Creating a nonprofit organization, especially a Section 501(c)(3) organization, can be a daunting task. If you do not know what you are doing, you are most likely going to get lost in the paperwork, the process, and the extensive steps necessary to get a nonprofit organization created. However, some basic tips are available to give taxpayers a heads-up before a taxpayer starts to create a nonprofit organization.
First, a Section 501(c)(3) organization must be organized as a corporation, trust, or unincorporated association. A taxpayer cannot create a Section 501(c)(3) organization without first creating one of the above listed entities. Also, the organization’s organizing documents must limit the organization’s purpose to those described in Section 501(c)(3) and to not expressly permit activities that do not further its exempt purposes.
Second, the Section 501(c)(3) organization must have a substantial portion of its activities further its exempt purposes. However, certain activities are prohibited from occurring by the organization, such as the following:
- Cannot participate in political campaigns of candidates for local, state, or federal offices
- Must restrict its lobbying activities to an insubstantial part of its total activities
- Must ensure that its earnings do not inure to the benefit of any private shareholder or individual
- Must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose
- Cannot have purposes or activities that are illegal or violate fundamental public policy
Third, the Section 501(c)(3) organization must have one or more exempt purposes that are stated in its organizing documents. The following list of exempt purposes are generally allowed for Section 501(c)(3) organizations: (1) charitable, (2) educational, (3) religious, (4) scientific, (5) literary, (6) preventing cruelty to children or animals, and (7) testing for public safety.