So You Want To Start a Nonprofit – Part 2

By: Pete Kennedy, CPA

“How do I start a nonprofit?” is a question I get asked with some frequency and the answers might not be what you expect. If you are considering starting a nonprofit, there are a number of factors to consider. We’ve put together a four-part series of posts and accompanying videos to provide you with a baseline of information as it relates to key considerations to setting up a nonprofit, steps to setting up a nonprofit, selecting the appropriate tax exempt status, and, finally, obtaining exempt status.

Part 2: Steps to setting up a nonprofit

  1. Form a corporation: This needs to be done correctly to avoid problems later and is probably not the kind of thing you want to do yourself.

If you’re forming a Delaware corporation, you need to be registered with the Delaware Secretary of State.  Delaware is one of the very few states where you do not have significant ongoing compliance obligations as a nonprofit. Other states have additional qualifications to become registered, annual filing requirements and financial statement audit / review requirements.

There are certain clauses the IRS will be looking for in your Articles of incorporation. If you’re filing the long form 1023, you are required to send a copy of the Articles and bylaws. On the 1023 EZ form, you will need to attest that these clauses are present. You can learn more about form 1023 in Part 4 of this series.

  • Obtain an IRS employer identification number (EIN): A word of caution here. When you google “how do I get an EIN” you’ll get four or five commercial websites that promise “easy one-page filing”; 24 hour support; get your EIN today. Don’t fall for these – they are all rip offs!

In reality, anyone can navigate through the IRS page and apply for the EIN themselves. Don’t fall for the third party routine or you’ll be paying $$ and getting zero value. Click here to access the IRS site to apply for an EIN.

Many people think that once they have their EIN, they are immediately recognized by the IRS as a tax-exempt entity. Unfortunately, that is not true. You must now apply to the IRS for official recognition as a tax-exempt entity.

Other topics covered in this four-part series:

Part 1: Key Considerations to Setting Up a Nonprofit

Part 3: Understanding Nonprofit Tax Exempt Status Types

Part 4: Obtaining Tax Exempt Status

Pete Kennedy is a Director at Cover & Rossiter and is one of the leaders of our Audit practice. He has developed an expertise in nonprofit accounting, auditing and tax issues and is privileged to work with many of the region’s leading institutions.

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