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 Pennsylvania nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Pennsylvania. Here are the details.
First, you need to form a nonprofit corporation under Pennsylvania state law (Pennsylvania Consolidated Statutes, Title 15, Chapters 51-59 ("PCS")).
You must have at least one director on your board in Pennsylvania. Directors must be at least eighteen years old but need not be residents of Pennsylvania.
The name of your nonprofit corporation must be distinguishable from the name of all other Pennsylvania corporations, foreign corporations, limited partnerships, limited liability companies, and limited liability partnerships on record with the Department of State. To see if your proposed name is available, you can search Pennsylvania’s online business name database.
The name of a nonprofit corporation may (but is not required to) contain:
the word “corporation,” “company,” “incorporated” or “limited” or an abbreviation;
the word “association,” “fund” or “syndicate; or
Every Pennsylvania 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 Pennsylvania, 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.
You legally establish your nonprofit corporation by filing a certificate of incorporation with the Pennsylvania Department of State, Bureau of Corporations and Charitable Organizations. Your articles of organization must include:
Your incorporator can be a for profit or not-for-profit corporation or an individual 18 years of age or older.
The Department of State has a fillable 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.
The articles form from the state has the minimal information necessary to create a nonprofit in Pennsylvania. However, to receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
The Pennsylvania articles form does not contain these required clauses. You must add them to the form yourself. You may add the required language for the purpose clause in the blank space for paragraph 3 on the articles form. The prohibited activities and dissolution clauses should be added as an attachment to the articles.
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 articles may be filed online or by postal mail. The filing fee is $125.
When you file your articles with the state, you also file a Docketing Statement (DSCB:15-134A). It is a short form that asks for some basic information about your nonprofit. The Department of State has a fillable Docketing Statement form with instructions on its website.
Under Pennsylvania law, the incorporators or the nonprofit (as applicable) must advertise their intent to file or the actual filing of articles of incorporation in two newspapers of general circulation; one newspaper should be a legal journal, if possible. The Department of State has a geographical listing of legal publications to use. You do not file proof of advertising with the state; instead, keep evidence that you complied with this requirement in your minutes.
Before you file your articles of organization, you’ll need to have bylaws that comply with Pennsylvania 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 Pennsylvania. 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 where the corporation's primary office is located (or county if it is in an unincorporated area). For state license information, consult the Pennsylvania Business One-Stop Shop.
Now that you have created your nonprofit corporation, you can obtain your federal and Pennsylvania state tax exemptions. Here are the 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 Pennsylvania state corporate income tax. To obtain an exemption from sales tax in Pennsylvania, your nonprofit corporation must file Form REV-72 with the Pennsylvania Department of Revenue. Contact local taxing authorities for exemptions from local sales and property taxes.
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities in the state. Check with the Bureau of Corporations and Charitable Organizations for information and forms about registration requirements for nonprofits in Pennsylvania. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.