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 Form a Nonprofit Corporation


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 the name 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 create a nonprofit corporation 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:

  1. Click on the link below and go to page 13 of the worksheet to find qualifications:

  2. https://www.irs.gov/pub/irs-pdf/i1023ez.pdf

  3. 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).

  4. 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:

  1. If eligible to file Form 1023-EZ, register for an account on Pay.gov.

  2. 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.

  3. Enter "1023-EZ" in the search box.

  4. Complete the 1023-EZ form online.

  5. 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:

  6. Simplified Guide: https://www.svdpusa.org/Portals/1/E.%20How%20to%20Electronically%20File.1023.EZ%201518.pdf

  7. In-Depth Guide: https://www.irs.gov/pub/irs-pdf/i1023ez.pdf

  8. Pay the user fee of $275 with this form: https://www.irs.gov/pub/irs-pdf/f8718.pdf

  9. Source of information on user fee: https://www.irs.gov/charities-non-profits/form-1023-and-1023-ez-amount-of-user-fee

  10. 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.

  11. Submit all files electronically on Pay.gov

How to File Form 1023

Instructions for the 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:

https://www.stayexempt.irs.gov/home/starting-out/interactive-form-1023-prerequisite-questions