersey’s Department of Law & Public Safety, Division of Consumer Affairs, for information and rules about fundraising requirements for nonprofits.