Nonprofit Incorporating - The Business Plan

By Donald A Griesmann, Esq.

7115 B Monmouth Avenue
609.822.3558
Chief Operating Officer
Community Services Support Center, Inc.
May 31, 2005
mailto:Dgriesmann@aol.com
http://charitychannel.com/enewsletters/dggo/

INTRODUCTION

This article has been prepared to give guidance to people who are considering starting a
not-for-profit corporation. It is not intended to be a full and detailed step-by-step manual
about starting a nonprofit corporation, however. There is a list of Federal forms and
booklets at the end of this document. Religious groups that are considering the
development of a faith-based nonprofit organization will also find this article timely.

The purpose of this paper is to bring into question the reasons why someone wants to
start a nonprofit corporation, to discuss the necessary processes to do that and to provide
Internet and other resources for further work in the development of the corporation. For
some readers this will be a handy introduction to starting a nonprofit group. To others, it
may be a cold shower of reality that it requires a lot of work and commitment to start and
maintain a nonprofit business - and it is a business.

As you develop your NPO concepts, remember that the organization will have to meet
legal standards, ethical standards and other forms of accountability. You will find links
to a number of standards that are being developed and strengthened at the web site of
AVAGARA, http://www.avagara.com/nonprof/accountability/, and others listed below.
You will find that some of these standards will help you in the development of your
group. There is increasing pressure from State Attorneys General, the Internal Revenue
Service (IRS) and foundations, corporations and government to assure quality return from
public charities and a clear sense of goals and objectives. Foundations and other grantors
are using the Internet to ascertain the viability of organizations before providing grants.

I strongly advise that any person starting a nonprofit to talk to an attorney about the
process. There is a brief discussion later about finding an attorney, page 23. As you take
the next step in looking at beginning a nonprofit organization, I wish you every success.

POINTS TO CONSIDER BEFORE YOU START A NONPROFIT

Before you decide whether or not to start and to incorporate a nonprofit, you should
consider a number of questions. They are serious questions. They will cover the next
several sections of this paper. I recommend that you sit down, spend some time and write
your answers to the questions on a pad. There are many successful nonprofit
organizations and there are failures. For the purpose of this paper, I am not including the
incorporation of churches and other religious houses of worship; schools, colleges and
universities; hospitals and medical research organizations; section 509 (a) (3) supporting
organizations; private operating foundations, homes for the aged or handicapped,
organizations providing scholarship benefits, student aid, etc. to individuals; or
successors to "for profit" institutions. All of those are required to file the Federal Form
1023 that is addressed in this article. There are, however, additional schedules for those
organizations that are not addressed here. Those additional schedules are not difficult but
you may want to talk to an attorney familiar with tax exempt and nonprofit law. I have
included notes about incorporating childcare centers.

The first know charity law began in 1601 with the passage of the Statute of Charitable
Uses in England. More than half the nonprofits that exist in America were started after
1945. Some of the most successful providers of care were begun more than 100 years
ago. The five oldest national organizations are still in the top 400 recipients of
contributions: YMCA (1851), YWCA (1866), Salvation Army (1879), American Red
Cross (1881) and Volunteers of America (1896). See
http://fdncenter.org/learn/topical/fdnhist.html and
http://www.cof.org/Content/General/Display.cfm?contentID=60 for additional history.

Historically in the United States examples of a charitable organization include:

• Relief for the poor, the distressed or the underprivileged

• Advancement of religion
• Advancement of education or science
• Erection or maintenance of public buildings, monuments or works
• Lessening the burden of government
• Lessening of neighborhood tensions
• Elimination of prejudice and discrimination
• Defense of human and civil rights secured by law, and
• Combating community deterioration and juvenile delinquency.

Elsewhere the IRS Code section 501 (c) (3) describes charitable organizations as those
that are formed for "religious, charitable, scientific, testing for public safety, literary or
educational purposes or to foster national or international amateur sports competition".

There are benefits and detriments in becoming a nonprofit organization under State and
Federal laws. They will be discussed shortly. At this point, it is important to realize that
being recognized as a nonprofit organization in your State and as a section 501 (c) (3)
corporation by the IRS gives the organization public recognition of tax exempt status. It
gives contributors an advance assurance of deductibility of contributions and it allows the
nonprofit to be exempt from certain State taxes and Federal excise taxes. Foundations
and government grants are available to nonprofits that have the recognition of the IRS.
There are other benefits including nonprofit mailing privileges and it may provide relief
from property taxes. I say, "may provide relief from property taxes" because there have
been periodic movements by lawmakers to tax certain nonprofit property. Early in 2001
Baltimore MD considered taxing the huge holdings of Johns Hopkins University and
other large NPOs in the city, but the matter was settled by negotiations. NPOs may have
to pay property taxes if the property is viewed as a profit-making source of revenue.
According to the New York Times on January 6, 2001, Bridgeport CN was initiating a
property tax on all nonprofit organizations.

In most states there are property tax assessments that can be charged to nonprofits
including houses of worship, churches, synagogues, mosques and other NPOs as they are
with businesses and housing. Each can be required to pay property tax on space leased to
other entities such as a day care center, a weekday parking lot or for-profit-businesses. A
number of churches have leased their steeples or towers to cell phone carriers. Usually it
is up to the local municipalities to enforce the law and to assess the appropriate property
tax. That is the bad news. The good news is that the assessment on these lease
agreements may help protect houses of worship and other NPOs from fully losing their
status as a tax-exempt organization.

There is no way to know how many nonprofit organizations exist beyond paper and are
currently viable. The only organizations that can be ascertained as having some money
are those which file Federal Form 990 because they have annual revenue of $25,000 or
more. When we look at nonprofits as a whole, we have to realize that faith-based
religion, universities and colleges and hospitals are in the mix. Religious organizations
do not have to file Form 990 if they do not want to.

Independent Sector published a report on July 18 2001 showing there has been a 74%
increase in the number of charities in the United States in the last ten years. There are
now about 1.626 million nonprofit organizations including 734,000 501 (c) (3) charities.
A copy of the press release and the report can be viewed at
http://www.independentsector.org/ and "Nonprofit Information Center" at
http://www.independentsector.org/Nonprofit_Information_Center/information_center.ht
ml. The American Bar Association reported in late 2001 that the IRS is receiving 85,000
requests for 501(c) (3) application a year, about 325 a day!

The intent here is to challenge you to give you the best shot at success.

REASONS NOT TO INCORPORATE A NONPROFIT ORGANIZATION

This is the start of the questions. Jot down your answers as you read this and the next
several sections.

1. You do not have a group of people who share your mission and sense of vision
who will work with you to create this nonprofit tax exempt organization.
2. You are not sure whether other people will work with you on the project.
3. You left a similar organization and you want to compete with them.
 4. You really do not know how much work it will take to incorporate in the State
and file with the Internal Revenue Service.
5. You do not expect to raise money or seek grants, at least no more than two to
three thousand dollars a year.
6. You are not sure what kind of work goes into operating a nonprofit corporation
after it is incorporated and recognized by the State as a nonprofit organization and
by the IRS as a tax exempt organization.
7. You know there is a need for this service but you have not documented the need
and do not know how to go about meeting the need.
8. You believe it is easy to incorporate a nonprofit group.
9. You believe it is easy to operate and maintain a nonprofit organization.
10. You believe it will be easy to raise the money to accomplish your goals and
objectives.
11. You like to be independent.
12. You have a great idea and you are concerned that other people who become
involved will change the programs and activities you want.
13. You and your family want to control the organization so that it will be run right.
14. You want to be the chief executive officer such as the executive director for a
salary and sit on the board as chairperson.

Please rethink why you want to start a nonprofit. There are many great reasons and
motivations but these are not among them. Nonprofits as with for-profit businesses can
fail. The reasons listed above will help you along the path to failure. Nonprofits can fail
when they are not mission-driven but driven by some other force. The mission, the
purpose, the vision have to be the reasons to start a nonprofit. So rethink your motives.
A second reason a nonprofit may fail is the failure to have a market plan, and a plan to
collaborate and to partner with others rather than to duplicate and to compete. A third
reason for failure can be a lack of attention to the fiscal details involved with the budgets,
bookkeeping and other elements of administration and management. A fourth reason
why it may not succeed is a failure to understand who or what is being served, who is the
constituency, why the service is needed and by whom. A fifth reason a nonprofit may
fail is because the leadership is not creative and has not diversified the supporters, the
volunteers or staff to fill in for the leader's and others' weaknesses. Therefore if you are
one of the fourteen folks listed above, give some new thought to your motives and your
mission - and read on. All is not lost, simply altered. See the article by Tony Poderis at
http://www.raise-funds.com/1101forum.html for a discussion about mission and mission
statements.
 WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF
INCORPORATION?
ADVANTAGES DISADVANTAGES
• A corporation is treated by law as • Increased government regulations
an individual rather than a group of and reporting requirements.
individuals. • Increased paperwork and face some
• Protection from individual liability costs necessary to operate the
from group's debts, negligence, etc organization.
• Can own property in corporation's • More formal procedures required.
name.
• Can enter into contracts, borrow
money, etc. in corporation's name.
• Must be incorporated in the State to
qualify and maintain legal status of
corporation.
• More likely to qualify for tax-
exemption.
• More likely to qualify for grants
and other funds.

REASONS FOR INCORPORATING

1. Your group intends to become a permanently established not-for-profit

organization.
2. The mission you are pursing has a charitable purpose.
3. Your group needs to raise $5,000 or more a year.
4. You want to make grant applications to private entities, foundations or
government, to have fundraising activities or you will be charging a service fee.
5. You have or wish to hire employees.
6. The group owns or plans to purchase significant equipment or property.
7. You contemplate entering into a contract, such as a lease.
8. Your members, board and/or officers need or desire protection from liability for
the group's activities.

QUESTIONS TO ASK YOURSELF BEFORE INCORPORATING

Take the first question below, "What is the purpose of your nonprofit?" (It is really not
yours, you know; it belongs to the board, not an individual) Your answer may be to save
whales, to overcome AIDS, to work with troubled youth or to have a community
development corporation. Go beyond those answers. Review and work on the rest of the
questions and come back to the first one and see if you have some additional purposes or
reasons for starting a nonprofit.

1. What is the purpose of your nonprofit? Why are YOU starting a nonprofit? Why
are you starting THIS nonprofit? What is your vision, your mission?
2. Can you partner or join with another nonprofit organization performing the same
or similar mission without incorporating another group? How will you avoid
duplication of work?
3. What are your qualifications and experience to open and operate this not-for-
profit business?
4. What kinds of activities will your nonprofit involve or sponsor? Who will be
responsible for these activities?
5. Will you be providing a service? Will that service be limited to certain
customers/clients/others? Who? How? Why? When? What will be the proximity
of your office and service to your customers/clients/others?
6. Will you have membership? If so, who will be eligible and what duties,
obligations and authority will members have?
7. What will be the name of your organization? Have you reserved that name with
the State?
8. Where will you be opening and operating this nonprofit?
9. Who will you have on your board of trustees and other people providing money
and assistance? Why will you have them on the board? What part will they have
in decision-making? What part will they play in the organization?
10. What are the advantages and disadvantages to incorporating THIS organization?
Make two columns and list both advantages and disadvantages. Talk to others
who are working with you to add to both lists. Do the advantages outweigh the
disadvantages?
11. What are your resources? What are your talents, experience or education to
operate this organization?
12. Will you have paid staff and personnel? Will you have volunteers? What are
their responsibilities and authority? What roles will they play in the organization?
What are the responsibilities of the organization to its employees and volunteers?
Who will handle those responsibilities?
13. What is your experience in managing a nonprofit organization or other endeavor?
14. Will your organization or personnel require licenses, registrations, approvals,
certificates or permits? Will your staff require licensing, criminal background
checks, or drug testing?
15. Do you own equipment or other forms of property? Do you plan on acquiring
property and equipment? Will you purchase or lease the equipment and property?
How will you acquire these resources? How will you pay for renovations,
furniture and signs at an office? How will you pay for the continuing
maintenance and improvements?
16. How and where will you keep supplies, stock and inventory?
17. What are your financial needs? Does the organization have a bank account? What
are your financial skills? What kind of grants or funds will you need? How much
money will you need to begin to open this organization and sustain it - for 1 to 6
to 12 months, or for three years? Where will that money come from?
18. What potential liability does this nonprofit have? What insurance protection will
you need?
19. Have you received any training, education or technical assistance to operate a
nonprofit business? If you have not received any training, education or technical
 assistance, will you need that kind of help? Where will you find that help? How
will you pay for it?
20. Have you developed a business plan? Do you know what a business plan is and
why you need one?
21. How will you keep financial records and other important records such as
contracts, orders, wage payments, vouchers, bills of lading, bank accounts, tax
information, personnel records, annual reports, audits and so on?
22. Are there other not-for-profits or for-profit groups - competition - like yours in the
community where you will open? How and why is your nonprofit different than
they are?
23. What are the major impediments for you to start this organization? What are the
barriers? How will you overcome these impediments and barriers?
24. How will you advertise or market the nonprofit's service? How will you get
customers/clients/supporters? What will be your niche or specialty in the
community you serve, the market place?
25. Have you or other members of your family and friends operated a business or
another nonprofit? Will they help you in this enterprise? What will that help be?
26. Does your group plan on dissolving after a period of time or is it a long-range
project?
27. Do you believe the organization will be involved with lobbying, advocacy and/or
political activities?
28. Do you have the right stuff to create, maintain and sustain this dream?

DEVELOPING A BUSINESS PLAN

Starting a nonprofit is complex. You cannot simply have a great idea and a community
need and look for funders, customers or clients. You need a plan, a plan in writing. Such
a written plan is called a business plan. If you sat down and started writing answers to
the 27 questions listed above, you have a start to producing your business plan.

Why do you need a business plan? Generally for-profit leaders prepare a business plan to
get ready to open the business and to have a document to give to potential investors or
lenders. Not-for-profit leaders have a responsibility also to get ready to open for
business. The State and the IRS will ask a significant number of questions about the
organization, particularly the IRS. Nonprofits have to find funding. The business plan
becomes an introductory document to give out locally to community leaders, the United
Way, the mayor and town/city council, local trust funds and others, State elected and
appointed officials and partners in the venture. If you will be seeking foundation,
corporate or government funding, the business plan will be helpful to leave with leaders
at the first introductory meeting. Perhaps even more important - it will give you and your
helpers a clear idea what it takes to develop your dreams into reality and to plan for the
future.

Here is an outline about what you should have in your business plan.
• Title Page - The Title Page will have the name of your organization, a list of the
board of trustees or directors, the chief executive officer (I will refer to this person
throughout this paper as the "executive director"), and the office address, telephone and
fax numbers. If there is an e-mail address and a web site, include them as well. Note:
some States call the board "trustees" and some States refer to the board as "directors".
There is no real difference; use the word that is in your State law.

• Executive Summary - Actually you will write this last but it should be placed
right after the Title Page. The reason you will write this last is that it summarizes briefly
all the material following. The Executive Summary will tell the reader how the nonprofit
is organized. It tells who you are and the function of the nonprofit organization. If you
are looking for grants and money or will conduct fundraising activities, it will summarize
your method and purpose for raising money that way. . Key elements of the Executive
Summary include clear identification of the organization, at least one sentence each on
credibility, the problem being addressed, objectives, and methods. Include budget totals
- total project cost, funds already obtained. Be sure it is brief, it is clear, it is interesting
and it is truthful.

• Corporation Description - Here you will give an overview of the function of

your organization. Discuss briefly a history of how the idea of the organization began, its
projected size (building needs, space, employees, equipment and tasks), a description of
the service you will provide and the community or market your organization will be in.
Character is the general impression you make to a prospective supporter, contributor or
funder. Describe the character of your organization and its leadership. Discuss the values
this organization and its leadership will exhibit. Supporters and funders will form a
subjective opinion as to whether or not you are sufficiently trustworthy actually to be able
to perform the service and to handle the funds. The educational background and
experience of the board and staff will be reviewed. The quality of the references and the
background and experience of your leadership and employees will also be taken into
consideration. Discuss those items here.

• Market Analysis, Data - Starting a nonprofit requires doing your homework,

study and research. In this section you will discuss that research and the conditions and
trends in the needs you want to meet. Write about the need for your service and the
demand for it; how is it unique? Describe how many other major competitors you have,
both for-profit and not-for-profit organizations, how much of the need your competitors
meet and control, and your strategy for gaining a place meeting that need or developing a
new niche. You need to be able to explain any barriers that you will have to face at the
beginning, how you will sustain your activities as a nonprofit organization how you plan
to overcome those barriers. You may have discovered a gap in services; describe that gap,
why you believe it exists and how you will close that gap. Are there other organizations
that are willing to help you close that gap (list them and include letters of support in the
Appendix)? How many people or other needs will you serve and what are those needs?
Place the demographics about the need for this service in this section. Detailed surveys,
tables and charts can be placed in the Appendix. You may need statistical information or
data from the US census, for instance. Who will be your collaborators or partnering
organizations? Do not name them unless you asked them and they agreed to be included.
Are there community leaders, both public and private, who support this effort? Have they
written supporting letters? Put such letters in the Appendix. Is there anecdotal
information that can support your plan?

• Services - Explain your vision, your mission, the goals and objectives, the kind of
services that will be provided and the activities and functions in detail. How will other
people know that you are able to meet these goals and objectives? How are your goals
and objectives measurable? How will anyone know you are meeting your stated goals
and objectives? How do you know the activities you have planned will meet the stated
goals and objectives? You have to answer the question, "So what?" So what if you will
perform these activities? So what if you outline an extremely busy and detailed activity
list? What will be different because you perform these activities in the way you perform
them? What difference will it make? How will people or the problem be better or
resolved? I have met with many community groups that work very hard and I have asked
the question, so what? What have you changed or accomplished? Many are not able to
articulate and prove they accomplished or changed anything. So…what will you change,
how will you change it and how will you know your activities produced the change?
What are the conditions under which your service will work? What is your mission and
what is your mission statement? If your mission statement is brief and you have a logo,
consider placing them on the Title Page as well. Here are some thoughts about a mission
statement. There are those who believe it should encompass the basic reason for
existence and can be several sentences long. There are others who say make it short so
everyone can say it by memory and so it will fit on a T-shirt. Either way put the time in
on creating this. It is not easy. Include others in the discussion and allow refinement as
time goes on.

• Operations - Explain how you will create and how you will deliver your service
and meet the identified need(s). Specify how you will get your service out the door to
customers/clients or supporters and meet the needs you see. Give the location of your
service and state how and why that location was selected. Are there any barriers for your
clients/customers because of this location? Do you have a storage area? Where will your
inventory be warehoused or kept? Create a flow chart that shows the steps you will take
to offer and to provide the service. One of the two most difficult sections in completing
IRS Form 1023 is Part II, Activities and Operational Information, particularly question 1.
The IRS wants "a detailed narrative description of all the activities of the organization -
past, present and future" (emphasis added). Providing this information in this and other
sections of your business plan will go a long way in helping you complete Part II of Form
1023.

• Marketing Plan - Describe how you intend to provide your service and who will
use it. How will people know about the service? Describe your distribution plan and
advertisement plan. Give the details of your marketing plan. Will you use fliers, the
Internet, local newspapers and media, e-or snail-mailings or word of mouth? As with any
other business the new nonprofit has to include in its marketing plan product positioning.
Placing the NPO and its mission in front of its constituents, possible supporters and
volunteers is vital to the success of providing the service. How will people know your
address, your telephone number, how to reach you? For many new NPOs the marketing
plan seems to be to have a web page up and running. I am surprised by the development
of a web presence before the group is even incorporated. Do not be confused by this - I
believe in a web presence but it is only one part of the marketing plan that has to be
broader. How will your organization handle public relations? Who can speak for the
organization? Will there be a committee of the board developing and handling marketing
and public relations? If there will be such a committee, discuss its role here. If there is
no experience in the group concerning marketing, how will you overcome this barrier?
How will the organization handle bad publicity and other risks?

• Board of Trustees and Members – It takes a TEAM to raise a nonprofit

organization – to raise it, to maintain and to sustain it. That team begins with the
governing body. Describe the governing body of the organization, the board and state
whether you will have members. Do you have bylaws? If you have bylaws, place them
in the Appendix. What role will the members play? Who is on the board and who are the
officers? Describe how these individuals became members, board members and officers.
What experiences do the board members bring to the organization and its mission? NPOs
should carefully consider paying for board and staff Errors and Omissions (E&O) or
Directors and Officers (D&O) insurance and liability insurance as protection in legal
actions. If you intend to have a significant web site presence on the Internet, consider
insurance to protect the organization with that as well. In my view insurance is a
necessary ingredient to the budget. See my material Insurance Questions for Nonprofits -
http://www.nonprofits.org/npofaq/19/56.html. Attach resumes of at least the officers to
the Appendix although it would be more helpful to have the resumes for all board
members if the board is not too large.

• Management and Personnel - Explain who will direct the day by day operation
of the nonprofit. Who will work with that person? What are the standards that will be
used to hire and train the executive director and other staff? Describe how their
experience will contribute to the success of the mission of the organization. Demonstrate
the use of technology in your plan of service, particularly finances and budgeting, e-mail
strategy and web site development, and availability to employees, volunteers and
constituents. Give an outline of the work plans that will be followed by employees and
volunteers to meet the mission of the organization. A work plan shows what work will
be done, who will do it, how it will be accomplished, where activities will take place, the
date by which it will be done and feedback and analysis of the effectiveness and
efficiency of the tasks accomplished. Outline the employee policies you have or will
have in place such as a personnel manual, anti-sexual harassment policy, equal
employment opportunity and so on. Include employees' job descriptions and personnel
needs. Include copies of resumes for all known key staff people in the Appendix.

• Funds Required and Expected Use of the Funds - If you are going to raise
money, seek grants, hold fund raisers, collect dues, explain how you intend to raise the
money, why you need the funds and how you will use the money. Show how you will
account for the money and what records you will keep. Describe your accounting system
and the policies you have or will have in place concerning salaries and fringe benefits,
travel expenses, bank reconciliation, separation of functions and so on. State a specific
amount of money you will need for the first year and for the next two years. If you have
letters of support and persons who are willing to provide funds once you are approved by
the IRS as a nonprofit organization, consider whether to include them in the Appendix.
You may not want to publicize them at this stage of your progress; they may want to
remain anonymous. Describe your plan to secure funding and give a contingency plan in
case your initial plan fails. One of the two most difficult sections of IRS Form 1023 is
Part IV, the Financial Data. The time spend in preparing fiscal information here and in
the next section below in the business plan will reduce the time and effort answering the
questions in Form 1023, Part IV. Demonstrate the role of the board in funding and
accounting in this section. Indicate how the organization will be maintained and
sustained during the first three years. See internal controls suggested by the New York
State Attorney General - http://www.oag.state.ny.us/charities/internal_controls.pdf

• Financial Statements and Projections - Include projections and budgets for the
expected performance of your nonprofit for the upcoming three years. You will need to
demonstrate your understanding of basic accounting and the financial concepts that are
crucial to the success of your organization. Detail the budget for three years covering
personnel, fringe benefits, employee taxes, telephones, computers, insurance, space costs,
travel, training, supplies and so on. By using complete and accurate projected financial
statements, you will be able to communicate to a prospective contributor or funder how
these concepts will be successfully applied in your organization. The narrative about the
finances will be in this section and the documents are to be attached to the Appendix.

• Appendices/Exhibits - This section will document any issues you cannot address
in other sections. An example is an agreement you have with other nonprofits or
individuals, contracts for the lease or purchase of your property, equipment, job
descriptions, professional, operating or health licenses and so on. Other sections above
list other documents to include in the Appendix.

Are you finished? Then you can prepare the Executive Summary.

The Nolo Press has an excellent brief article answering the question, Why you need to
write a Business Plan located at
http://www.nolo.com/encyclopedia/articles/sb/why_bp.html?e=b20b0000206032001.
The article addresses the reasons to create a business plan, the importance of financial
forecasts and the need to raise money. There are temptations to skip financial
projections; they are hard. There is an old bromide that says the devil is in the detail.
That is true for the business plan and will be in every grant application you prepare. Do
not skip the financial projections. Program precedes money. Planning precedes program.

SCORE has a useful 32-page business plan template at

http://www.score.org/template_gallery.html. While it is aimed at small businesses, it can
serve the purpose for a nonprofit as well. SCORE is a nonprofit association that provides
entrepreneurs with free, confidential face-to-face and e-mail business counseling. Sample
business and marketing plans are also available at
http://www.morebusiness.com/templates_worksheets/bplans/.

Developing your business plan early in the process will save you headaches and
heartaches later, particularly when you are seeking grants. Depending on the instructions
in a Request for Proposal (RFP), you may want to include your business plan or an
executive summary. Some RFPs limit the number of pages and attachments. If you seek
a grant and it is not approved, politely ask why. Seek an appointment to talk briefly
about the application so that you can learn what can be improved. Each governmental
and private foundation has different standards for providing grants, so there may be
reasons stated that would help you understand why they did not give you a grant this
time. That can help you assess future grant applications. Remember that this is part of
the public relations process as well and alienation of a funder will certainly hurt the
organization in the future. Such pursuit for assistance and understanding can help you
assess future grant applications and develop a relationship with the funder. Perhaps your
business plan has to be strengthened or amended.

OTHER FACTORS TO CONSIDER

You are working on your business plan, but there are still other significant factors to
consider. This section will be a brief outline of those factors. You can find help in
addressing these factors both in this section as well as the next section, "Other Resources
Available to Help You".

• Deciding Your Business Name and Registering It - you will want to check with
your appropriate State office to learn if the name you want for your organization is
available. In some States that office is the Secretary of State, in others it is the
Department of Commerce or the Treasury Department. Check your State's web site. If
you are having trouble finding what you are looking for, put "nonprofit" or "tax exempt"
in the search box and follow the leads. Some States require that nonprofits use the words
"Incorporated", "Company" or "Corporation", abbreviations or similar language. Other
States do not permit those titles.
• How to Reserve/Register Your Business Name - you can check on the
availability of the name and /or reserve the name in your State. You may be able to
reserve the name for 120 days by contacting the appropriate State office. There is
probably a fee to reserve the name. If you expect to use the initials of the name, you may
have to reserve that as well.
• Filing Incorporation Papers - you must register your business with your State
by filing Articles or Certificate of Incorporation. Some States refer to the incorporating
papers as "Articles" and other States call them "Certificate". There is certain language
that the federal IRS requires in the Articles to be approved under Section 501 (c) (3). Be
sure to include that language. Individual States have additional language they require in
the Articles. Your State may have a form or a model incorporating form but the form
may not have the language the IRS requires. Be certain to have the language both your
State and the IRS require. The instructions to Federal Form 1023 have sample-
incorporating papers with the required Federal language (and not the language required
by States). The language can be also found in IRS Publication 557. Be sure to include
that language. There are fees required at various steps by States. Check the State web
site for fees or contact the appropriate State office. For links to State offices, see
http://www.nasconet.org/index.php?topic=Offices.
• If You Will Have Employees - you will need to file IRS Form SS-4,
"Application for Employer Identification Number (EIN or FEIN)" – The instructions for
SS-4 include the address and contact information for the regional office to file for the
FEIN. Application may be filed by telephone, FAX or by regular mail. (See also IRS
websites for forms listed below.)
Please note: do not open a bank account for your nonprofit group under your own
Social Security number. If you open such an account for your organization under your
Social Security number or that of another individual, all income will be taxed under that
number. If you have an EIN, bank accounts can be opened under that number and the
name of the organization. An EIN is like a Social Security number, but for a nonprofit
organization or business.
• Form 1023 and Other Federal Material - after you have the State approval for
your Articles/Certificate of Incorporation and the EIN, you may file IRS Form 1023,
Application for Recognition of Exemption. Form 1023 is a lengthy document and is not
easy to complete. The IRS charges a fee upon filing Form 1023. The work you did on
developing a Business Plan will, however, give you enough information for an excellent
first draft. Other forms you will have to file are Forms 872-C (Consent Fixing Period of
Limitation upon Assessment of Tax under Section 4940 of the Internal Revenue Code, to
be submitted in duplicate), and 8718 (User Fee for Exempt Organization Determination
Letter Request). You will also find Federal Publication 557, Tax-Exempt Status for Your
Organization, absolutely helpful. Publication 557 has sample Certificate and Articles of
Incorporation containing the Federal language the IRS requires (but not the language
States require). Other IRS documents, IRS 15 Circular E, Employer's Tax Guide,
Publication 15-T, Withholding Income Taxes and Publication 598, Tax on Unrelated
Business Income of Exempt Organizations, should be part of your library early. Form
8718 will list the fees to file with the IRS; read the instructions carefully. If you will
have an attorney filing the forms for you, you will need a signed Form 2848. Links to
these and other IRS Forms, Publications and Instructions are located at page 26. File
copies of all other documents the IRS requires in the instructions, including:
• Current Bylaws and all amendments
• Conformed copy of your Certificate or Articles of Incorporation
• List of current Board of Trustees, officers and addresses
• Material written by or about your organization, e.g.: newsletters, publications,
news articles, pamphlets
• Contracts your organization is or has been a party to
• Grant applications your organization has submitted for funding
• And others as required.
The filing of these forms and processing them may take several months before you
receive a ruling. The 1023 may be returned to you for corrective action. When the IRS is
satisfied with your application it will issue a letter of determination of tax exemption,
usually an "Advance Ruling". The Ruling can be retroactive. Please be aware the IRS
issues letter opinions and Revenue Rulings that also have to be considered. The
beginning web site for Federal requirements is http://www.irs.gov/charities/index.html
• Childcare - filing IRS Form 1023 for operating a childcare center requires filing
Schedule G as well. See Form 1023 and read the sections about childcare in Publication
557. The Schedule is not complex but must be read and answered carefully. If the
childcare center mission is to operate a school in addition to childcare, Schedule B of
Form 1023 must also be completed. It is important to know that for IRS purposes
childcare is defined as "the providing of care for children away from their homes if
substantially all the care provided is to enable individuals (the parents) to be gainfully
employed and the services are available to the general public". Remember this definition
when you complete Schedule G. There may be State laws and offices that also must be
contacted for licensing purposes. Technical assistance may also be available from one or
more State agencies or other nonprofits. The Americans with Disabilities Act (ADA)
applies to child-care centers. For further information about the ADA see material from
the U.S. Department of Justice, http://www.usdoj.gov/crt/ada/childq&a.htm.
• Registering with Your State Concerning Tax Exemption - many States require
that you file the IRS determination letter in order to be tax exempt in your State. When
you register your nonprofit, the State may send you the necessary forms and information
for compliance with your State's tax and employment laws. Be sure to have your EIN on
all forms, returns, checks and other correspondence. The State may also issue a number
for your organization's identification. The purpose for this filing in most States is to have
the nonprofit organization avoid paying sales tax for items to be used by the organization
and for employee income tax.
• Unified Registration Statement (URS) - your State may be one that is using the
standardized form to register NPOs that perform charitable solicitations. The URS is
developed by the National Association of Attorneys General and the National
Association of Charities Officials to standardize, simplify and economize compliance
under State's solicitation laws. For further information, you can learn more at
http://www.multistatefiling.org/.
• Permits and Other Regulations - you need to contact the clerks of the
municipality and the county/parish where the nonprofit is to be located to determine if
there are any local regulations to which your organization must conform. Also check if
there are any permits required.
• Employee-related Issues - even if you have a single employee, you may be
required in your State to register for employee income tax, unemployment, Workers
Compensation and disability insurance. Other employee-related issues include child
support reporting and immigration concerns. There can be serious consequences for
failure to make these contacts and to set up the accounts if you have an employee. Both
your State and the United States Government have posters that are required to be placed
in a public area concerning employees' rights. There are severe penalties for failure to
place the posters in public. See HRDocs.com at http://www.hrdocs.com/Posters for a list
of posters and for copies. You can secure an electronic version of federal posters free. Fill
out the requested information at the web site and click the Continue button. HRDocs.com
will send a file containing each poster to the e-mail address you provide. Simply open the
files, print each poster, and post them. http://www.hrdocs.com/Posters/federal.asp. You
can also check your state and any other state for a free e-mail update notice of changes of
posters. I have subscribed to all states for my e-newsletters. This is a commercial site and
the owner is selling a service. He may be willing to provide the full service to a nonprofit
at no cost. I have no investment interest here. We shared some e-mails last year and he
was willing at that time to hear from NPOs who need a free assistance. It is highly likely
that your state’s web site also has these posters and more available at no cost.
HRDocs.com does NOT feature all state required signs, so be certain that you verify
information with your state. Also take a look at the Alexander Hamilton Institute’s
listings of posters by state. The Institute offers free Federal posters for download and a
free state-specific reminder system when changes in posters occur -
http://www.ahipubs.com/posters/index.html. You may be able to secure the posters free
from your State web site. For the Federal posters, see
http://www.dol.gov/elaws/posters.htm. If you will operate a virtual office over the
Internet, you would be safe posting all required posters on an employee page or public
page to protect the corporation. If you have staff in several states, post all States' posters.
Annual and Other Reports - your State may automatically send annual filing forms to the
organization's "registered agent" who is named in the Articles/Certificate of
Incorporation. Please remember that if you change who your "registered agent" is, you
must notify the State. The annual filing form has to be returned by a deadline and there
may be an annual filing fee. If the organization does not receive the annual form, it is the
organization's responsibility to file the annual report and the fee nevertheless. In many
States failure to file and to pay the fee for two consecutive years will result in revocation
of the corporate charter. The IRS will require various reports including a Form 990 or
990-EZ (short form), maybe the 990-T (exempt organization's business income tax
return) and possibly 8300 (report of cash payments over $10,000 received in trade or
business). Form 990 and other Federal documents are required by law to be public. See
my discussion, “Nonprofit Organizations - Disclosure of Information: What Must We,
What Can We Disclose to the Public, Staff, Board and Clients?”
http://www.nonprofits.org/npofaq/0/1505.html, Disclose It from Maryland Association of
Nonprofit Organizations http://www.marylandnonprofits.org/documents/Disclose.pdf
and a Guidestar tutorial about Form 990,
http://www.guidestar.org/learn/tutorial/990_0intro.jsp. Ongoing IRS Filing Requirements
are listed at http://www.irs.gov/charities/article/0,,id=96103,00.html

The checklist above is only informational and instructional. There are many other issues
that leaders developing a nonprofit need to be aware from handling public disclosure to
maintaining files. This paper does not address those and other issues. It does not
constitute legal advice. Please contact an attorney in your State who is familiar with tax
exempt or nonprofit law before you complete forms for your organization.

OTHER RESOURCE AVAILABLE TO HELP YOU

The Internet web sites listed below have "hot links" so that this article can be used while
you are online and access the sites. If you have a paper copy of this document and do not
have a computer, you can access this material at your local library with computer
availability.
The starting place is the Internal Revenue Service NPO Application Process -
http://www.irs.gov/charities/index.html. Here you will be guided through the process of
filing the appropriate forms to be recognized as a tax-exempt organization. There are
links to all the IRS forms so they can be printed from your computer. Other sections of
the IRS web site are the following:

IRS Application Process - http://www.irs.gov/charities/article/0,,id=96210,00.html

Life Cycle of a Public Charity –

http://www.irs.gov/pub/irs-tege/tege_life_cycle_of_a_public_charity_-_final.pdf

IRS and Disclosure of Contributions -

http://www.irs.gov/charities/article/0,,id=96102,00.html

IRS Field Memoranda - http://www.irs.gov/charities/article/0,,id=96374,00.html

IRS Bulletins - http://www.irs.gov/charities/content/0,,id=125361,00.html

IRS Revenue Rulings - http://www.taxlinks.com/rulings/findinglist/revrulmaster.htm and

http://www.irs.gov/irm/part7/index.html

IRS Frequently Asked Questions (FAQ) -

http://www.irs.gov/charities/content/0,,id=96986,00.html

IRS Filing Requirements - http://www.irs.gov/charities/article/0,,id=96103,00.html

IRS and Unrelated Business Income Tax -

http://www.irs.gov/charities/article/0,,id=96104,00.html and Special Rules
http://www.irs.gov/charities/article/0,,id=96106,00.html

IRS Tax Kit listing the forms and pamphlets that are needed-
http://www.irs.gov/charities/article/0,,id=96774,00.html

There is web site assistance by Sandy Deja available in preparing the Federal Form 1023
at http://www.form1023help.com. Form 1023 Help has a page by page review of 1023
and important information to maintain the exempt status.

You can look at, read and print your State statute or code at Free Advice. Here you will
find a map of the United States, http://law.freeadvice.com/resources/statecodes.htm.
Click on your State. The web site for your State statutes will appear. Scroll through and
find the law on business or corporations. Some States have specific sections or articles
listed as "Nonprofit" or "Tax Exempt". In other State statutes, nonprofit organizations
are part of the corporation law and you have to read all of it to find the appropriate
sections. Some sections are specifically aimed at tax-exempt organizations but the entire
corporation law may apply. The use of this site and your State law is not a substitute for
talking with an attorney.
There are links to all states’ incorporating law,
http://firstgov.gov/Business/Nonprofit_State.shtml

The Foundation Center has an incorporating outline at its Learning Lab,

http://fdncenter.org/learn/ufg/ufg_tab1.html and
http://fdncenter.org/learn/classroom/establish/index.html.

Business Filings features brief statements about incorporating a tax exempt organization -
http://www.bizfilings.com/learning/nonprofitfaq.htm

Under the topic, Starting a Nonprofit Organization (for-profit or nonprofit), in the Free
Management Library assembled by Carter McNamara, MBA, PhD you will find valuable
links to information - http://www.managementhelp.org/strt_org/strt_org.htm and
http://www.managementhelp.org/strt_org/strt_np/strt_np.htm

Putnam Barber has excellent material at the FAQs of the Internet Nonprofit Center,
http://www.nonprofits.org/. In particular see the article Where to start when creating a
nonprofit at http://www.nonprofits.org/npofaq/02/01.html. The topics include
organization, management, regulations, resources, development, mission statement,
employment opportunities, accounting and much more.

Nolo Press has an excellent handbook on nonprofit organizations, How to Form a

Nonprofit Corporation, which is for sale at the site. Nolo Press also maintains a useful
web site. The basics for incorporating are discussed at
http://www.nolo.com/encyclopedia/articles/sb/np_basics.html covering liability issues
and reasons for incorporating. As with many web sites dealing with nonprofits there is a
link at the bottom to a section about Frequently Asked Questions (FAQ) that in each
instance I highly recommend reviewing. At
http://www.nolo.com/article.cfm/ObjectID/F63DD4C1-456C-418F-
A1066A3F3FBE05A5/catID/CE94A6B3-EFB6-4036-
8498D5414328FD73/111/262/ART/ there is a list of five reasons to incorporate a
nonprofit organization.

The material about a business plan discussed above features the words "mission" and
"mission statement". There are many excellent sites to assist you in these concepts - too
many to list here. But one that I will list is from Tony Poderis, http://www.raise-
funds.com/1101forum.html. Read it carefully. The statement about your organization's
mission is vital and should be the focus of much work and discussion. See also The
Mission Statement Checklist, http://www.raise-funds.com/exhibits/exhibit46.html

The web site for the Small Business Administration is http://www.sbaonline.sba.gov/

where you will find a significant amount of information about the beginning of a
business. Basically, however, nonprofit organizations are not eligible for loans from the
SBA. Although this site addresses issues for for-profit ventures, there is useful
information for not-for-profit organizations as well.
Material about marketing and publicity can be found at Independent Sector -
http://www.independentsector.org/mission_market/index.html and Nonprofit FAQ -
http://www.nonprofits.org/npofaq/keywords/2n.html. For assistance in preparing a press
release, visit http://www.press-release-writing.com/ for helpful hints, templates and other
assistance. This is a business site but they offer a significant amount of material without
cost.

• Basic elements of a press release – http://www.press-release-writing.com/content-

basics.htm
• How often should you have a press release – http://www.press-release-
writing.com/newsletters/t113-how-often-press.htm
• Ten essential tips to produce a press release – http://www.press-release-
writing.com/10_essential_tips.htm
• Suggestions for formatting a press release – http://www.press-release-
writing.com/formatting-suggestions.htm
• Sample press releases – http://www.press-release-writing.com/sample-press-
release.htm
• Press release template – http://www.press-release-writing.com/press-release-
template.htm
• Style Guide, International -
http://www.economist.com/research/StyleGuide/index.cfm
• Lists of radio, TV and newspapers nationally, media links -
http://www.gebbieinc.com/aio.htm and http://newslink.org/news.html
• A Managers Guide to Creating a Newsletter -
http://www.managersguide.com/indexa.html

The key to the success of a nonprofit, its mission and its accountability starts with the
board of directors. There is significant information about boards on the Internet. Some of
the most useful is –

• Carter McNamara and the Free Complete Toolkit -

http://www.managementhelp.org/boards/boards.htm
• Alliance for Nonprofit Management - http://www.allianceonline.org/FAQ
• Pennsylvania Attorney General Handbook for Charitable Nonprofit Organizations
- http://www.attorneygeneral.gov/pei/brochures/charities/html/handbook.cfm
• Nonprofit Good Practice Guide - http://www.nonprofitbasics.org/
http://www.npgoodpractice.org/
• The Council on Quality and Leadership resources -
http://www.thecouncil.org/resources/?c=free-resources

Your State law may cover the obligations and responsibilities of a board of trustees.
Under most if not all State laws a board of directors of a nonprofit corporation has a duty
of care, a duty of loyalty and a duty of obedience to the organization. Each state specifies
what it considers is an acceptable level of behavior in determining if board members are
acting in the best interest of the nonprofit organization. There are model and sample job
descriptions for the president or chair of the board as well as for members and
discussions about the role of officers. See
• http://garberconsulting.com/job_description_president.htm
• http://garberconsulting.com/Job_Description_Secretary.htm
• http://www.managementhelp.org/boards/brdjobs.htm.

The issue of conflict of interest in nonprofits is a matter for concern. The conflict may
come about in the context of a contract between the organization and a board member or
with a family member of a staff or board member. The bylaws should have a distinct
section addressing conflict of interest and how it will be handled. In the beginning period
the question is often asked if the founder can be the salaried head of the organization and
on the board, or have the board filled with family members. The appearance of a conflict
can be as serious as an actual conflict. Loyalty to the organization is paramount in a
group's activities. One useful article on the Internet is found at
http://www.boardsource.org/FullAnswer.asp?ID=89. Each State nonprofit law has
provisions concerning conflict of interest. The concern around the involvement of the
founder is called "Founder Syndrome" where the founder has over-bearing influence
upon the organization. NPOs are a public trust, not a personal venture. This issue should
be addressed in the bylaws. http://www.managementhelp.org/misc/founders.htm

The IRS has interest in conflicts as well. There is such a thing as "Intermediate
Sanctions" that affect persons who are "in a position to exercise substantial influence over
the affairs of" a 501(c) (3) organization. The persons who can be in this group are the
founder (that Syndrome again), the president, the Executive Director, the Chief Executive
Officer (CEO) or the Chief Operating Officer (COO), substantial contributors, and
certain relatives. For more information on this subject review this memo -
http://www.runquist.com/article_intermedsancts.htm

Accountability and transparency are the new words for nonprofit organizations. It appears
to some that the whole field of tax exemption should be reviewed and made more
“transparent”. There is a lot of movement to tighten the material in the 1023 and 990s.
One law that was stimulated by Enron and other for-profit companies is the Sarbanes-
Oxley (SOX) that requires CEOs to sign financial papers filed with the Security and
Exchange Commission. There are other elements to the law. For a discussion on the
significance of SOX on nonprofit groups see
http://ncna.org/index.cfm?fuseaction=Page.viewPage&pageID=429.

Nonprofit organizations in Maryland developed a statement of ethics and accountability

covering mission and program, governing body, conflict of interest, human resources,
financial, legal, openness, fundraising, public affairs and public policy. The standards are
posted at http://www.mdnonprofit.org/ethics_initiative.htm. Other groups have
developed similar standards and useful rules for philanthropy by Internet,
http://www.nasconet.org/, http://www.ephilanthropyfoundation.org/ and as core values,
http://www.utahnonprofits.org/ethics.html. Many foundations are staring a search about
applicants through GuideStar; GuideStar offers basic, in-depth, and customized data
services on more than 1 million U.S. nonprofits. http://www.guidestar.org/index.jsp
The Organizational Assessment Tool (or OAT) is for organizations who are interested in
taking a look at their own capacity and effectiveness. (It makes sense to review your
organization’s own structure and readiness before you begin using their program
planning and evaluation tools.) The OAT leads you through an online survey, asking
questions about key areas of organizational development, and then produces an
immediate snapshot report of your organization's strengths and challenges. You can use
the report as a springboard for discussions of next steps, and to help you determine
whether there are areas of organizational capacity that you need to address before moving
on http://www.innonet.org/tools/oat .

Faith-based and community-based organizations can find assistance at the Pew Forum on
Religion and Public Life, http://pewforum.org/faith-based-initiatives/. The White House
web site features dates for conferences, grants and planning material,
http://www.whitehouse.gov/government/fbci/. For links to many organizations with
information for faith-based organizations, see my material at
http://charitychannel.com/publish/templates/?a=1581&z=0 .

The Utica NY Public Library maintains a virtual nonprofit library. There are links to
other web sites concerning Boards, Management, Planned Giving, Volunteering and
many other important topics. The library is found at
http://www.uticapubliclibrary.org/non-profit/directory.html.

If you are looking for help on technology as you plan out your organization. TechSoup
offers excellent articles, a newsletter and has a forum for questions and answers,
http://www.techsoup.org/. They list nonprofit discounts and sections on building the
technology plan and at the Tech Soup Stock web site
http://www.techsoup.org/stock/default.asp . See also a report on community-based
technology centers, Computers in Our Future, and the "Toolkit" to make them useful,
http://www.ciof.org/index.html. See Tech Foundation,
http://www.imakenews.com/techfoundation/, for technology grants and a free newsletter.

The Nonprofit Financial Center is a membership organization. Nevertheless they have

financial material, forms, policies and procedures at no cost.
http://www.nfconline.org/main/info/guides.htm

Jayne Cravens maintains an excellent site through her consulting firm, Coyote
Communications, at http://www.coyotecom.com/free.html. She has valuable links to
other organizations to assist in the development and growth of your organization. There
are also helpful tips about technology, especially used equipment.

Management Information Exchange (MiX) has a sample job description for board
members and additional information concerning the board of directors, worksheets and
toolkits, http://www.lcmmix.org/articles.cfm?cat=0&top=0
BoardSource is a valuable asset to the development and maintenance of an NPO. The
URL for BoardSource with information about nonprofits is http://www.boardsource.org.
You will find essential information about board governance and formation.

Board meetings can be exciting and focused. A lot depends on the leadership, knowledge
and experience of the chairperson. The setup of the room where meetings are conducted
can also affect the meeting. For ideas about room setup, see
http://www.llrx.com/columns/guide59.htm and
http://www.rwjf.org/grantee/howtoPlanMeeting_1.jhtml.

An issue confronting nonprofit groups is using Robert's Rules of Order. I have found
several web sites that I think are helpful to understanding Robert's Rules of Order.
Although there is a push to sell the book on each, there are useful "cheat sheets" and
discussions as well on the sites.

http://www.robertsrules.com/ - The Official Robert's Rules site

http://www.rulesonline.com/ - An adaptation and helpful outline to Robert's

http://www.jimslaughter.com/ - An excellent site with an available "cheat sheet"

http://www.parliamentarians.org/parlipro.htm - The web site of the National

Parliamentarian Association with another useful "cheat sheet" and discussions about
meetings and an agenda.

http://www.everett.com/parli-pro/ - A web site from a consultant with free material on

presenting motions, writing minutes, counting a quorum and other matters

http://www.newkent.net/rules.html - Trout's Top Ten Rules of Order

http://www.carvergovernance.com/ - John Carver has been preaching an alternative board

governance process and policy and this is his web site.

Incorporating is not the end of the process of developing, maintaining and sustaining the
organization’s mission and vision. Nonprofit groups have to consider written policies,
procedures, forms and recordkeeping. Some web sites that can help you in this phase of
operation are listed here. This is not a complete list, but will give you a head start.
Greenlights has a number of downloadable forms and draft policies for nonprofits,
http://www.greenlights.org/site/pp.asp?c=iuIYLdP4G&b=14665&sid=7651530.
Findforms.Org has sample legal forms relative to leases, employment contracts and much
more, http://www.findforms.com/. They also sponsor the web site, Lawguru that features
a FAQ section about sexual harassment, employment law and so on,
http://www.lawguru.com/faq/11.html and http://www.lawguru.com/. Office Depot has a
number of free downloadable forms and a small business handbook near the bottom at
http://www.officedepot.com/. Microsoft has templates for accounting, stationary and
much more, http://office.microsoft.com/templates/default.aspx. CCH features a business
toolkit and a human resources toolkit, http://www.toolkit.cch.com/

FINDING A LAWYER

I have made it abundantly clear that it is vital to talk to a lawyer about the incorporation
process with your State and with the Federal IRS. You or one of your partners may
already know a lawyer. Great. If you do not know one there are several places to seek
some out.

The first preference is to find an attorney who has experience and interest in tax exempt
law and nonprofits. The second choice is to find either an experienced and interested
corporate lawyer or a tax lawyer. The last choice is a lawyer with interest in your
mission and endeavor who will put in the necessary time to learn the law and to process
the papers with all due haste and timeliness.

If you do not know any attorney to help you there are several steps you can take to find
one locally. You can use all of those listed here or any variations. Check the Yellow
Pages of your telephone book under "Lawyers". Read the ads. Check the section where
there is a listing or grouping by type of law. Select several possible candidates. Ask
around in the community about them in the context of your needs. Call some nonprofits
or the United Way for names of attorneys known to help nonprofits. Check the Internet.
Contact the state university to see if there is a state coop branch near you. Under all these
scenarios, be sure to seek all the information you can about the lawyer(s) including
Googling them.

Call the local Lawyers Referral Service (LRS) listed by that name in the Yellow Pages.
Generally the LRS has a listing of lawyers by type of law they practice. The lawyers
usually select the listing themselves as areas of law they handle or are interested in. It
does not set expertise. The LRS will give you one or more names of attorneys signed up
for tax-exempt, nonprofit, and corporate or tax law. The normal process is that you can
have a half-hour free consultation with an attorney about what you want. The LRS will
charge a referral fee that is either paid to the LRS directly or to the attorney who sends it
to the LRS. Get a receipt. The fee is usually $15-25. Ask the LRS receptionist if the
LRS requires the member attorneys to have malpractice insurance and if they must report
any ethical or malpractice claims to the LRS. If the LRS requires these, it is helpful for
you to know that. It is still advisable to ask around about the lawyer you will have
referred to you. Check with the state bar to see if there are any public disciplinary
decisions against the attorney.

The National Council of Nonprofit Associations (NCNA) may have an associate office in
your State. Offices are listed at http://www.ncna.org/. Your State office may be able to
assist you in locating an attorney.

Do your homework. Prepare questions. What is her/his experience; will there be a

retainer agreement or letter of scope of service with deadlines? Verify the lawyer has
malpractice insurance. Assess the lawyer. I recommend two people from your group go
so that after the meeting you can talk about whether this is the lawyer for your project.

See http://www.lawyers.com/, "Twelve Questions to Ask Your Lawyer" and other

material, for some helpful discussion about hiring a lawyer.
http://www.lawyers.com/legal_tips/lawyer_questions/index.php?LDC_userId=95329170
&LDC_sessionId=156123572

There is an outside possibility you can secure a pro bono attorney. "Pro bono" means for
the public good, at no cost. Many attorneys provide pro bono work but not always for
nonprofits. If your group will be providing service to a low-income community, call the
local legal services program, sometimes also called legal aid. Many legal services
programs and sometimes the LRS will have a pro bono program. If your group qualifies
and there is an attorney familiar with tax exempt law on the panel, you may have a free
attorney.

You can find the name of the legal services program near you through
http://www.rin.lsc.gov/rinboard/rguide/pdir1.htm. If there is a law school in your
community, it may have a community law clinic or a professor who is interested in the
same issues you are and who may help.

The difficulty may occur in access to the pro bono lawyer. When you pay for time,
access can be better, but you pay for each contact. When the service is free access may
be less. My experience is that most pro bono attorneys do an excellent job, develop a
retainer agreement or a letter describing the scope of service with time deadlines and
provide other helpful advice. Your group will still be responsible for all filing fees with
the State and the IRS.

Realize, however, you are probably going to pay for legal assistance. In that case, at the
first meeting ask about the costs for the attorney time. Associates and paralegals bill at a
lower rate; ask about their role. Will charges be by the hour or for the project, such as
one fee for getting the State incorporation processes completed, another for the bylaws
and then another charge for the IRS designation? Will there be a retainer agreement or
letter of scope of service with deadlines and a payment plan? Some attorneys have a low-
fee plan that is between pro bono and the usual fee - ask if there is one.

You may secure a pro bono attorney but you have to be prepared in case you do not
succeed. The cost of filing all the legal papers with the State and the IRS along with
paying an attorney can rise quickly. Planning early on for these initial costs is part of
developing a business plan.

I wish you every success. Although most nonprofit groups prepare their own State and
Federal incorporation papers and bylaws, there are many organizations that do not do
them very well and have early difficulties. So…I advise contact an attorney to help you.
As you have seen, this is a complex process.
The estimated amount of time it takes to complete the preparation of the IRS Form 1023,
Parts I - IV is about 9 hours - when you know what you are doing.

CAVEATS

The services and the sites that are contained in this article may have information, facts
and opinions from a variety of individuals and organizations. These services and sites are
provided on an "As Is" basis. The services and sites may include bulletin boards, chat
rooms and other user and member created pages which allow the reader and others to
post information, provide feedback and interact in real-time. The reader uses the services
and the sites entirely at the reader's own risk. The author has made an attempt to review
the sites listed in this article but there are linkages at those sites that he has not reviewed.
Readers link to web sites at her/his own risk. Neither sites nor companies listed in this
article have paid or offered payment to the author for the inclusion in this article. Many
of the sites have User Agreements that should be reviewed. The speed at which sites
become obsolete is only exceeded by the speed of light. As I researched the web, many
sites were deadends or had not changed for several years. In fact, by the time you read
this, several sites may no longer be in existence.

The author is an attorney in New Jersey. The purpose of this article is not to provide
legal advice to anyone in any state or country. The material contained in this article is for
information purposes only. End of lawyer-speak. Almost

(c) Copyright and all rights reserved by Donald A. Griesmann 2002-2005. However, not-
for-profit organizations, community-based organizations, educators and government
agencies may reproduce this document without my permission. Just give me credit for it.
For-profit persons and businesses are asked to request my permission to reproduce this
article in writing in advance. I ask that any one intending to make money reproducing
this article receive my permission in writing in advance and be prepared to include me in
the process.

Federal/IRS Forms and Booklets for Your Library

Tax Kit; many of the forms here may be filled out and completed online -
http://www.irs.gov/charities/article/0,,id=96774,00.html

Frequently Asked Questions with Answers - http://www.irs.gov/faqs/index.html

SS-4 Form for a Federal Employer Identification Number (FEIN) -

http://www.irs.gov/pub/irs-pdf/fss4.pdf

Publication 4245 - Common Reasons for Rejection -

http://www.irs.gov/pub/irs-pdf/p4245.pdf

IRS Form 1023 (Fill-in format for typing) and Form 872-C - file in duplicate –
http://www.irs.gov/charities/charitable/article/0,,id=130145,00.html and
http://www.irs.gov/pub/irs-pdf/f1023.pdf

IRS Publication 557 - http://www.irs.gov/pub/irs-pdf/p557.pdf

IRS Publication 526, Charitable Contributions, information for the taxpayer who makes
charitable contributions - http://www.irs.gov/publications/p526/index.html

IRS Publication 1771, Charitable Contributions - Substantiation and Disclosure

Requirements – http://www.irs.gov/charities/article/0,,id=96102,00.html
http://www.irs.gov/pub/irs-pdf/p1771.pdf

Publication 1771 is for the NPO that accepts charitable contributions. Both Publications
526 and 1771 are important to understand, but 1771 (Substantiation and Disclosure) lays
out all the IRS mandated responsibilities of an NPO concerning receipt and
acknowledgement of charitable contributions.

Form 8718 (Fill-in format for typing) - shows Federal fees –

http://www.irs.gov/pub/irs-pdf/f8718.pdf

Form 8734 Support Schedule for Advance Ruling Period –

http://www.irs.gov/pub/irs-pdf/f8734.pdf

Publication 1828 - Exempt Organizations Tax Guide for Churches and Religious
Organizations; also comments about lobbying and political activity -
http://www.irs.gov/newsroom/article/0,,id=122887,00.html

Links to IRS Articles Concerning Employment Taxes for Exempt Organizations -

http://www.irs.gov/charities/article/0,,id=128716,00.html

IRS Publication 4221, Compliance Guide for 501(c) (3) Tax Exempt Organizations and
Record Retention - http://www.irs.gov/pub/irs-pdf/p4221.pdf

Form 15, Circular E - Employer's Tax Guide - http://www.irs.gov/pub/irs-pdf/p15.pdf

Publication 15-T - New Withholding tables for 2003 (or later year as time goes on) -
http://www.irs.gov/pub/irs-pdf/p15t.pdf

Publication 598 - Form to Declare Unrelated Business Income of a Tax Exempt

Organization - http://www.irs.gov/pub/irs-pdf/p598.pdf

Forms 990 or 990-EZ and Schedules A and B – http://www.irs.gov/pub/irs-pdf/f990.pdf

(Flllable)

Instructions for Schedule A - http://www.irs.gov/instructions/i990sa/ch01.html

Sample 990s - http://www.irs.gov/charities/article/0,,id=120864,00.html

Form 990 Instructions - http://www.irs.gov/instructions/i990-ez/index.html

Form 941 (Fill-in format for typing) - Employer’s Quarterly Federal Tax Return 941
Form (Rev. January 2004) See separate instructions revised January 2004 for information
on completing this return (If you receive this form, you must file it even if all the dollar
amounts are $0.00) - http://www.irs.gov/taxtopics/tc758.html

Instructions for Form 941 - http://www.irs.gov/pub/irs-pdf/i941.pdf

The author has other material that may be helpful to you and the board:

Don Griesmann’s Grant Opportunities Weekly E-Newsletter

http://two.charitychannel.com/enewsletters/dggo/

Nonprofits and Violence in the Workplace,

http://members.aol.com/_hy_a/dgriesmann/myhomepage/business.html

Where are nonprofit jobs listed? http://www.nonprofits.org/npofaq/12/10.html

Web Sites That are Helpful to the Disabled

http://www.nlada.org/DMS/Documents/1004239570.5/

Orienting the Board to the Organization’s History

http://charitychannel.com/article_5381.shtml

Grant Writing Tools Web Sites http://www.nonprofits.org/npofaq/19/64.html

U.S. Federal Grants Web Site http://www.nonprofits.org/npofaq/19/63.html

The Best E-Newsletters for Grants and Nonprofit Leaders

http://www.nonprofits.org/npofaq/19/62.html

Insurance Questions for Nonprofits http://www.nonprofits.org/npofaq/19/56.html

Book Reviews

Stir it Up: Lessons in Community Organizing and Advocacy

Rinku Sen
http://charitychannel.com/publish/templates/?a=24&z=25

Civic Revolutionaries - Igniting the Passion for Change in America's Communities

Douglas Henton, John Melville and Kim Walsh
http://charitychannel.com/publish/templates/?a=294&z=25
Working Across Boundaries - Making Collaboration Work in Government and Nonprofit
Organizations
Russell M. Linden
http://charitychannel.com/publish/templates/?a=420&z=25

The Leadership Challenge, 3rd Edition

James M. Kouzes and Barry Z. Posner
http://charitychannel.com/publish/templates/?a=431&z=25

Nonprofit Mergers and Alliances - A Strategic Planning Guide

Thomas A. McLaughlin
http://charitychannel.com/publish/templates/?a=483&z=25

Complete Guide to Nonprofit Management, Second Edition

Smith, Bucklin and Associates, Inc.
http://charitychannel.com/publish/templates/?a=487&z=25

Managing Nonprofits.Org: Dynamic Management for the Digital Age

By Ben Hecht and Rey Ramsey
http://charitychannel.com/publish/templates/?a=4227&z=25