Nonprofits embody the best of our country and play a crucial role in creating successful and thriving communities.
State and federal governments recognize the contributions of nonprofits to society, so nonprofits (when properly formed) enjoy two benefits:
First, the nonprofit is tax-exempt. Second, for nonprofits organized as corporations, the individual trustees or board members generally are not personally liable for debts of the nonprofit.
The key to maximizing the advantages of nonprofit status rests with proper registration and formation. The nonprofit entity, if a corporation, must follow Texas law for corporation formation. Then the nonprofit registers with Texas for tax-exempt status. Finally, registration for tax-exempt status with the IRS is necessary.
We’ll assume that you’re pursuing a corporate nonprofit for the sake of an example here.
The first step involves forming a nonprofit corporation in compliance with state law. This requires complying with the business entity formation procedures (discussed in more detail below).
Second, the nonprofit applies for tax exemption from the federal government and then from the state(s). However, it’s important to note that confirmation of exemption status can take several months.
The person or persons creating the nonprofit first apply as an incorporated nonprofit, which involves:
Details for filing the Certificate of Formation are available from the Texas Secretary of State’s website.
In most cases, the nonprofit can file a Form 1023-EZ to apply for recognition as a tax-exempt organization. To submit the form, you register for an account on Pay.gov, enter “1023-EZ,” and complete the form.
The application asks for information to confirm your non-profit status including:
After completing the federal application, the next step is to apply for state tax exemption.
The nonprofit generally files the appropriate form, usually an AP-204 or AP-205, with the Texas Comptroller of Public Accounts. The Comptroller’s office will review the nonprofit’s corporation status with the Texas Secretary of State to verify the nonprofit’s purpose (charitable works). If the application is approved, the applicant will receive a notification letter.
If you’re involved in a nonprofit, you work hard for the betterment of others and our society. The government encourages this by providing tax-exempt status and limited liability.
However, without proper formation and registration with both Texas and the IRS, these advantages won’t be available. Even worse, you’ll be significantly hindered while pursuing your nonprofit’s goals
Starting a nonprofit raises several questions right away. Will it be a public charity or a private foundation? Will it be a corporation or not? Our expert business attorneys at Carson Law can assist you in answering these critical questions.
Don’t stumble through the process on your own.