501(c)(3) Steps

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Executive Service Corps of Chicago
25 East Washington
St. Suite 1500
Chicago, Illinois 60602
312.580.1840
info@esc-chicago.org

These guidelines are supplied by Executive Service Corps of Chicago.  Once you have secured 501(c)(3) status, ESC can provide technical assistance relative to board and/or management issues.

 STEPS TO BECOMING A 501(c)(3)

Why apply for 501(c)3 status?

Federal tax laws provide tax benefits to nonprofit organizations under section 501(c)(3) of the Internal Revenue Code. One must complete an application and provide proper documentation to receive these benefits. Once recognized, the organization is exempt from federal income tax, may be exempt from certain employment taxes and is eligible to receive tax-deductible charitable contributions. A 501(c)(3) status is recognized by many sources including individual and corporate donors; state laws, specifically exemption from state income, sales and property tax; and the US Postal Service. 

Organizations may receive 501(c)(3) benefits by affiliating with an existing nonprofit which has already received 501(c)(3) status. The nonprofit with the official status will be the fiscal agent and have full control and authority over the second organization.

Who is eligible for 501(c)(3) status?

A nonprofit must be organized and operate exclusively for one or more exempt purposes.

Organized: The nonprofit must be organized as a corporate, trust or unincorporated association. The organization of the nonprofit must fall within the limits of the purposes described in section 501(c)(3) of the tax law.

Operated: A substantial portion of the nonprofit’s activities must further its exempt purposes. Restrictions include not participating in political campaigns, restriction from lobbying, ensuring that earnings do not benefit the shareholder(s), not operating for private interests, etc.

Exempt Purpose: The nonprofit must have one of the following exempt purposes: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety.

How do you apply for 501(c)(3) status?

FEDERAL

1.  File IRS form SS-4 Application for Employer Identification Number: An employer identification number (EIN) is required regardless of whether the organization will have employees. Once an EIN has been obtained, include it in all correspondence with the IRS. For more information, see IRS Publication 1635, Understanding Your EIN. This process takes about four weeks. 

2.  File application with IRS Exempt Organizations Division, applications include:

a.      IRS form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The application requires a user fee and will not be processed without it. Included in the form:

                          i.      Narrative describing the organization’s past, present and planned activities

                           ii.    Organization’s current and proposed financial support

                         iii.    Actual and planned fundraising program

                        iv.    Financial information: for new organizations, current year and two future years’ projected budgets; established organizations, budget for the current year and three years previous

b.      Two IRS Forms 872-C if requesting an advanced ruling (Consent Fixing Period of Limitation Upon Assessment of Tax under Section 4940 of the Internal Revenue Code).

c.      IRS Form 8718 and check payable to “Internal Revenue Service” in appropriate filing fee amount

d.      Conformed copy of Certificate of Incorporation and By-laws if any have been adopted.

e.      IRS Form 2848 if attorney-in-fact is representing the organization. For this process, adopt a resolution authorizing filing for tax exemption and all documents related to the application and authorize an officer or attorney-in-fact to sign the application.

It is STRONGLY recommended that you use the services of a knowledgeable attorney for this step.

3.  A request for 501(c)(3) status may take six months or more to be granted. While waiting, you must indicate to interested parties, “Application for 501(c)(3) tax exemption pending.” If your application is rejected, you must inform past, present and future donors of the rejection in order to protect them from tax liability.

4.  An IRS tax specialist may contact you in writing requesting additional information. If your organization meets the requirements for exemption, you will be issued an IRS determination letter recognizing your tax exempt status and providing public charity classification. Keep this document with your permanent records. 

Forms for Federal exemption available at Social Secretary Administration Offices, by calling the IRS at (800) 829-3676 or at www.irs.gov

See Applying for 501(c)(3) Tax-Exempt Status published by the Internal Revenue Service.

ILLINOIS

1.  Select and reserve your corporate name: Your organization’s name must be different from all others on file. To see if your name is available, contact:

Illinois Secretary of State

Centennial Building

Corporate Department, 3rd Floor

Springfield, IL 62706

(217) 782-9520

It takes 2 to 4 weeks to confirm the receipt of your charter. Reserving the name for 90 days requires a $25 fee and either a written request or a copy of the Articles of Incorporation form (Form NP-104.10) to the same address.

2.  File Form NP-102.10: submit it with a $50 registration fee to:

Illinois Secretary of State

17 North State Street, Suite 1137

Chicago, IL 60601

(312) 793-3380

It takes 2 to 4 weeks for confirmation and receipt of a state charter.

3.  Register with the recorder of Deeds Office in the county where the registered office of the nonprofit is located: In Cook County there is a fee of $13 for the first two pages and $1 for each additional page.

Cook County Recorder of Deeds

118 North Clark Street

Chicago, IL 60602

(312) 443-5050

See A Guide for Organizing Not-For-Profit Corporations published by the Illinois Secretary of State; obtain a copy at their office at 17 N. State Street, Suite 1137 in Chicago, IL or online at the Illinois Secretary of State (www.ilsos.gov/nfparticles).

Questions?

While ESC does not provide programs and services to those without or applying for 501(c)(3) status, we would be happy to answer question and recommend resources.

Call (312) 580 1840 x317 or email info@esc-chicago.org

Organizations which can provide assistance:

Nonprofit Agencies

Community Economic Development Law Project
100 N. LaSalle St., Suite 600
Chicago, IL 60602-2403
312-939-3638
Pro bono legal services for eligible not for profit organizations

CPA’s for the Public Interest
550 W. Jackson, 9th Floor
Chicago, IL 60606
312-993-0407
www.cpaspi.org
Accounting assistance for emerging agencies

Donors Forum
208 S. LaSalle #735
Chicago, IL 60604
312-578-0090
www.donorsforum.org
Information library for funding sources

Illinois Industrial Commission
Workers Compensation Division

100 W. Randolph, Suite 8-200
Chicago, IL 60601
312-814-6500

Information Technology Resource Center
29 E. Madison, Suite 1005
Chicago, IL 60602
312-372-4872
http://itresourcecenter.org
Hardware/software information & training

National Council on Compensation Insurance
2050 W. Iles Ave.
Springfield, IL 62704
217-793-1100
Worker’s Compensation Insurance

Nonprofit Financial Center
www.nfconline.org
29E. Madison, Suite 1700
Chicago, IL 60602
312-252-0420
Publishes: Do it Right the First Time, Starting a Nonprofit Organization in IL

Support Center of Chicago
30 E. Adams St., Suite 1600
Chicago, IL 60603
312-263-5118
www.sc-chicago.org
Management workshops for nonprofit agencies

United Way/Crusade of Mercy
312-491-7823
Board Placement Program

Government Agencies

Cook County Recorder of Deeds
118 N. Clark Street Rm. 120
Chicago, IL 60602
312-443-5050
Registering new corporate charter

Secretary of State Dept. of Business Services
Corporation Division
17 N. State Street, Suite 1137
Chicago, IL 60602
312-793-3380
or Corporation Division
Howlett Bldg.,
501 S. Second St., Rm. 315
Springfield, IL 62756
217-782-6961

IL Attorney General
Division of Charitable Trust & Solicitations

100 West Randolph, 3rd Floor
Chicago, IL 60601
312-814-2595
http://www.illinoisattorneygeneral.gov

IL Dept. of Employment Security
33 S. State St.
Chicago, IL 60605
Forms & General Assistance
1-800-247-4984
Tax Problems
1-800-247-4987

IL Department of Revenue
State of Illinois

Dept. of Revenue, Income Tax Division
100 West Randolph, 7th Fl
Chicago, IL 60601-3274
312-814-5232
or 101 West Jefferson
POBox 19001
Springfield, IL 62708
1-800-732-8866
To reach any other state agency not listed, call:
1-800-829-1040

Internal Revenue Service
Form Services Division

230 S. Dearborn
Chicago, IL 60604
1-800-829-3676
For form pickup only:
320 W. Washington, Room 611
Springfield, IL 62703
217-527-6000

* these general guidelines are for information purposes, the procedures can change, so be sure to contact the appropriate organizations for up to date details

US Government Publications

Publication 4220, Applying for 501(c)(3) Tax-Exempt Status, is designed to help prospective charities apply for tax exemption under the tax law.

Publication 4221, Compliance Guide for 501(c)(3) Tax-Exempt Organizations, explains the record keeping, report filing, and disclosure rules that apply to organizations that have tax-exempt status under section 501(c)(3).

 

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