Nonprofit Compliance | February 6, 2019
PANO staff are not trained or able to assist organizations in filing paperwork to the IRS and state. We recommend consulting an attorney or accountant that specializes in nonprofits or contacting Harbor Compliance. PANO provides other assistance to members who are starting a new nonprofit organization through discounted trainings, free sample policies, etc. You can join even if your paperwork is not finalized. We recommend referring to the “Pennsylvania Nonprofit Handbook.”
If you’re passionate about helping others and have an idea to serve your community, starting a nonprofit is a great way to turn your vision into a reality. There are many different types of nonprofits – religious, educational, human service oriented, animal welfare, and more. What all nonprofits have in common is a focus on helping others and benefiting their community.
Before you start a new nonprofit, make sure you have identified an unmet need in your community and know that there are not any existing organizations serving your cause. If another organization exists, consider working together, as that may be a better way to make an impact in your community and invest existing resources. You can also consider fiscal sponsorship, in which an umbrella 501(c) organization sponsors your project. Fiscal sponsors permit your cause to receive tax-deductible donations and often handle administrative paperwork.
When you are ready to start your nonprofit, plan to incorporate and apply for 501(c) status, as these are important steps to fully achieve your goal. As an incorporated nonprofit, you limit the liability of your organization’s officers and directors. If you apply for 501(c)(3) status, you will be able to apply for grants, provide tax deduction to your donors for their contributions, and be exempt from federal corporate income tax. Most importantly, you will gain credibility and legitimacy for your cause, instilling the public with confidence in your organization.
1. Determine the Purpose of the Organization
Every organization must develop a mission statement that describes their reason for existing. This can be developed by meeting with potential clients, constituents, board members and other interested parties.
2. Determine the Structure of the Organization
There are 29 different types of nonprofits defined in the IRS code. You must determine the type of organization that you will form (e.g., a charitable corporation under 501(c)(3) or another kind of nonprofit: member or not, corporation or unincorporated, association, or trust). Do you want to be a membership organization or governed by a board of directors who elect their own successors? What interests or constituencies should be on the Board?
3. Name Your Organization
In addition to establishing your brand, this is important when incorporating with the state. The legal name of your nonprofit corporation may not conflict with any other organization registered in the state. Make sure the name is available and meets state requirements.
4. Recruit Incorporators and Initial Directors
The incorporator is the person who signs the Articles of Incorporation for your nonprofit. You will need at least one, but may have more than one. Directors make up the governing body of your nonprofit corporation and will help you transform your ideas into reality by helping establish goals and fundraising strategies. You’ll want to identify at least three board members to meet IRS requirements. Pennsylvania law requires every nonprofit corporation to have a President, Treasurer, and Secretary (i.e. officers who perform comparable duties) and a single person may hold all three offices.
5. Appoint a Registered Agent
A registered agent is a legal appointee who is responsible for receiving legal notices on behalf of your nonprofit. The registered agent is appointed as part of the process of incorporation by listing the name and address as required by the state. The appointed registered agent must be physically located in the state and maintain an office that is open during regular business hours.
6. Prepare and File Articles of Incorporation with the Department of State
Your nonprofit’s articles of incorporation officially mark the creation of your organization. They document where and when the organization was formed and capture other information necessary to verify its existence. While requirements for language vary from state to state, there are some basic provisions that the IRS will look for when you apply for 501(c)(3) exemption. It is important to customize the articles for your organization and make sure you meet both the state and IRS requirements.
In Pennsylvania, you need to file your Articles of Incorporation with the Department of State. For more information or copies of the basic forms contact:
Pennsylvania Department of State – Bureau of Corporations and Charitable Organizations
308 North Office Building | P.O. Box 8722
Harrisburg, PA 17120-0029
7. Obtain an Employer Identification Number (EIN) from the IRS
This unique, nine-digit number is assigned by the IRS to identify your nonprofit. All types of nonprofits need an EIN, not only those that hire employees. Your EIN will be used to open a bank account, apply for 501(c) status, and submit 990 returns to the IRS. It also helps when requesting a Pennsylvania sales tax exemption. You can obtain a Taxpayer Identification Number (also EIN) by filling out an SS-4 form. Contact the IRS at 1-800-829-FORM or click here for the SS-4 form.
8. Establish Initial Governing Documents and Policies
Your bylaws are the governing document for your nonprofit. They serve as your organization’s operating manual and should be consistent with your articles of incorporation and the law. You’ll also want to create and adopt a conflict of interest policy. A conflict of interest is when someone in a key position in your nonprofit has competing interests and is making choices that could benefit themselves to the harm of the organization. If a conflict of interest arises, it should be disclosed immediately. Your application to the IRS for 501(c)(3) exemption will require that both the bylaws and conflict of interest policy are approved and adopted. When your board of directors meets for the first time, you will need to review, approve, and adopt both documents. Learn more about writing bylaws in our Standards for Excellence Educational Resource Packet (free for members) and get a sample conflict of interest policy in our Standards for Excellence Educational Resource Packet (free for members)
9. Publish your Incorporation
New nonprofits are required to advertise their intention to file or the filing of the articles of incorporation with the Department one time in two newspapers in the county of the principal office. One newspaper must be a legal newspaper, if possible, designated by the Commonwealth of Pennsylvania. Proofs of publication of the advertising should not be submitted to the bureau but should be filed with the minutes of the corporation. The advertisements must contain the name of the proposed corporation and a statement that the corporation is to be or has been incorporated under the provisions of the Nonprofit Corporation Law of 1988.
10. Hold an Organizational Meeting of the Board of Directors
At the initial organizational meeting of your board of directors, you will approve the bylaws, adopt the conflict of interest policy, elect directors, appoint officers, and approve resolutions such as opening the organization’s bank account. Be sure to record such important decisions in the meeting minutes.
11. Apply for 501(c) Tax Exemption
Applying for 501(c) tax exemption is often the most complex, time-consuming and important steps in setting up a nonprofit. 501(c) is the chapter of the Internal Revenue Code (IRC) that regulates nonprofit organizations. 501(c)(3) nonprofits include charities and foundation. These nonprofits apply using Form 1023 or Form 1023-EZ. You must attach your proposed budget, Articles of Incorporation (certified), and bylaws (a true copy). Resumes of your board members are helpful as well. This application should be filed within the first 15 months of your organization’s existence. Other types of nonprofits apply using Form 1024. After reviewing and approving your application, the IRS will return a “determination letter” officially recognizing your exemption. A well-prepared application takes time, over 100 hours by IRS estimates, so prepare to invest the time or find support.
12. Filing for Pennsylvania Sales Tax-Exempt Status
To be exempt from paying sales tax you must meet the following criteria:
• Charitable Purpose: The institution must advance a charitable purpose.
• Private Profit Motive: The institution must operate ENTIRELY free from private profit motive.
• Community Service: The institution must donate or render gratuitously a substantial portion of its services.
• Charity to Persons: The institution must benefit a substantial and indefinite class of persons who are legitimate subjects of charity.
• Government Service: The institution must relive the government of some of its burden.
To request exemption from paying sales tax in Pennsylvania contact:
Pennsylvania Department of Revenue, Tax Forms Service Unit
711 Gibson Blvd.
Harrisburg, PA 17104-3200
Download Form REV-72 here.
PA Department of Revenue Resources:
• How do I get PA sales tax exemption for a non-profit organization?
• Instructions and application for sales tax exemption.
13. Register with the Pennsylvania Bureau of Corporations and Charitable Organizations
If your nonprofit is soliciting contributions from Pennsylvania residents, you must register with the Bureau of Corporations and Charitable Organizations prior to beginning any fundraising activities unless it meets one of the exemptions. The most common exemptions are:
• Gross national contributions of <$25,000 annually
• Type of organization:
• Religious institution
• Accredited educational institution
• Parent teacher association
• Law enforcement, firefighters, or public safety organization
• Public, nonprofit library organizations
Department of State
Bureau of Corporations and Charitable Organizations
207 North Office Building | Harrisburg, PA 17120 | 1-800-732-0999
Once you’ve turned your passion into a legitimate, tax-exempt nonprofit corporation recognized by the IRS and are benefiting your community, that solid foundation on which you built your organization will need maintenance. Invest in maintaining compliance with all local, state, and federal government agencies and ensure your vision continues long into the future.
Need some nonprofit help?
Become a PANO member today.