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 York nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of New York. Here are the details.
Form Your New York Nonprofit Corporation
First, you need to form a nonprofit corporation under New York state law (the Not-For-Profit Corporation Law (“NPCL”)).
1. Choose the initial directors and officers for your nonprofit
In New York, your nonprofit corporation must have at least three directors. Directors must be at least 18 years old, with certain exceptions for nonprofits involved in youth activities.
2. Choose a name for your New York nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of any other corporation, limited liability company, or limited partnership already on file with the Department of State. To see if your proposed name is available, you can search the New York business name database on the Division of Corporation’s website, or you can submit a written request to the Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231. Your written inquiry should state that you wish to determine the availability of a name and list the names to be searched.
In New York, the name of a nonprofit must contain one of the following words (unless an exemption applies): “Incorporated,” “Corporation,” or “Limited,” or one of the following abbreviations: “Inc.,” “Corp.,” or “Ltd.” You cannot use certain words and phrases in your nonprofit’s name and others may be used only with written approval from the appropriate state agency. (See NPCL §§301 and 404.)
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the New York Department of State. Your certificate of incorporation must include basic information such as:
- your nonprofit’s name
- what type of nonprofit you are forming (Type A, B, C, or D); (See NPCL §201; Type B and C only may be formed for 501(c)(3) purposes)
- the county where the nonprofit's office will be located
- the names and addresses of the initial directors
- the nonprofit's duration if other than perpetual
- a designation of the secretary of state as agent for service of process and the post office address to which the secretary of state should mail a copy of any process served on it as agent for the nonprofit
- if you are going to have a registered agent, the agent’s name and address and a statement that the registered agent is to be the agent of the nonprofit,
- any other provisions regarding the regulation of the nonprofit's internal affairs, including distribution of assets on dissolution.
The incorporator must be at least 18 years old.
The Department of State has a fillinable Certificate of Incorporation form on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided on the Department of State’s website.
The articles form on the Department of State’s website has the minimal information necessary to create a nonprofit in New York. It does not include language required by the IRS to obtain 501(c)(3) tax-exempt status. To receive tax-exempt status from the IRS, you'll need 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, including sample language, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Make sure you include both the state and federal tax-exempt required language in the articles you create.
4. Prepare bylaws for your New York nonprofit corporation
Before you file your certificate of incorporation, you’ll need to have bylaws that comply with New York 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 York. 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 York 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 York state tax exemptions
Once you obtain your federal 501(c)(3) tax-exempt status from the IRS, your nonprofit is eligible for certain state tax exemptions. For information and filing requirements for exemptions from income, property, sales, and other state taxes, see the New York State Department of Taxation and Finance website.
3. Other state reporting and registration requirements
Depending on your activities and the size of your organization, you may need to register with the New York Attorney General before doing any fundraising activities. Check the Attorney General’s website for information and rules about fundraising and registration requirements for nonprofits.