Getting your ministry or organization 501c3 tax exempt status on the cheap.

I want to depart from the normal content briefly and give some tips on achieving tax exempt status for your organization. When I first realized that I was going to have to go through this process I was terrified. There was no way I wanted to deal with the IRS or the NC Secretary of State. To be sure, there is a certain intimidation factor to government applications, especially when they are asking for a tax break! What I want to give you here are some good resources that will make the process easier and cheaper. Cheaper is the key word. By far the easiest way to get your organization up and running is by hiring a lawyer skilled in tax code and law. However, if you are like me, and perhaps many non-profit organizations, you don't have mountains of money to sink into the process. My goal was to spend as little as possible and do whatever I could on my own. Yes, this led to many stressful moments and perhaps some mistakes but, at the end of the day Number 156 Ministries was granted 501c3 status with only minor speed bumps. Without any further adieu, let me walk you through the basic steps and give some resources and comments along the way.

* Step 1 assumes you have an idea of what your organization is going to be and what it is going to be called.  

Before you begin you may want to purchase a copy of Nonprofit Kit for Dummies. It is clear and gives you some very basic guidance in the process.

1. Set up a board of directors for your organization. I actually skipped this step initially and ended up having to set one up anyway. The IRS really likes to see that YOU are not the only one running the show. If you are it looks suspiciously like you are setting up a non-profit for personal gain and that is a sure-fire way to be denied 501c3 status. Our board consists of 7 members including myself as the "President" of the organization. Legally, I am just another member of the board. That is, I am not the Chairman of the board or any other officer. As scary as it may seem, that means I could be removed and the ministry could exist without me. That is why it is crucial that you select an initial board that is made up of people who share your vision and passion for the cause your are addressing.

2. Create, ratify and file Articles of Incorporation and Organizational By-Laws. In our state, NC, filing articles of incorporation is as simple as filling out a two page application and sending the Secretary of State $60. No further by-laws are required but they will be essential when filing with the IRS so it would be wise to go ahead and get them in place. Here is a link to some clear and helpful sample bylaws. There are also some samples and guidelines in the resource I will share later on. This is one place where I had an unfair advantage. Both my father and step-mother are law professors and so when I got the bylaws ready I sent them to them to look over and give feedback. Here is my recommendation if you don't have familial access to legal professionals, look for friends or acquaintances who have experience in this area and see if they would look things over for you. It is cheaper than hiring a lawyer and just as good. There are some things that the IRS is going to look for but this is YOUR organization!

3.Have your first board meeting and keep minutes. You probably have already done this if you've completed point #2 but make sure you keep a record of the meeting: who was there, what you voted on, etc. You will need to send this with your application to the IRS. This is also a good time to have some kind of estimated budget for the organization. It will be required for Form 1023. It doesn't have to be actual or exact at this point but the IRS is going to want to see some kind of estimate.

4. Fill out IRS Form 1023. This can be found here. This is where the rubber meets the road and the stress level can increase exponentially. It is 30 pages of good times. At this point I highly recommend purchasing a copy of this ebook:

It will take you through the entire process, step by step. The authors also take you through form 1023 line by line and tell you what to put and give you guidelines for writing the attachments that the IRS requires. If I could recommend one thing it would be this book because it will allow you to become tax exempt without hiring a lawyer (assuming your case does not become overly complicated). There are even times in the book when they give a scenario and if you fit into it they will recommend seeking legal council. My policy with this form was pure honesty and simplicity. I believe it is better to be upfront about some things to ward off any problems in the future.

5. Answer the IRS' follow-up questions. About a month after sending the application I received a letter asking for some clarification about certain things in the bylaws. The funny part was, the questions were all on portions of the bylaws where I diverged from the recommendations in the above ebook! I was able to resolve the issues in a matter of days through email correspondence with my board members and then send the revisions back to the IRS. Then, 6 weeks later we had our determination letter!!

6. File appropriate documents with the Secretary of State. This is going to differ from state to state but makes sure and find out what steps must be taken in your state. We were required to file for a Charitable Solicitation License and exemption from state unemployment taxes. With the IRS your determination letter is evidence that you do not have to pay FUTA up to a certain threshold.

The total cost for this entire process for our ministry was about $1000 which included the $800 filing fee with the IRS. If you want to start of non-profit organization my guess is you have a mission, vision or cause that is important to you. Don't let the process scare you away from taking the steps to see your vision become a reality. If I can do it, then anyone can and you can do it on a shoe-string budget. It will take some time and effort and you will have to learn more about tax code than you ever wanted to but it will be worth it. Finally, please feel free to ask me any questions about our process of becoming tax-exempt and I will do my very best to help you out.



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