Achieving Nonprofit Status
Most nonprofits are 501(c)(3) organizations, which means they are formed for religious, charitable, scientific, literary, or educational purposes and are eligible for federal and state tax exemptions. To create a 501(c)(3) tax-exempt organization, you first need to form an Arizona nonprofit corporation. Then, you apply for tax-exempt status from the IRS and the state of Arizona. Here are the details on how to become a nonprofit corporation in 9 steps.
Please note steps 1 through 3 can be done together; however, they must be completed and approved before moving to step 4.
How to Gain Nonprofit Status for Your Business
Step One: Select the Name of the Corporation
The name of your nonprofit corporation must be distinguishable from the name of other business entities on file with the Arizona Corporation Commission. To see if your proposed name is available or to reserve a name for 120 days, go to the name database on the Arizona Corporation Commission’s website. Reserving a name will prevent another corporation from registering for nonprofit status with the same name as your business while you prepare and file your articles.
Trademarks & Service Marks
Finding a good name for your new Arizona corporation can sometimes be the most difficult piece of the formation puzzle. Ideally, you want a name that: (i) will afford strong federal trademark protection, but will not infringe on anybody’s trademark or service mark, (ii) will be easy for your customers to remember, (iii) will describe your products or services, and (iv) will allow you to obtain .com, .net., .org, .biz, .info and .us domain names. For information on obtaining domain names, see “How to Obtain a Domain Name that Does Not Infringe on a Trademark.”
One way to check if your desired corporate name will infringe on a federally registered trademark or service mark is to search your prospective name and variations thereof on the searchable database of the United States Patent & Trademark Office.
Step Two: Prepare the Articles of Incorporation
Requirements
You can create your nonprofit entity by filing articles of incorporation for a nonprofit with the Arizona Corporation Commission. Your articles of incorporation must include basic information such as:
the nonprofit’s name
the “character of affairs” it intends to conduct in Arizona
whether it will have members or not
its business address (physical or street address) if different from the statutory agent address
the name and business address of each director
the physical or street address of the statutory agent in Arizona, and
the name and address of each incorporator.
You must submit a Statutory Agent Acceptance form M002 and a Certificate of Disclosure at the time you file your articles with the Corporation Commission.
There is an articles of incorporation form for nonprofit corporations on the Corporation Commission’s website. Use this form to create your Arizona nonprofit. Complete and file your articles following the instructions provided. The articles form available from the state has the minimal information necessary to obtain nonprofit status in Arizona. It does not include language required by the IRS to obtain 501(c)(3) federal tax-exempt status. To receive tax-exempt status from the IRS, you'll need to have additional specific language in your articles, including:
a statement of purpose that meets IRS requirements
statements that your non-profit will not engage in prohibited political or legislative activity, and
a dissolution of assets provision dedicating your assets to another 501(c)(3) organization upon dissolution.
For more information on IRS requirements for tax exemption, including sample language, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website.
Membership vs. Non-membership Nonprofit Corporations
The Articles of Incorporation must state whether or not the corporation will have members. An Arizona nonprofit corporation is not required to have members. The choice to have members or not have members is a decision for the founders and depends on the nature of the proposed activities and the desires of the founders. Nonprofit corporations without members are governed by the corporation’s board of directors.
How and Where to File
File your articles of incorporation, the certificate(s) of disclosure and the cover sheet and pay the filing fee at the following ACC office:
Phoenix office: 1300 W. Washington, 1st Floor, Phoenix, AZ 85007.
ACC offices are open Monday – Friday, 8:00 a.m. to 5:00 p.m., except holidays. You may mail all the incorporation documents with a cover letter and a check for the filing fee to either ACC office. The ACC does not accept credit cards.
Step Three: Complete IRS Form 1023
Whether to File a Form 1023 or Form 1023-EZ
First, we must check to see if your business qualifies for Form 1023 or Form 1023-EZ (a reduced application time and fee, but your organization would need to meet specific qualifications).
Steps to determine whether your organization would qualify for Form 1023-EZ:
Click on the link below and go to page 13 of the worksheet to find qualifications:
If you answer “Yes” to any of the worksheet questions, you are not eligible to apply for exemption under section 501(c)(3) using Form 1023-EZ. You must apply for Form 1023 (SECTION III).
If you answer “No” to all of the worksheet questions, you may apply using Form 1023-EZ (SECTION II).
How to File Form 1023-EZ
Instructions for the Form 1023-EZ: (If your organization does NOT qualify for 1023-EZ, then do NOT fill out SECTION II and instead move down to SECTION III labeled “Instructions for Form 1023”)
Important note: Obtaining an Employer ID Number (EIN) and completing a Form 1023-EZ will trigger other filing requirements, including the requirement to submit a Form 990-series information return each year.
Website with more information about the 1023-EZ online Form: https://www.irs.gov/forms-pubs/about-form-1023-ez
Steps:
If eligible to file Form 1023-EZ, register for an account on Pay.gov.
If Form 1023-EZ appears compressed on Pay.gov when using Internet Explorer, you may need to turn on the "Compatibility View." Instructions how to turn on “Compatibility View” based on your version of Internet Explorer can be found at the Microsoft website.
Enter "1023-EZ" in the search box.
Complete the 1023-EZ form online.
Here are two guides with step-by-step instructions to help you through specific questions that might be difficult to answer in the 1023-EZ Form:
Simplified Guide: https://www.svdpusa.org/Portals/1/E.%20How%20to%20Electronically%20File.1023.EZ%201518.pdf
In-Depth Guide: https://www.irs.gov/pub/irs-pdf/i1023ez.pdf
Pay the user fee of $275 with this form: https://www.irs.gov/pub/irs-pdf/f8718.pdf
Source of information on user fee: https://www.irs.gov/charities-non-profits/form-1023-and-1023-ez-amount-of-user-fee
The Form 1023-EZ fee must be paid through www.pay.gov when the application is filed. Payment can be made directly from your bank account or by credit/debit card.
Submit all files electronically on Pay.gov
How to File Form 1023
Instructions for filling for nonprofit status with Form 1023: (If your organization DOES qualify for 1023-EZ, then do NOT fill out SECTION III) Please note Form 1023 must be submitted online starting April 30, 2020.
Website with more information about the 1023 Form: https://www.irs.gov/forms-pubs/about-form-1023
If you own Adobe Acrobat Version 9, there is an interactive form that is very straightforward & much easier than filling out the regular form:
If you do NOT own Adobe Acrobat Version 9, then follow the steps below:
Steps:
Download the Form 1023 (https://www.irs.gov/pub/irs-pdf/f1023.pdf) and open it in a computer application where you can save your answers (ex. Adobe Acrobat) OR print the document and write your answers manually.
Here is an in-depth guide with instructions to help you through specific questions that might be difficult to answer in Form 1023: https://www.irs.gov/pub/irs-pdf/i1023.pdf
Please review the Form 1023 Checklist on Page 27 of the Form 1023 to ensure you have completed everything necessary to submit your Form 1023.
After manually filling out the form & reviewing the Form 1023 Checklist (on Page 27 of the Form 1023), you will need to mail the printed & completed Form 1023, user fee payment of $600 (source: https://www.irs.gov/charities-non-profits/form-1023-and-1023-ez-amount-of-user-fee), and all other required information to Pay.gov.
What to expect after applying for 501c3 nonprofit status
Step Four: Select the Corporation’s Statutory Agent
Every corporation with nonprofit status formed in Arizona or qualified to do business in Arizona must have and maintain a statutory agent located in Arizona. The purpose of a statutory agent is to give notice to the public of a person or entity authorized by the corporation that can be served with legal documents as the agent of the corporation. The statutory agent is the person or entity that can be served with a summons and complaint filed in a lawsuit.
The statutory agent must be one of the following:
An individual who resides in Arizona.
A domestic business or nonprofit corporation formed under Arizona law.
A foreign business or nonprofit corporation authorized to transact business or conduct affairs in Arizona.
A limited liability company formed under Arizona law.
A limited liability company authorized to transact business in Arizona.
A corporation with nonprofit status must notify the ACC if it changes its known place of business or statutory agent. If the statutory agent changes its street address, the statutory agent must give written notice to the nonprofit corporation of the change and sign, either manually or in facsimile, and deliver to the ACC for filing a statement that includes the new address and that recites that the corporation has been given written notice of the change.
Step Five: Prepare a Certificate of Disclosure
When you file the articles of incorporation with the ACC, you submit a completed certificate of disclosure (pdf) for nonprofit status corporations. All incorporators and all people who are officers, directors or trustees at the time the articles of incorporation are filed must sign an initial certificate of disclosure and file it with the ACC. Signatures must be dated within 30 days of delivery to the ACC. When completing the certificate of disclosure: (i) check yes or no for question A, but if you check yes, you must attach to the certificate of disclosure all information requested in question B. Check yes or no for question C. If you check yes, you must attach to the certificate of disclosure all information requested in question C.
If any person becomes an officer, director or trustee of the corporation, within sixty days after delivering the articles of incorporation to the ACC, the corporation must sign and deliver another Certificate of Disclosure to the ACC within the sixty day period. If the incorporator(s) ,of the corporation do not comply with this requirement, the ACC may administratively dissolve the corporation.
Step Six: Approval or Rejection of the Articles of Incorporation
After the ACC reviews your articles of incorporation, it will mail a notice of approval or rejection of the articles of incorporation to the corporation seeking nonprofit status’s place of business. Your corporation was created as of the date the articles were filed, however if it was rejected, it is terminated as of the date and time the ACC made its decision. The ACC will notify you in a letter why the articles were rejected. You may then correct the problem and resubmit another set of incorporation documents. However, you will not be able to recover your filing fee.
Step Seven: Prepare Corporation’s Bylaws
Each initial director of a corporation with nonprofit status must adopt and sign nonprofit corporation bylaws for the corporation. The bylaws of a corporation may contain any provision for regulating and managing the affairs of the corporation that is not inconsistent with law or the articles of incorporation. Note: Arizona Revised Statutes Section 10-3206 requires all Arizona nonprofit corporations to have Bylaws that are adopted by the nonprofit corporation’s board of directors Do not use for profit corporation Bylaws. or Use Bylaws drafted for use by non-Arizona nonprofit corporations.
Step Eight: Hold Board Directors Meeting
After incorporating, the board of directors of the corporation seeking nonprofit status must hold an organizational meeting at the call of a majority of the directors to complete the organization of the corporation by appointing officers, adopting bylaws and carrying on any other business brought before the meeting. This organizational meeting must be documented by corporate minutes signed by all the directors.
Step Nine: Obtain a Federal Employer ID Number
Once the corporation obtains nonprofit status, the corporation may file a request to become exempt from federal taxes. If the nonprofit corporation intends to file an application to obtain exemption from federal income taxation, the corporation must obtain an EIN. Banks require this ID number for bank accounts. If the corporation will have employees and pay wages, it must file payroll tax returns and pay payroll taxes using the EIN.
You should apply for an EIN early enough to have your number when you need to open a bank account, file a tax return or make a tax deposit.
There are four ways to get an EIN:
You can get an EIN over the phone by calling the Tele-TIN phone number for your state, which for Arizona entities is 1-800-829-4933.
You can fax a completed Form SS-4 to the appropriate service center (215-516-3990 for Arizona), and they will respond with a return fax in about one week. If you do not include a return fax number, it will take about two weeks.
If you apply by mail, send your completed Form SS-4 at least four to five weeks before you need your EIN.
Obtain a federal EIN online in a matter of minutes from the IRS website. The online EIN is a provisional EIN, but it will be the permanent federal employer identification number for your business unless voided by the IRS. The IRS may void an EIN obtained online if:
(i) the name and social security number of the principal officer do not match Social Security Administration records
ii) the business has already been assigned an EIN. Keep a record of your application for an EIN. Be sure to print your SS-4 application after the EIN is assigned and keep a paper copy for your records.
Arizona Microcredit Initiative (AMI) has consulting and microloan support for yourself and your business. If you have any more questions, you can schedule an appointment today through https://www.azmicrocredit.org/schedule-a-consultation-1 or reach out to us at info@azmicrocredit.org.
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