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 North Dakota nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of North Dakota. Here are the details.
Form Your North Dakota Nonprofit Corporation
First, you need to form a nonprofit corporation under North Dakota state law (North Dakota Century Code (“NDCC”) Chapter 10-33).
1. Choose the initial directors for your nonprofit
In North Dakota, you must have at least three directors on your board. In addition, your directors must all be individuals.
2. Choose a name for your North Dakota nonprofit corporation
The name of your nonprofit corporation cannot be the same as, or deceptively similar to, the name of any other business entity authorized to do business in North Dakota. Your name need not contain the word "company", "corporation", "incorporated", "limited", and it may not contain the words "limited liability company," "limited partnership," "limited liability partnership," "limited liability limited partnership," or any abbreviation of those words. See NDCC 10-33-10 for more information on name restrictions for nonprofits.
To see if your proposed name is available, you can search the North Dakota business name database.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the North Dakota Secretary of State. Your articles of organization must include basic information such as:
- your nonprofit’s name
- the name of your registered agent or noncommercial registered agent in accordance with state law requirements
- the address of the principal executive office
- the name and address of each incorporator
- the effective date of the incorporation, and
- a statement that the corporation is incorporated under state law.
The Secretary of State has a fillinable articles of incorporation form for nonprofits on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided on the Secretary of State’s website. You can file your articles by mail or fax.
The articles form available from the state has the minimal information necessary to create a nonprofit in North Dakota. 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 to have certain additional specific language in your articles, 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 North Dakota nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with North Dakota 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 North Dakota. Your bylaws do not need to be filed with the state -- they are your internal operating manual. See NDCC 10-33-26 for more information on what to include in your bylaws.
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:
- electing directors (if not named in the articles)
- 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 that accurately record the actions taken by the board.
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 North Dakota 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 North Dakota state tax exemptions.
Upon receiving your 501(c)(3) tax-exempt status from the IRS, your nonprofit is automatically exempt from state income tax. For information and filing requirements for exemptions from other state taxes, including sales and property tax, see North Dakota’s Tax Agency 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 state before doing any fundraising activities. Check the Secretary of State’s website for information and rules about fundraising and registration requirements for nonprofits.