Nonprofit Formation: Frequently Asked Questions

File a Certificate of Incorporation with the Department of State ($75 fee), which must be approved by a justice of the Supreme Court or a county judge. Adopt bylaws, appoint a board of directors (minimum 3 members), obtain an EIN, and apply for tax-exempt status with the IRS (Form 1023 or 1023-EZ).

Source: N.Y. Not-for-Profit Corp. Law § 402; IRC § 501(c)(3)

$75 state filing fee plus $275 or $600 IRS user fee (Form 1023-EZ vs. full Form 1023). Attorney fees for formation typically range from $2,000 to $5,000. The IRS application alone takes 3-12 months to process. Organizations with gross receipts under $50,000 and assets under $250,000 can use the streamlined 1023-EZ.

Source: IRS Rev. Proc. 2024-5 (user fees); N.Y. DOS fee schedule

501(c)(3) organizations are charitable, educational, or religious and donations are tax-deductible for donors. 501(c)(4) organizations are civic leagues or social welfare organizations where donations are not deductible. 501(c)(4)s can engage in more lobbying and political activity than 501(c)(3)s.

Source: IRC §§ 501(c)(3), 501(c)(4); IRC § 170

Minimum 3 directors. The New York Nonprofit Revitalization Act also requires that a majority of the board be independent (no financial relationship with the organization). No maximum number is set by law, but 7-15 is common for effective governance.

Source: N.Y. Not-for-Profit Corp. Law § 702

Yes. Nonprofits can pay reasonable compensation for services rendered. The key word is reasonable: compensation must be comparable to similar roles at similar organizations. Excessive compensation can jeopardize tax-exempt status and trigger intermediate sanctions (excise taxes of 25% on the excess).

Source: IRC § 4958 (intermediate sanctions)

IRS Form 990 (or 990-EZ or 990-N depending on revenue). CHAR500 registration with the NY Attorney General's Charities Bureau if soliciting donations. Biennial Statement with the Department of State. Annual financial reports if revenue exceeds $250,000 (reviewed) or $1,000,000 (audited).

Source: N.Y. Exec. Law s 172-a; IRC § 6033

Yes. Any organization soliciting charitable contributions in New York must register with the Charities Bureau of the Attorney General's office before soliciting. File CHAR410 for initial registration. Exemptions exist for religious organizations and organizations receiving less than $25,000 that use only volunteers for solicitation.

Source: N.Y. Exec. Law s 172

Yes. Nonprofits can and should generate revenue exceeding expenses. The distinction is that profits (called surplus) must be used to further the organization's mission, not distributed to owners or shareholders. Unrelated business income may be subject to federal and state tax.

Source: IRC § 511 (unrelated business income tax)

In New York, all charitable organizations are incorporated under the Not-for-Profit Corporation Law. The terms are often used interchangeably, but technically 'nonprofit' commonly refers to tax-exempt status (a federal designation) while 'not-for-profit' refers to the state corporate structure. You need both.

Source: N.Y. Not-for-Profit Corp. Law

Form 1023-EZ: typically 2-4 weeks. Full Form 1023: 3-12 months depending on IRS workload and complexity. State incorporation takes 1-2 weeks. You can accept donations before receiving your determination letter; if approved, tax-exempt status is retroactive to the formation date.

Source: IRS processing times; IRC § 508

Private inurement (insiders profiting from the organization), excessive lobbying (more than an insubstantial part of activities), any political campaign activity for or against candidates, operating primarily for non-exempt purposes, and failure to file Form 990 for three consecutive years (automatic revocation).

Source: IRC § 501(c)(3); IRC § 6033(j)

The entity type cannot simply be converted. You must form a new nonprofit corporation, transfer assets at fair market value, and dissolve the for-profit entity. The transfer may trigger tax consequences. The IRS scrutinizes these conversions closely to prevent abuse. Proper legal and tax counsel is essential.

A fiscal sponsor is an existing 501(c)(3) that accepts tax-deductible donations on behalf of a project that does not have its own exempt status. The sponsor retains legal control over the funds and charges a fee (typically 5-10%). This lets you receive grants and donations while your 501(c)(3) application is pending.

Adopted in 2014, the Act requires conflict of interest policies, whistleblower policies (revenues over $1M or 20+ employees), audit committee (revenues over $500,000), majority-independent boards, and related-party transaction oversight. These requirements apply to all New York nonprofits regardless of size.

Source: N.Y. Not-for-Profit Corp. Law §§ 102, 712-a, 715-a, 715-b

Yes. Nonprofits can own, lease, and mortgage real property. Property used exclusively for the organization's exempt purpose may qualify for real property tax exemption under New York law. File Form RP-420-a/b with the local assessor. The exemption is not automatic and must be applied for each parcel.

Source: N.Y. RPTL § 420-a