How to apply for 501(c)(3) status
Starting a nonprofit can feel like assembling a puzzle: there are multiple pieces, and each has to fit in the right place. One of the most common points of confusion for new founders is understanding the difference between forming a nonprofit corporation under state law and applying for tax-exempt status from the IRS.
These are two separate legal steps — both essential to creating a compliant, recognized organization. State formation gives your nonprofit legal life; IRS recognition makes it eligible for the tax benefits and donor confidence that come with federal exemption.
This post walks through both processes in order: first, how to establish a nonprofit corporation under state law, and then how to apply for federal tax exemption through the IRS.
Step One: Formation Under State Nonprofit Corporation Law
Why Incorporate?
Incorporation is the first formal act of nonprofit creation. It’s the process of filing Articles of Incorporation with your state’s corporations division (often within the Secretary of State’s office). Incorporation matters because it:
Creates a separate legal entity. Your organization can own property, open bank accounts, and enter contracts in its own name.
Limits personal liability. Directors and officers are generally not personally liable for the nonprofit’s debts or obligations.
Provides a governance framework. The law requires certain structural safeguards—like a board of directors and bylaws—that promote accountability.
Is required for IRS recognition. The IRS only grants tax exemption to entities that are organized and operated exclusively for exempt purposes.
Key Steps in Formation
Choose a name. Confirm that your nonprofit’s name is available in your state’s business database and complies with naming rules (for example, most states restrict terms like “foundation” or “trust”).
Draft and file Articles of Incorporation. The Articles are the organization’s foundational document. Every state requires basic elements—name, purpose, registered agent, incorporator, and sometimes the initial board. Note: the Articles must include IRS-required language (a charitable purpose clause and a dissolution clause)!
Appoint your initial board and adopt bylaws. The board of directors governs the organization and ensures compliance with legal duties. The bylaws set out internal operating rules—such as how meetings are held and officers are elected.
Obtain an EIN (Employer Identification Number). Even if you will not have employees, you’ll need an EIN to open a bank account and file IRS forms.
Register with the state Attorney General or charities bureau. Most states require charitable organizations to register before soliciting donations. In some states (like New York and California), this step occurs soon after incorporation.
Note: Check your state’s charitable registration rules early. If you plan to fundraise publicly or accept online donations, you may need to register in multiple states.
Step Two: Applying for Federal Tax-Exempt Status
Once your nonprofit corporation exists at the state level, the next step is to apply for federal tax exemption with the Internal Revenue Service.
This process determines whether your organization qualifies under one of the sections of the Internal Revenue Code — most commonly, Section 501(c)(3) for charitable, educational, or religious organizations.
Understanding the Options
While “501(c)(3)” is the most familiar category, readers of this newsletter know that the Code recognizes many types of nonprofits. For example, trade associations, chambers of commerce, and social welfare organizations may qualify under other sections like 501(c)(4) or 501(c)(6).
For charitable organizations, there are three main application forms:
Form 1023: the standard application for 501(c)(3)s. Required for organizations with over $50k in annual revenue or over $250k in assets;
Form 1023-EZ: a streamlined 501(c)(3) application. Only for those U.S.-based organizations with less than $50k annual revenue and $250k in assets;
Form 1024/1024-A: For other exempt types (501(c)(4), (c)(6), etc.
Note: The 1023-EZ may seem appealing, but eligibility is narrow. Many groups—especially those with multiple programs, complex funding, or international components—must file the full Form 1023.
Preparing the Application
A strong IRS application shows that your organization is both organized and operated for exempt purposes. It also helps the process move faster, meaning you may receive recognition sooner. You’ll need to provide:
A narrative description of activities. Explain what your organization does, who it serves, and how your programs achieve your mission.
Financial information. Include a current or projected budget for the next three years.
Organizing documents. Attach your Articles of Incorporation (with IRS-required clauses) and bylaws.
Public charity or private foundation classification. Most new §501(c)(3) organizations are classified as public charities, but those funded primarily by a small group of donors or a family may be private foundations.
Beyond the IRS: State and Local Considerations
After receiving federal exemption, most organizations must still complete one or more additional state filings.
State income or sales tax exemption. Many states require a separate application to extend federal tax-exempt status to state taxes.
Charitable solicitation registration. Before fundraising, confirm registration or renewal requirements with your state Attorney General’s office.
Annual reporting. Nonprofits must typically file both an IRS Form 990 (or 990-EZ/990-N) and a state annual report to maintain good standing.
Note: Failing to file required reports can lead to loss of exemption or corporate dissolution—even for well-intentioned organizations.
When to Seek Legal Help
While many founders can handle the basics of formation, legal guidance becomes valuable when:
Your organization operates in multiple states or across borders.
You’re unsure how to structure governance or draft compliant Articles.
You plan to engage in advocacy, political activity, or fee-for-service programs.
You’re choosing between 501(c)(3) and another exemption type, like 501(c)(4) or (c)(6).
Working with a lawyer experienced in nonprofit formation can help ensure that your organization starts on a solid foundation — compliant, credible, and ready to serve its mission.
A nonprofit’s legal journey starts at the state level and continues through the IRS. Each step—formation, exemption, and registration—serves a different purpose, but together they create the legal infrastructure your mission will depend on.
If you’re planning to start a charitable organization, taking the time to get these steps right is one of the best investments you can make in its future.