We believe nonprofits are catalysts for real and lasting change. They serve communities, inspire civic engagement, and address the issues that matter most, locally and globally.
Helping Nonprofits Take Shape
Over the last five years, our tax partner Jason Schwartz, nonprofit specialist Harris Greenberg, and their team, which includes other partners, associates, and staff at Cahill, have helped more than 100 nonprofit groups incorporate and achieve tax exempt status on a pro bono basis through 501Foundry.
Think of 501Foundry as a nonprofit incubator designed to help founders understand and navigate the legal requirements to become and operate as tax-exempt nonprofit organizations and thereby more effectively serve their communities.
At any given time, Jason and his team work with approximately 20 different groups, each at different stages of the formation and approval process. The team has helped launch organizations focused on:
- Disease Research
- Environmental Advocacy
- Employment Services for Underserved Communities
- Mental Health Education and Support
- Cultural and Historical Preservation
- Web3 research and education
While the bulk of our work is focused on 501(c)(3)s, we have supported the establishment of other types of 501 organizations and consider them on a case-by-case basis.
What It Takes to Become a Tax-Exempt Organization
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for charitable, scientific, literary, educational, or other exempt purposes, and must serve a broad “charitable class” (instead of private individuals). 501Foundry helps founders consider how to articulate their missions in a manner most conducive to tax exemption.
Once a tax-exempt purpose is selected, we help form the legal organization, typically as a Delaware nonstock corporation, by filing a certificate of incorporation.
The organization requires bylaws, its legal governing documents. Among other things, the bylaws (and associated resolutions) specify an initial board of directors – a group of at least three adults who will oversee the organization – and provide how future board members are selected. Board members do not have to be U.S. citizens. It typically also is prudent for the organization to adopt a whistleblower policy and a conflict of interest policy. 501Foundry assists with the preparation of this documentation.
Once an organization is formed and its bylaws and policies adopted, the organization needs a taxpayer identification number (Employer Identification Number, or EIN). Then, it is time to apply for tax exemption using the IRS Form 1023. The application includes preparing a narrative essay that describes the organization’s intended activities, along with a three-year budget.
All-in filing fees typically run approximately $1,000.
Organization founders should keep in mind that running a tax-exempt organization means running a business. After we have formed their organization and applied for tax exemption on its behalf, it will need to engage an accountant and, possibly, external legal counsel to assist with ongoing filing and other legal requirements. Of course, we provide all clients with a punch-list so they know what to look out for.
Timeline
From start to finish, the journey typically takes between six and twelve months for final IRS approval, although most of the active work for nonprofit founders comes in the first six to eight weeks. Incorporation can be done quickly, allowing the organization to begin operations while the application is prepared (as long as a Form 1023 is filed within 27 months of incorporation, tax exemption is retroactive to incorporation). The IRS reserves the right to take up to 180 days to review, but actual processing times may vary greatly.
Interested in learning more?
Email us at HGreenberg@cahill.com.