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 Tennessee nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Tennessee. Here are the details.
First, you need to form a nonprofit corporation under Tennessee state law (Tennessee Code Annotated, Title 48, Chapters 51-68 (“TCA”)).
You must have at least three directors on your board in Tennessee. All directors must be natural persons. You must have at least one incorporator.
The name of your nonprofit corporation must be distinguishable from the name of any existing for-profit or nonprofit corporation, limited liability company, limited partnership, limited liability partnership, assumed name, and any name that has been reserved or registered for use with the Secretary of State.
To see if your proposed name is available, you can search Tennessee’s online business name database or you can call the Division of Business Services at the Secretary of State’s office. The Secretary of State’s website has business name availability guidelines with additional information about name requirements and distinguishability.
You may reserve a name for four months by filing an Application for Name Reservation (Form ss-9425) with the Tennessee Secretary of State. The reservation may be filed online or by postal mail. The filing fee is $20.
Every Tennessee 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 Tennessee, 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 (charter) with the Tennessee Secretary of State. Your charter must include:
The Secretary of State has a fillable charter form for nonprofits on its website which you can complete and file online. Alternatively, you can print out the charter after completing the form and file by postal mail. You can also download and complete a Charter-Domestic (nonprofit) (Form ss-4418) form by hand and file by mail. The filing fee is $100.
To receive 501(c)(3) tax-exempt status from the IRS, your corporation must have certain specific language in its articles, including:
a statement of purpose that meets IRS requirements
statements that your nonprofit will not engage in activities unrelated to its exempt purposes or in prohibited political or legislative activity, and
a dissolution clause dedicating the corporation's assets to another 501(c)(3) organization or to the government upon dissolution.
The charter form on the Secretary of State’s website does not include the prohibited activities or dissolution clauses. You can add these clauses in the blank "Other Provisions" section in the charter forms. 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).
Before you file your articles of incorporation, you’ll need to have bylaws that comply with Tennessee 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 Tennessee. 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 county and city clerks for the location of the nonprofit's office. For state license information, check the Tennessee Smart Start guide.
All Tennessee nonprofit corporations must file an annual report with the Tennessee Secretary of State and pay a $20 filing fee. Annual reports are due on or before the first day of the fourth month following the corporation's fiscal year closing. For example, if your corporation's fiscal year closes on June 30, your annual report is due by October 1. If your fiscal year is the calendar year, the report is due by April 1. Annual reports may be filed online or by postal mail.
Now that you have created your nonprofit corporation, you can obtain your federal and Tennessee state tax exemptions. Here are the additional 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.
Nonprofit corporations are automatically exempt from franchise and excise taxes in Tennessee. To obtain an exemption from sales and use tax, you must file an application with the Tennessee Department of Revenue. See the Tennessee Sales and Use Tax Guide for information on how to apply for exemptions from these 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 the Tennessee Secretary of State website for information and forms about registration requirements for nonprofits in Tennessee. For more information about fundraising registration requirements, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.