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 Rhode Island nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Rhode Island. Here are the details.
First, you need to form a nonprofit corporation under Rhode Island state law (Section 7-6-34 of the General Laws of Rhode Island (“GL”)).
You must have at least three directors on your board in Rhode Island. Your initial directors are named in your articles and need not be residents of Rhode Island.
The name of your nonprofit corporation must be distinguishable from the name of any entity, name reservation, or registration on file with the Secretary of State. To see if your proposed name is available, you can search Rhode Island’s online business name database or you can call the Secretary of State.
You create your nonprofit entity by filing a certificate of incorporation with the Rhode Island Secretary of State and paying the $35 filing fee (as of July 2020). Your articles of organization include basic information such as:
See GL §7-6-34 for additional information about your articles.
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. You can also file your articles online. Complete and file your articles following the instructions provided.
The articles form on the Secretary of State’s website does not include language required by the IRS to obtain tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, you'll need to have additional specific language in your articles, including:
For more information on IRS requirements for tax exemption, 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.
Before you file your articles of organization, you’ll need to have bylaws that comply with Rhode Island 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 Rhode Island. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
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, be sure to create minutes that accurately record the actions taken by the board. 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).
An EIN is a unique tax identification number for your nonprofit, which you will use on the organization's state and federal tax returns, bank account, and other government filings. The nonprofit must have an EIN before you can submit your federal and state tax exemption applications. To obtain an EIN, submit the free application via the IRS website.
Rhode Island does not require nonprofits to obtain statewide business licenses. However, depending on your location and your services, you might need one or more specialized licenses or permits. Check with the Department of Business Regulation and your city's licensing board to determine the requirements for your organization.
To keep your nonprofit in good standing, you must file a one-page annual report with the Secretary of State, which will confirm or update basic information about the organization such as the address and registered agent. Submit the report each year during the submission window of June 1-30. You may complete the report online or mail in a copy.
Now that you have created your nonprofit corporation, you can obtain your federal and Rhode Island 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.
To obtain an exemption from sales and use tax, you will need to file an application with the Department of Revenue, Division of Taxation. Check with the Rhode Island Department of Revenue for information on requirements for exemptions from other state taxes.
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 the Department of Business Regulation for information and forms about registration requirements for nonprofits in Rhode Island.