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 Oregon nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Oregon. Here are the details.
Form Your Oregon Nonprofit Corporation
First, you need to form a nonprofit corporation under Oregon state law (Oregon Revised Statutes (“ORS”), Chapter 65).
1. Choose the initial directors for your nonprofit
Oregon requires that you have a minimum of three individuals serve as directors for a public benefit nonprofit corporation. (Religious and mutual benefit nonprofits can have only one director.)
2. Choose a name for your Oregon nonprofit corporation
The name of your nonprofit corporation must be distinguishable from the name of any other business entity on record with the Secretary of State. It also must be distinguishable from the name of any other type of business entity on record at the time of filing. Your nonprofit’s name cannot contain the words “cooperative” or “limited partnership.” See ORS 65.094 for information on other name restrictions.
To see if your proposed name is available, you can search the Oregon business name database on the Secretary of State’s website.
3. Prepare and file your nonprofit articles of organization
You create your nonprofit entity by filing a certificate of incorporation with the Oregon Secretary of State. Your articles of organization will include basic information such as:
- your nonprofit’s name
- whether your nonprofit is a public benefit corporation, mutual benefit corporation, or religious corporation
- the address, including street and number, of your nonprofit’s initial registered office and the name of its initial registered agent at that location
- the name and address of each incorporator
- an alternate corporate mailing address (the nonprofit’s principal office)
- whether or not your nonprofit will have members, and
- provisions regarding the distribution of assets on dissolution.
See ORS 65.047 for additional provisions you may want to include in your articles. Your incorporator can be an individual 18 years of age or older, or a domestic or foreign corporation, a partnership or an association.
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 with the form. You can file by mail or online through the Secretary of State’s website.
The articles form on the Secretary of State’s website includes optional language regarding distribution of assets on dissolution. Be sure to include this language in the articles you create; it is required by the IRS to obtain 501(c)(3) tax-exempt status. 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.
4. Prepare bylaws for your Oregon nonprofit corporation
Before you file your articles of organization, you’ll need to have bylaws that comply with Oregon 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 Oregon. 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:
- electing directors (if not named in your 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 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 Oregon 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 Oregon state tax exemptions.
Nonprofits who receive 501(c)(3) tax-exempt status from the IRS are generally exempt from Oregon’s income tax. For information and filing requirements for exemptions from other state taxes, including sales or use and property taxes, check with Oregon’s tax agency.
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. The Attorney General’s office has information and forms about fundraising and registration requirements for nonprofits.