To qualify for tax exemption under Section 501(c)(3) of the Internal Revenue Code, your club must have an "exempt purpose". If your club meets one of the required purposes, you may apply to be recognized as a non-profit, tax-exempt organization. To apply for this recognition, additional filings above and beyond initial incorporation filings may be required at the state level, and will be required with the IRS.
Form an Organization That Meets an Exempt Purpose
Your organization must meet one of the exempt purposes listed in Section 501(c)(3) of the Internal Revenue Code. A common exempt area covers organizations with a "charitable" purpose. In addition to organizations that provide services and resources to those who are in need, charitable organizations also include those that maintain public buildings or monuments, fight against prejudice and discrimination, and provide other community services. A charitable purpose is not the only way to become an exempt organization; certain religious and educational organizations also serve an exempt purpose, including organizations that promote amateur sports competition.
Read More: Tax Law for a Non-Profit Organization
Choose a Name
In order to incorporate, you'll first need to select a name for your club that is unique. Most states offer a search feature on the Secretary of State's website that allows you to check whether the name is available. Be sure you check the directions for filing in your state, as some states require you to add "Company," "Co.," "Inc." or a similar suffix to the name you choose. In some states, you can reserve the name you choose online so that it's held while you complete your paperwork.
File Incorporation Paperwork
The next steps are to prepare and file your Articles of Incorporation, create bylaws, and select officers and a board of directors. Some states may require that your Articles of Incorporation include specific language in order to qualify for non-profit status. Generally, you can find these types of requirements on the Secretary of State's website for your state.
If you're drafting incorporation documents on your own or using an online legal documentation service, keep in mind that the IRS will require your organizing documents to specifically state two things in order to grant your exemption under 501(c)(3): your exempt purpose and how your assets will be distributed upon dissolution of the organization.
File for Tax-Exempt Status
After you incorporate, you will need to file additional paperwork at the federal level, and perhaps also at the state level, in order to be treated as a tax-exempt organization. In some states, your initial incorporation filing can be made specifically as a non-profit corporation. However, in other states, you'll need to file additional paperwork. The Secretary of State's website should give you further instruction.
To qualify for tax-exemption at the federal level, be prepared to file with the IRS within 27 months of forming your business. First, you'll need to apply for a federal Employer Identification Number. Next, you'll complete IRS Form 1023 requesting an exemption. The form asks for extensive information about your organization and the people involved with it, and requires a filing fee of $400 to $850.
If your application is approved by the IRS, you will not be obligated to pay federal corporate income tax on most income. In addition, donors will be able to deduct eligible contributions from their federal income taxes.
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