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 Vermont nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of Vermont. Here are the details.
First, you need to form a nonprofit corporation under Vermont state law (Title 11B of the Vermont Statutes Annotated).
In Vermont, you must have at least three directors on your board.
The name of your nonprofit corporation cannot be the same as or similar to, or likely to be confused with, another corporation or business name already registered with the Secretary of State. In addition, the name must include the word "corporation," "incorporated," "company," or "limited," or the abbreviation "corp.," "inc.," "co.," or "ltd" and you cannot use the word "cooperative" or an abbreviation of that word in your name. To see if your proposed name is available, you can search the Vermont Corporations Database Keyword search on the Secretary of State’s website.
You create your nonprofit entity by filing a certificate of incorporation with the Vermont Secretary of State and paying the $125 filing fee (as of July 2020). Your articles of organization must include basic information such as:
The Secretary of State has an online portal to allow you to create and submit your articles of incorporation. Complete and file your articles following the instructions provided. Be sure to include the language required by the IRS to obtain 501(c)(3) tax-exempt status. For tax-exempt status, the IRS requires:
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.
Before you file your articles of organization, you’ll need to have bylaws that comply with Vermont 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 Vermont. 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).
Apply for an EIN via the IRS website. An EIN is a unique tax number for your nonprofit, which you will use on your state and federal tax returns, exemption applications, bank accounts, and other government filings. The application is free, and you will receive your EIN immediately if you submit your application online.
You do not need a statewide business license to operate a nonprofit in Vermont. However, your town your county might require one or more licenses or permits. Check with your local licensing department for details.
To keep your nonprofit in good standing, you must renew your organization every two years by filing a biennial report with the Secretary of State. Your first report is due the year following your initial registration, and then every two years by April 1. You may submit your report online.
Now that you have created your nonprofit corporation, you can obtain your federal and Vermont 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 obtain your federal 501(c)(3) tax-exempt status from the IRS, your nonprofit is eligible for certain state tax exemptions. For information and filing requirements for exemptions from income, property, sales, and other state taxes, check with Vermont’s Department of Taxes.
If your nonprofit has paid fundraisers, you are required to register with the state before doing any fundraising activities. Check the Attorney General’s website for information and rules about fundraising and registration requirements for nonprofits in Vermont.