OTHER FACTORS TO CONSIDER

OTHER FACTORS TO CONSIDER

You are working on your business plan, but there are still other significant factors to
consider. This section will be a brief outline of those factors. You can find help in
addressing these factors both in this section as well as the next section, "Other Resources
Available to Help You".

• Deciding Your Business Name and Registering It - you will want to check with
your appropriate State office to learn if the name you want for your organization is
available. In some States that office is the Secretary of State, in others it is the
Department of Commerce or the Treasury Department. Check your State's web site. If
you are having trouble finding what you are looking for, put "nonprofit" or "tax exempt"
in the search box and follow the leads. Some States require that nonprofits use the words
"Incorporated", "Company" or "Corporation", abbreviations or similar language. Other
States do not permit those titles.
• How to Reserve/Register Your Business Name - you can check on the
availability of the name and /or reserve the name in your State. You may be able to
reserve the name for 120 days by contacting the appropriate State office. There is
probably a fee to reserve the name. If you expect to use the initials of the name, you may
have to reserve that as well.
• Filing Incorporation Papers - you must register your business with your State
by filing Articles or Certificate of Incorporation. Some States refer to the incorporating
papers as "Articles" and other States call them "Certificate". There is certain language
that the federal IRS requires in the Articles to be approved under Section 501 (c) (3). Be
sure to include that language. Individual States have additional language they require in
the Articles. Your State may have a form or a model incorporating form but the form
may not have the language the IRS requires. Be certain to have the language both your
State and the IRS require. The instructions to Federal Form 1023 have sample-
incorporating papers with the required Federal language (and not the language required by States). The language can be also found in IRS Publication 557. Be sure to include
that language. There are fees required at various steps by States. Check the State web
site for fees or contact the appropriate State office. For links to State offices, see
http://www.nasconet.org/index.php?topic=Offices.
• If You Will Have Employees - you will need to file IRS Form SS-4,
"Application for Employer Identification Number (EIN or FEIN)" – The instructions for
SS-4 include the address and contact information for the regional office to file for the
FEIN. Application may be filed by telephone, FAX or by regular mail. (See also IRS
websites for forms listed below.)
Please note: do not open a bank account for your nonprofit group under your own
Social Security number. If you open such an account for your organization under your
Social Security number or that of another individual, all income will be taxed under that
number. If you have an EIN, bank accounts can be opened under that number and the
name of the organization. An EIN is like a Social Security number, but for a nonprofit
organization or business.
• Form 1023 and Other Federal Material - after you have the State approval for
your Articles/Certificate of Incorporation and the EIN, you may file IRS Form 1023,
Application for Recognition of Exemption. Form 1023 is a lengthy document and is not
easy to complete. The IRS charges a fee upon filing Form 1023. The work you did on
developing a Business Plan will, however, give you enough information for an excellent
first draft. Other forms you will have to file are Forms 872-C (Consent Fixing Period of
Limitation upon Assessment of Tax under Section 4940 of the Internal Revenue Code, to
be submitted in duplicate), and 8718 (User Fee for Exempt Organization Determination
Letter Request). You will also find Federal Publication 557, Tax-Exempt Status for Your
Organization, absolutely helpful. Publication 557 has sample Certificate and Articles of
Incorporation containing the Federal language the IRS requires (but not the language
States require). Other IRS documents, IRS 15 Circular E, Employer's Tax Guide,
Publication 15-T, Withholding Income Taxes and Publication 598, Tax on Unrelated
Business Income of Exempt Organizations, should be part of your library early. Form
8718 will list the fees to file with the IRS; read the instructions carefully. If you will
have an attorney filing the forms for you, you will need a signed Form 2848. Links to
these and other IRS Forms, Publications and Instructions are located at page 26. File
copies of all other documents the IRS requires in the instructions, including:
• Current Bylaws and all amendments
• Conformed copy of your Certificate or Articles of Incorporation
• List of current Board of Trustees, officers and addresses
• Material written by or about your organization, e.g.: newsletters, publications,
news articles, pamphlets
• Contracts your organization is or has been a party to
• Grant applications your organization has submitted for funding
• And others as required.
The filing of these forms and processing them may take several months before you
receive a ruling. The 1023 may be returned to you for corrective action. When the IRS is
satisfied with your application it will issue a letter of determination of tax exemption,
usually an "Advance Ruling". The Ruling can be retroactive. Please be aware the IRS issues letter opinions and Revenue Rulings that also have to be considered. The
beginning web site for Federal requirements is http://www.irs.gov/charities/index.html
• Childcare - filing IRS Form 1023 for operating a childcare center requires filing
Schedule G as well. See Form 1023 and read the sections about childcare in Publication
557. The Schedule is not complex but must be read and answered carefully. If the
childcare center mission is to operate a school in addition to childcare, Schedule B of
Form 1023 must also be completed. It is important to know that for IRS purposes
childcare is defined as "the providing of care for children away from their homes if
substantially all the care provided is to enable individuals (the parents) to be gainfully
employed and the services are available to the general public". Remember this definition
when you complete Schedule G. There may be State laws and offices that also must be
contacted for licensing purposes. Technical assistance may also be available from one or
more State agencies or other nonprofits. The Americans with Disabilities Act (ADA)
applies to child-care centers. For further information about the ADA see material from
the U.S. Department of Justice, http://www.usdoj.gov/crt/ada/childq&a.htm.
• Registering with Your State Concerning Tax Exemption - many States require
that you file the IRS determination letter in order to be tax exempt in your State. When
you register your nonprofit, the State may send you the necessary forms and information
for compliance with your State's tax and employment laws. Be sure to have your EIN on
all forms, returns, checks and other correspondence. The State may also issue a number
for your organization's identification. The purpose for this filing in most States is to have
the nonprofit organization avoid paying sales tax for items to be used by the organization
and for employee income tax.
• Unified Registration Statement (URS) - your State may be one that is using the
standardized form to register NPOs that perform charitable solicitations. The URS is
developed by the National Association of Attorneys General and the National
Association of Charities Officials to standardize, simplify and economize compliance
under State's solicitation laws. For further information, you can learn more at
http://www.multistatefiling.org/.
• Permits and Other Regulations - you need to contact the clerks of the
municipality and the county/parish where the nonprofit is to be located to determine if
there are any local regulations to which your organization must conform. Also check if
there are any permits required.
• Employee-related Issues - even if you have a single employee, you may be
required in your State to register for employee income tax, unemployment, Workers
Compensation and disability insurance. Other employee-related issues include child
support reporting and immigration concerns. There can be serious consequences for
failure to make these contacts and to set up the accounts if you have an employee. Both
your State and the United States Government have posters that are required to be placed
in a public area concerning employees' rights. There are severe penalties for failure to
place the posters in public. See HRDocs.com at http://www.hrdocs.com/Posters for a list
of posters and for copies. You can secure an electronic version of federal posters free. Fill
out the requested information at the web site and click the Continue button. HRDocs.com
will send a file containing each poster to the e-mail address you provide. Simply open the
files, print each poster, and post them. http://www.hrdocs.com/Posters/federal.asp. You
can also check your state and any other state for a free e-mail update notice of changes of posters. I have subscribed to all states for my e-newsletters. This is a commercial site and
the owner is selling a service. He may be willing to provide the full service to a nonprofit
at no cost. I have no investment interest here. We shared some e-mails last year and he
was willing at that time to hear from NPOs who need a free assistance. It is highly likely
that your state’s web site also has these posters and more available at no cost.
HRDocs.com does NOT feature all state required signs, so be certain that you verify
information with your state. Also take a look at the Alexander Hamilton Institute’s
listings of posters by state. The Institute offers free Federal posters for download and a
free state-specific reminder system when changes in posters occur -
http://www.ahipubs.com/posters/index.html. You may be able to secure the posters free
from your State web site. For the Federal posters, see
http://www.dol.gov/elaws/posters.htm. If you will operate a virtual office over the
Internet, you would be safe posting all required posters on an employee page or public
page to protect the corporation. If you have staff in several states, post all States' posters.
Annual and Other Reports - your State may automatically send annual filing forms to the
organization's "registered agent" who is named in the Articles/Certificate of
Incorporation. Please remember that if you change who your "registered agent" is, you
must notify the State. The annual filing form has to be returned by a deadline and there
may be an annual filing fee. If the organization does not receive the annual form, it is the
organization's responsibility to file the annual report and the fee nevertheless. In many
States failure to file and to pay the fee for two consecutive years will result in revocation
of the corporate charter. The IRS will require various reports including a Form 990 or
990-EZ (short form), maybe the 990-T (exempt organization's business income tax
return) and possibly 8300 (report of cash payments over $10,000 received in trade or
business). Form 990 and other Federal documents are required by law to be public. See
my discussion, “Nonprofit Organizations - Disclosure of Information: What Must We,
What Can We Disclose to the Public, Staff, Board and Clients?”
http://www.nonprofits.org/npofaq/0/1505.html, Disclose It from Maryland Association of
Nonprofit Organizations http://www.marylandnonprofits.org/documents/Disclose.pdf
and a Guidestar tutorial about Form 990,
http://www.guidestar.org/learn/tutorial/990_0intro.jsp. Ongoing IRS Filing Requirements
are listed at http://www.irs.gov/charities/article/0,,id=96103,00.html

The checklist above is only informational and instructional. There are many other issues
that leaders developing a nonprofit need to be aware from handling public disclosure to
maintaining files. This paper does not address those and other issues. It does not
constitute legal advice. Please contact an attorney in your State who is familiar with tax
exempt or nonprofit law before you complete forms for your organization.