How to Start a 501(c)(3) Nonprofit in the United States

By Jimmy Patricks Unzi, Ch.E

Starting a nonprofit organization in the United States is both a legal process and a mission-driven journey. For those seeking to operate under Section 501(c)(3) of the Internal Revenue Code, this pathway provides the ability to receive tax-deductible contributions, exemption from federal income tax, and credibility with donors, governments, and partners. For global readers, the 501(c)(3) designation represents one of the most widely recognized nonprofit standards, offering opportunities not only within the United States but also across borders, where compliance with U.S. law is viewed as a marker of accountability and trust.

At Refugee Pathways and Integration Canada Inc. (RefPIC), we recognize the importance of clear, accessible information in helping community leaders and aspiring founders understand this process. This article provides a step-by-step guide to establishing a nonprofit that qualifies for 501(c)(3) recognition, highlighting both the legal requirements and the deeper mission of building organizations that serve the public good.

Part I – Incorporating a Nonprofit Organization

Choosing a State of Incorporation

The journey begins with incorporation at the state level. Incorporation creates a distinct legal entity under state nonprofit statutes, usually by filing with the Secretary of State. It provides a layer of liability protection so that, in most cases, the organization itself is responsible for its actions rather than its individual directors or officers. This safeguard is particularly important when handling charitable funds, managing employees, or entering into contracts.

The choice of state for incorporation is a significant decision. Many organizations incorporate in the state where their primary activities will occur or where their leadership is based. Each state has its own nonprofit law, which may impose specific requirements such as naming conventions, minimum numbers of directors, or governance structures. To explore state-specific regulations, the National Association of State Charity Officials (NASCO) provides resources and links to regulatory authorities across the country (NASCO).

Drafting and Filing Articles of Incorporation

Once the state is chosen, the nonprofit must file its Articles of Incorporation. This charter document contains the essential details of the organization, including its legal name, a statement of purpose, the names of initial directors, the appointment of a registered agent, and provisions for the distribution of assets upon dissolution.

The purpose statement is especially important. In order to qualify for federal tax-exempt recognition, the articles must demonstrate that the nonprofit is organized exclusively for purposes listed under Section 501(c)(3), such as charitable, educational, or scientific activities. The Internal Revenue Service (IRS) will review this language carefully during the exemption process (IRS – Exemption Requirements for Charitable Organizations). A well-drafted purpose statement not only meets legal standards but also anchors the mission and guides the board’s fiduciary responsibility to remain faithful to it.

Obtaining an Employer Identification Number (EIN)

After incorporation, the nonprofit must obtain an Employer Identification Number (EIN), which functions as its federal tax identification number. The EIN is required for banking, tax reporting, and most financial transactions. The application is submitted through IRS Form SS-4, which can be completed online for immediate issuance (IRS – Apply for an Employer Identification Number). With the EIN in hand, the nonprofit can begin conducting business formally and establish financial accounts.

Developing Bylaws

Bylaws serve as the nonprofit’s internal governance manual. While the Articles of Incorporation create the legal entity, the bylaws determine how the organization will function. They set out rules regarding the selection and authority of directors and officers, procedures for meetings and voting, and the handling of financial and administrative matters. Bylaws should be tailored to reflect the nonprofit’s mission and anticipated activities. For example, a service organization may emphasize committee structures, while a faith-based entity may include doctrinal provisions. Although not filed with the IRS, bylaws are an important measure of accountability and are often requested by donors or regulators to confirm good governance practices (IRS – Governance and Related Topics).

Establishing Core Policies

New nonprofits should also adopt policies that strengthen their ethical foundation. The most important is a Conflict of Interest Policy, which the IRS requires for organizations applying for exemption. This policy ensures that directors act in the best interest of the nonprofit rather than for personal gain and provides procedures for disclosing and managing potential conflicts (IRS – Sample Conflict of Interest Policy). Other policies may be adopted depending on the organization’s focus. These can include dispute resolution procedures, grantmaking policies for international activities, or statements of faith for religious organizations. Taken together, such policies demonstrate seriousness of purpose and reduce risks associated with governance and operations.

First Board Meeting and Resolutions

The first official meeting of the board of directors marks the operational beginning of the nonprofit. During this meeting, the board typically ratifies the Articles of Incorporation, adopts the bylaws, approves policies, appoints officers, and authorizes the establishment of bank accounts. The board may also resolve to retain legal counsel, approve applications for tax exemption, and acknowledge disclosure statements regarding conflicts of interest. Accurate minutes from this meeting should be recorded and preserved as part of the organization’s permanent legal record. These documents reflect the board’s fulfillment of its responsibilities and set the precedent for future governance.

Part II – Applying for Federal Tax-Exempt Status

Form 1023 Application

To be officially recognized as a 501(c)(3) organization, a nonprofit must file Form 1023 with the IRS (IRS – Application for Recognition of Exemption). The application is comprehensive, requiring organizational documents, bylaws, financial statements, and a detailed narrative describing the nonprofit’s programs. The IRS applies two tests when reviewing the application. The organizational test ensures that the governing documents limit the organization’s purposes to those permitted under Section 501(c)(3). The operational test examines whether the nonprofit’s actual activities are aligned with its exempt purposes and carried out for public benefit rather than private interests. The activity narrative is a crucial component of the application. It functions as a business plan for charitable work, explaining what the nonprofit does, how it does it, who benefits, and how the activities further its mission. A clear and persuasive narrative significantly increases the likelihood of approval.

Form 1023-EZ (Streamlined Application)

The IRS also offers a simplified version known as Form 1023-EZ for smaller nonprofits that expect annual gross receipts of $50,000 or less and total assets under $250,000 (IRS – Form 1023-EZ). This option is attractive because it carries a lower filing fee and is processed more quickly than the full application. However, Form 1023-EZ comes with limitations. It relies on self-certification and provides less documentation, which means organizations approved under this method may face greater risks during an audit. Additionally, certain categories of nonprofits, such as schools, hospitals, and churches, are not eligible to use this form. For organizations seeking to build long-term credibility, the full Form 1023 often remains the preferred choice.

Determination Letter

When the IRS approves the application, it issues a determination letter that confirms the organization’s recognition as tax-exempt under Section 501(c)(3) (IRS – Determination Letters). This letter serves as legal proof of status and is required by most donors, foundations, and government agencies before they will provide funding. The determination letter also establishes the effective date of exemption. To ensure that the exemption is retroactive to the date of incorporation, nonprofits must file their application within 27 months of formation. Missing this deadline can complicate donor receipting and financial reporting.

Part III – Ongoing Legal and Regulatory Compliance

Federal Requirements

Once recognized, a nonprofit must comply with annual federal reporting obligations. All 501(c)(3) organizations are required to file an annual return using Form 990, Form 990-EZ, or Form 990-N depending on their revenue levels (IRS – Annual Exempt Organization Return). These filings provide transparency and allow the IRS and the public to monitor the nonprofit’s activities. Failure to file for three consecutive years leads to automatic revocation of tax-exempt status. Nonprofits must also be mindful of the Unrelated Business Income Tax (UBIT). While exempt from income tax on revenue related to their mission, organizations may be taxed on income from unrelated commercial activities. The IRS provides detailed guidance on when UBIT applies and how it should be reported (IRS – Unrelated Business Income Tax).

State-Level Obligations

Each state imposes its own compliance requirements on nonprofits. Most require annual or biennial reports to update information about directors, officers, and registered addresses. Failure to file these reports can result in penalties or even dissolution of the corporation. In addition, states often regulate fundraising through charitable solicitation registration. Nonprofits that solicit donations, including online, may be required to register in each state where they raise funds. Although exemptions exist for certain religious or educational organizations, the rules vary significantly. Guidance is available through the National Association of State Charity Officials (NASCO).

Employment and Operational Compliance

Nonprofits with employees must comply with federal and state labor laws, including wage standards, nondiscrimination rules, and workplace safety requirements. Employment contracts and human resources policies are important tools to ensure compliance and reduce risk. The U.S. Department of Labor provides compliance resources for employers (DOL – Compliance Assistance). Operational compliance also includes tax considerations at the state level. Many states allow nonprofits to apply for exemptions from sales tax on purchases related to charitable activities. At the same time, nonprofits engaging in sales, such as merchandise or ticketed events, may still be liable for sales tax unless exempted. Finally, nonprofits must issue proper receipts for charitable contributions. Donors making contributions of $250 or more must receive a written acknowledgment that specifies the amount given and whether any goods or services were received in return (IRS – Charitable Contributions Substantiation and Disclosure). Accurate receipting builds donor trust and ensures compliance with federal tax law.

Part IV – Why Compliance Matters Globally

The significance of achieving and maintaining 501(c)(3) compliance extends far beyond the United States. For international partners, governments, and donors, a determination letter from the Internal Revenue Service is regarded as a strong indicator of legitimacy and professionalism. It reassures stakeholders that an organization is governed transparently, accountable in its financial practices, and dedicated to serving the public interest. This recognition also enhances a nonprofit’s ability to participate in global initiatives. Many international grantmakers and foundations require evidence of U.S. tax-exempt status before considering funding requests. Similarly, organizations that hold this designation are better positioned to collaborate across borders, join coalitions, and establish enduring partnerships.

For communities worldwide, the 501(c)(3) framework represents more than just compliance with U.S. law. It embodies a standard of trust and accountability that resonates internationally, providing a solid foundation for scaling outreach, attracting support, and ensuring long-term sustainability.

Conclusion

Establishing a 501(c)(3) nonprofit is a process that combines vision with legal structure. From incorporation at the state level, to drafting governing documents, to applying for federal recognition and maintaining compliance, each step lays the groundwork for a sustainable and trustworthy organization. Yet the significance of this process is more than legal. It is mission-driven. A well-structured 501(c)(3) empowers leaders to pursue their vision with integrity, gain the confidence of donors and partners, and create meaningful impact in their communities and beyond.

At Refugee Pathways and Integration Canada Inc. (RefPIC), we believe that knowledge of this process should be accessible to all who aspire to serve the public good. As part of our community initiatives, we provide guidance to individuals and organizations exploring nonprofit formation in the United States. Our team includes dedicated experts in law, economics, accounting, and humanitarian and development leadership. Many of these professionals contribute their time on a volunteer or pro bono basis, while we request modest fees only to cover administrative costs.

For inquiries or support, you may contact us at admin@refugeecanada.org or by phone at +1 (437) 566-2789. We are committed to helping new organizations take the important step of building strong, legally compliant, and sustainable foundations for change.