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America's First Choice for Nonprofit Startup and Compliance

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When Foundation Group launched in 1995, we were the first specialty firm in America dedicated exclusively to starting nonprofits and helping them to stay compliant with state and federal regulations.

20 years later, we're still going strong!  In fact, our client base continues to grow exponentially every year...and we've never been more committed to bringing our clients the expertise they need to see their vision come to pass.  Simply put, we love what we do and we're passionate about doing it with excellence!

We were the first...and we've never stopped leading!  Call us and see why we are America's first choice for nonprofit startup and compliance services.

How to Start a Nonprofit

Nonprofit Blocks

Helping people start nonprofit organizations is one of the most important things we do at Foundation Group.  In fact, we have helped over 14,000 organizations get started since 1995.  The following is really more of an overview than an exhaustive examination.

Why Do You Want to Start a Nonprofit?

Before we get into the “how” of establishing a 501(c)(3) – or other nonprofit – let’s first look at the “why”.  We get a lot of interesting answers when we ask prospective clients that question, ranging from totally clueless to totally clued-in.  Most are somewhere in between.  Whether it is an after-school tutoring program, a food bank or a church, the answer usually involves people wanting to provide a service or program to other people who need it.

What Types of Organizations Can Be a 501(c)(3)?

Not all ideas qualify for 501(c)(3) status.  The IRS requires nonprofits to be organized for the following purposes to qualify:  religious, educational, charitable (benevolence), scientific, literary, testing for public safety, fostering of national or international amateur sports, or prevention of cruelty to animals and children.  Even if a proposed organization’s program matches one of the above categories, that alone is not enough.  Neither the activities nor the assets of the organization can “inure” to the benefit of insiders.  In other words, organizational leaders cannot unfairly direct the resources of the charity to their own benefit.

What Are the Technical Requirements?

This is the “how”.  Starting a 501(c)(3) usually involves a two-step process:  1) incorporating a nonprofit organization and, 2) applying to the IRS for recognition of tax-exemption.  While it is possible to skip the incorporation process, that is not advisable.  Let’s look at these steps a little more closely:

1) Incorporation.  Forming a corporation involves the creation a legal entity.  While for-profit corporations are owned by their shareholders, nonprofit corporations do not have owners.  Both types are typically governed by a board of directors.  Corporations are created at the state-level by filing a formation document, usually called Articles of Incorporation.

2) IRS tax-exemption.  Once the corporation is formed, obtaining 501(c)(3) status involves the preparation and filing of IRS Form 1023, an exhaustive document that can range from 20 to more than 100 pages of documentation.  Going through the IRS 501(c)(3) process is best described as a cross between preparing a detailed business plan and enduring an IRS audit.  It is not an easy process, nor one that should be entered into lightly.  It takes most organizations between 6-12 months to be approved (assuming they qualify).  And though it may sound self-serving to say so, this is not typically a do-it-yourself process.  It’s best left to a professional.

We’ll explore the concept of fiscal sponsorships or fiscal agencies in an upcoming post, but let’s just say that you may wish to avoid them.  These setups are frequently pushed by recruiters who get paid referral fees for signing people up and are typically not favored by the IRS.  The theory is that you can establish a 501(c)(3) “project” under the fiscal sponsor that allows you to get all the benefit of a 501(c)(3), but shortcut the administrative headaches of setting up a real organization.  The reality is not that simple.  If you want to start a 501(c)(3) organization, consider starting a real one.

Are There Other Things That Must Be Done?

As we sometimes jokingly say, “There’s always something else.”  Sales tax exemption, property tax exemption, and charitable solicitation permits are among the things that many organizations need to explore once they achieve 501(c)(3) status.  From an ongoing compliance standpoint, the annual filing of IRS Form 990 is an inescapable reality.

A Final Word

If it sounds like there is a lot to starting a nonprofit, there is!  But, nonprofits represent an indispensible element of our nation’s social fabric.  There are things that nonprofits can accomplish that no company or government agency can come close to.  And in this age of recession, layoffs and slashed social services budgets, nonprofits are needed now more than ever.  It has been our distinct pleasure for the last 20 years to serve those who serve others.  We look forward to doing so for many years to come.

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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Greg
Guest

I guess this may sound self serving, but lets say I have an Idea for a non-profit. How do I protect the idea from simply being stolen by someone else. At the end of the day, we will want to be effective in our goals, but will still need to provide a living for those employed by the organization.

Thanks.
Greg

Mongzeung Mpom
Guest

Dear Greg
IRS 501(c) (3) is it also applicable to Indian Non- Profit organisation?

Mongzeung Mpom

David
Guest
Greg: A small group of us are setting up a 501(c)(3) here in Colorado. The board has spent a lot of time hammering things out and we think we’re ready to file our IRS 1023 form, but we have one roadblock. One officer (and board member) has done most of the preliminary work and she alone is expected to be employed full-time with the non-profit’s business. She will be paid modestly for this. As we get going, there will be a “ramping-up” period when revenues are minimal but growing. Do you have suggestions regarding the structuring of her salary during… Read more »
Chris Frederick
Guest

Hi Greg,

If I have a non-profit legalized in another country is there a way to expedite the legal process here in the U.S. in order to become a U.S. 501c3?

Thank you,
Chris Frederick

Tim
Guest
Hi Greg, Thank you for all this information.. I have spent hours just reading everything you have written. I am waiting for the decision to get my 501c3 status. I have worked countless hours and spent into the over 3000 thus far just to get to this point. It seems to me, a lot of people think “oh I will “just open” a non-profit org” it simply isn’t that easy. I am lucky as I can devote my entire life to this as I have no “responsibilities” other than this. My question to you is: I am starting up a… Read more »
Janine
Guest

Hey Greg,

Just want to know if it is possible for a nonprofit to be organized under ‘Religious’ AND ‘Charitable’? And are nonprofits the only businesses that are their own entity? Can for profit businesses be the same? I am in the “idea” phase of this whole thing and I am trying to get all the facts and get organized before I actually start the process. Who would you recommend me getting help from? (lawyer, accountant etc.?) Thank you!

Paul E. Sevin
Guest

Greg,
I founded an organization in which I present flags to families of service men and women in the military. This is usually done at the church they attend, or other venue which they deem appropriate. Currently, I am paying all expenses for these events myself. I’m OK with that and my hopes are to have people donate to this cause as it progresses. One thing that would be a great benifit is if I could deduct the event costs that I currenntly pay for. Would setting up my organization as a 501-C foundation help me with this issue?

Carmen
Guest

Hello,
I am in the beginning stages of trying to set up a non-profit organization. My question is: Do I have to wait for the 501c3 to be approved before I can begin getting donations and grants to get started?

Stephen
Guest

Hi Greg,
Here’s an unusual one for you. We are trying to save costs by paying an employee a small base salary, but in addition we would like to give him something else to supplement. Currently we have some tasks that we bill by the hour for clients and are considering paying him hourly for working with clients on just these special projects. Would that be considered non-linear? His compensation would be a set hourly rate, not a “percentage of revenue” of these projects.

Nancy
Guest

Greg,

Is there anyway I can offer a tax donation for donated used clothes without having to incorporate into a 501(c)(3)?

Eric Joseph
Guest
I have quick question. I am setting up a foundation called “The Holla Foundation” which main pupose is to pursue justice and mercy for the black male. We will be educating colleges, companies, churches and community leaders on what how to understand and empower black boys and black men. We will be raising funds across the country to fund #1 our Holla If You Hear Me Tour and #2 to fund organization we feel our doing the best the job at meeting needs of black boys and black men. I want to set-up a non-profit 501(c)3, not sure how I… Read more »
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Successfully Starting a New Nonprofit
  • Defining Your Nonprofit's Purpose
  • Nonprofit Ownership
  • Board of Directors
  • Executive Compensation
  • Fundraising & Compliance Basics