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.
First, you need to form a nonprofit corporation under New Jersey state law (Title 15A of the New Jersey Statutes).
In New Jersey, your nonprofit corporation must have three or more directors.
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."
Every New Jersey 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 New Jersey, 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 file a certificate of incorporation with the New Jersey Department of the Treasury. Your articles of organization must include basic information such as:
You can complete your certificate of incorporation online through the Division of Revenue’s Online Business Formation web page.
To receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
The Division of Revenue's online form does not contain these clauses. You must add them yourself, as follows:
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).
The filing fee for online filings is $75.
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.
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 the New Jersey Online License & Certification website.
Every New Jersey non-profit corporation must file an annual report with the Division of Taxation every year. The annual report is due by the last day of the anniversary month of the corporation's formation. The report must be filed online. The filing fee is $30.
Now that you have created your nonprofit corporation, you can obtain your federal and New Jersey state tax exemptions. Here are the additional 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 you have your federal tax exemption, you are automatically exempt from New Jersey corporation business taxes. To obtain an exemption from New Jersey sales taxes, your nonprofit must file Form REG-1E with the Exempt Organization Unit of the Division of Taxation. For more information about exemptions from New Jersey state taxes, see the publication Tax Treatment of Nonprofit Organizations and Government Entities.
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. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.