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501(c)(3) Creation Preparation

Applying for 501(c) (3) status, can appear to be a daunting tasks, but it is one that can be done with the right help.

If you are in the United States, you need to file various forms for the 501(c)(3) designation from the IRS. Form 1023 itself is up to 28 pages long. With the required attachments, schedules and other materials that may be necessary, it is not uncommon for these submissions to the IRS to be up to 100 pages. Think of Form 1023 as an IRS examination. Instead of an audit of a tax return, the 501(c)(3) application process is more like an audit of proposed (and/or previous) activity. It is a thorough examination of the organization’s governing structure, purpose and planned programs. The IRS is looking to make sure that the organization is formed for exclusively 501(c)(3) purposes and that its programs are designed to fulfill these stated purposes. In addition, the IRS is looking closely for conflicts-of-interest and the potential for benefit to insiders, both possible grounds for denial.

Understanding Fiscal Sponsorship

One way of starting a nonprofit without money is by using a fiscal sponsorship. A fiscal sponsor is an already existing 501(c)(3) corporation that will take a new organization “under its wing" while the new company starts up. The sponsored organization (you) does not need to be a formal corporation.

A fiscal sponsor is basically when a nonprofit organization provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects for the new non-profit.

Why Consider A Fiscal Sponsorship

Fiscal sponsorship is often used by newly formed nonprofits that need to raise money during the start-up phase, before they are recognized as tax-exempt by the IRS. Using a fiscal sponsor enables a program or organization that does not itself qualify as tax-exempt to attract funding for its operations that will -- through the fiscal sponsor - be tax-deductible to donors. Therefore fiscal sponsor arrangements benefit organizations or programs that are not tax-exempt by providing a flow-through pathway for revenue that the organization may not otherwise be in a position to receive.

Donors are not able to claim a tax deduction unless they itemize deductions and donate to an organization that is recognized by the IRS as tax-exempt pursuant to IRS Code Section 501(c)(3). See IRS Publication 557.

Additional information on Fiscal Sponsorship.

How Can 3LS Global Help

Form a Nonprofit in 10 Steps

  1. Choose a name

  2. Write you mission statement

  3. File Articles of Incorporation

  4. Apply for your IRS tax exemption

  5. Apply for a state tax exemption

  6. Prepare bylaws

  7. Prepare the Conflict of Interest Policy

  8. Appoint directors

  9. Hold a board meeting

  10. Obtain licenses and permits

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