Organization
INRC Director Richard Koontz offers training sessions on nonprofit startup filings. For the next available session, watch the INRC home page.
II. A. Principle–Statutory Guidelines
Iowa charitable nonprofit organizations, whether nonprofit corporations, trusts or unincorporated associations, must ensure that they comply with statutory guidelines and common law in creation of their legal form.
Practices
- A charitable nonprofit organization can be organized in Iowa as a corporation, a trust, a limited liability company or an unincorporated association. While partnerships and sole proprietorships are legal entities in Iowa, the Internal Revenue Service will not give 501(c)(3) status to such entities.
a. Nonprofit corporation status under Iowa Code chapter 504 is often a preferable form for charitable nonprofits, due to the limitation on liability of all those working for the charitable nonprofit corporation. Contrast this to unincorporated associations, in which there is a higher degree of exposure for all association members.
Starting an Iowa Charitable Nonprofit Corporation, by Richard Koontz (2008).
Frequently Asked Questions about Organization
Application can be made to the U.S. internal Revenue Service for federal income tax exempt status using either IRS Form 1023 or Form 1023-EZ. Both are available on the I.R.S. website.
The Form 1023-EZ can only be filed if the nonprofit anticipates less than $50,000 in gross receipts in any of the next three years. An eligibility worksheet can help you determine if you are eligible to file the 1023-EZ. The Form 1023-EZ can only be filled electronically but a form can be printed out for review. Instructions are available. The filing fee is $275. You should receive a decision within a few months.
If you must file the full Form 1023, it can be downloaded from the I.R.S. website. Instructions for this form are also available. An interactive Form 1023 helps ensure that you have the necessary documentation. The filing fee is $400 for nonprofits for which gross receipts have not or will not exceed $10,000 per year for four years. The fee is $850 for nonprofits with annual gross receipts that exceed or will exceed $10,000 per year over a four-year period. Form 1023 can be filed only on paper. It might take six months to hear back on final exemption.
In Iowa, exemption from state income tax is automatic once federal exemption is received.
Form 1023 requires a four-year projected budget. It can be helpful to review the Form 990s of similar organizations. For guidance on developing a budget it can be helpful to review the Form 990s of similar organizations. For example, if you are creating a nonprofit animal shelter, look at an Iowa animal shelter's 990 filings. Form 990s can be found on the Guidestar website.
Nonprofit corporations in Iowa are created under Iowa Code 504, the Revised Model Nonprofit Corporation Act ("RMNCA") which became effective in Iowa on January 1, 2005 for new corporations. Nonprofit corporations are created by filing articles of incorporation signed by the incorporators with the Iowa Secretary of State at Business Services Division, Lucas Building, First Floor, Des Moines, Iowa 50319. The articles of incorporation should be accompanied by a filing fee of $20 with checks made payable to "Secretary of State." The required provisions of the articles of incorporation are the corporate name, a registered office and registered agent, incorporators, members, and dissolution. To get tax exemption under 501(c)(3) there must also be in the articles of incorporation a purpose statement, limitations on political activity, and a prohibition on private inurement.
A nonprofit corporation is a legal entity that can engage in nonprofit activities in Iowa. In many ways it can function like a for-profit corporation. For instance it can purchase land, hire employees, have a bank account, borrow money, and have board meetings. But unlike for-profit corporations a nonprofit corporation cannot operate for profit and distribute earnings to investors as a for-profit does. Nonprofit corporations in Iowa are described in a statute in Iowa Code 504. The Iowa Secretary of State's office governs the creation and regulation of nonprofit corporations in Iowa. Management of liability through incorporation is one of the easier risk management techniques available to nonprofits. This incorporation is only one of a number of processes available to protect board members from liability described in Iowa Code 504, others being immunity, indemnification, and insurance.
The strategic planning process consists of four basic elements: critical issues faced by the organization, the organization’s strengths, opportunities available to the organization, and different approaches available to the organization. An organization must identify and prioritize the critical issues it faces. Then, the organization must decide how its operational strengths can be applied towards the resolution of critical issues. Next, the organization should identify available opportunities (e.g., opportunities for facility renovation, fundraising expansion, collaboration, etc.). Finally, the organization must decide upon the approaches that will allow it to take advantage of new opportunities and address critical issues. Three key questions should be repeatedly asked during this process: Are critical issues being addressed? Is this on track with our mission? Is this a financially responsible decision?
Learn more: The Free Management Library: All About Strategic Planning
The IRS will send you a determination letter. IRS Revenue Procedure 2009-4 states that a determination letter is "a written statement issued to a taxpayer by the Service’s EO Determinations or EP Determinations office that applies the principles and precedents previously announced to a specific set of facts." This means the IRS reviewed the facts on the nonprofit's Form 1023 Application for Exemption in light of the law and determined that it can be a 501(c)(3) exempt entity. You will use your organization's determination letter for many purposes. For instance when approaching a funding agency that would potentially give your organization a grant, you will need the determination letter to establish your organization's 501(c)(3) status. Many funders will not even review a grant application if there is no determination letter accompanying it.