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The 5 Documents Nonprofits Need to Gain Tax Exemption

If you’re reading this article, congratulations, you’re close to the finish line for getting your nonprofit up and running. You’ve taken your first steps: forming your organization, creating your board, adopting your bylaws and maybe even rolling out programs. Now you’re ready to sit down with your accountant and make it IRS official. What about those dreaded IRS forms? Don’t worry, professionals will help you make sense of all the jargon, but you will need to provide them with key documents and information to complete your application for tax-exempt status.

#1 and 2 Articles of Incorporation/Organization and Bylaws

These documents must meet certain requirements to qualify for tax exemption. Nonprofits must limit the organization’s purpose and must include certain dissolution provisions regarding their assets. Private foundations (a specific type of nonprofit) must include further specific provisions protecting against self-dealing. The IRS wants all nonprofits to adopt a conflict of interest policy, which is generally incorporated into the bylaws. Your accountant will check your documents to make sure all IRS requirements are met, or help you amend them to meet those requirements.

Make sure to include all amendments to your bylaws and organizing documents. Copies will suffice; you do not need to provide originals. An officer will need to certify that both the articles and bylaws are accurate and complete.

#3 HR, Director and Officer Records

These records should include the names and addresses of all directors and officers, and any compensation (including salary, deferred compensation and benefits) they receive. You must also provide names, addresses and compensation records, for the five highest compensated employees and the five highest compensated independent contractors, in each case being paid more than $50,000 annually.

#4 Balance Sheet and Budgets

Provide a current balance sheet and budget for this year and the next two years. Go into as much detail as you can regarding your sources of income and where your resources will be spent. Don’t panic when you’re actual financials don’t match up to what you’ve submitted to the IRS; they understand you can only provide estimates when you’re first starting out.

#5 A Description of Your Activities

When providing a description of your organization’s activities, think of the classic “W” questions: Who? What? Where? Why? When?  Describe how each activity furthers the organization’s purpose and estimate what percentage of its time is devoted to each activity.  Identify the funding source for each activity.  Make sure to include all past, present and future activities.

Wrapping Up Your Application

Your accountant will ask some additional questions in order to complete your application for tax exemption. Depending on the type of organization you operate, you may need to submit more documentation (e.g. schools must submit their nondiscrimination policy).

In any event, don’t be intimidated. Get your documents together and contact us today.