How to Run Your Own 501(c)(3)

By Christine Funk, J.D.

How to Run Your Own 501(c)(3)

By Christine Funk, J.D.

Creating and running a tax-exempt nonprofit organization under section 501(c)(3) of the Internal Revenue Code requires thought, careful consideration, and planning. It is not as simple as merely filling out a form or declaring oneself a nonprofit, as there are nearly 30 different types that may be created under United States tax codes.

Graphics surrounding the words "non-profit organization"

Follow these steps to start a nonprofit organization and run it successfully.

1. Identify your goals.

Not every nonprofit can claim status under section 501(c)(3). Rather, section 501(c)(3) is designed for charities which focus on any of the following purposes:

  • Charitable
  • Educational
  • Fostering national or international amateur sports competition
  • Literary
  • Preventing cruelty to children or animals
  • Religious
  • Scientific
  • Testing for public safety

"Charitable" is a term defined by the Internal Revenue Service (IRS) as including:

  • Relief of the poor, the distressed, or the underprivileged
  • Advancement of religion
  • Advancement of education or science
  • Erecting or maintaining public buildings, monuments, or works
  • Lessening the burdens of government
  • Lessening neighborhood tensions
  • Eliminating prejudice and discrimination
  • Defending human and civil rights secured by law
  • Combating community deterioration and juvenile delinquency

If your goals fit within these limitations, you may qualify for 501(c)(3) status.

2. Establish your nonprofit.

After determining whether the intended purpose of your organization qualifies for nonprofit status, your organization needs a name and a board of directors. Select your board of directors with care because this is not merely a figurehead position. The board of directors makes strategic and financial decisions about the organization and must ensure the nonprofit complies with federal and state laws.

Once you have established a purpose, name, and board of directors for your organization, you need to file articles of incorporation providing this information to your state. Your articles of incorporation should also include guiding principles that serve as a roadmap for your board of directors. File the paperwork in your state with the state agency that regulates businesses.

3. Create bylaws.

After filing the articles of incorporation, it is time to create the bylaws of the nonprofit. Bylaws are internal rules and procedures that dictate certain aspects of how the nonprofit will run. Your bylaws should reflect the intent of the board members, who should participate in their creation. Rules and procedures included may cover:

  • How the board functions
  • How often the board meets
  • How grant money is spent
  • Other important considerations

You do not need to file your bylaws with the state or the IRS, but they should comply with any state-specific requirements.

4. Apply for tax-exempt status.

Once you have completed the necessary paperwork with the state, you can apply for tax-exempt status with the IRS. Filing an Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (Form 1023) allows you to provide the information necessary, such as your charitable purpose, assets, and salaries of your employees. You must also commit to distributing any assets to another tax-exempt organization if your nonprofit dissolves.

5. Maintain compliance with state and federal laws.

In order to keep your tax-exempt status, you must comply with state and federal laws. This includes filing reports with both the state and the IRS, holding regular board meetings, and recording the minutes of those meetings.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.