Friends of the Library and Library Foundations are excellent groups to help raise money for your library. In order for these organizations to function optimally and to assist with the procurement of grants, it is encouraged for them to obtain a 501(c)(3) status. This means that they are viewed as a tax-exempt nonprofit organization that qualifies as a public charity under IRS Code, Section 501(c)(3). Please seek the aid of an attorney or CPA to assist in the process of obtaining 501(c)(3) status as laws and common practices are subject to change.
The process to achieve 501(c)(3) status can take over 6 months to complete. The IRS has created a guide outlining the Life Cycle of a Public Charity that can help lead you through this process. In order to achieve 501(c)(3) status, the group must do the following:
- Create an organizing document that contains the following provisions. More information and sample documents can be found here.
- Limit the organization’s purpose to one of the exempt purposes listed in Section 501(c)(3) of the Code.
- State that the organization cannot engage in activities that don’t advance the exempt purpose.
- State that the assets of the organization (money, property, etc.), will be dedicated permanently to the exempt purpose listed.
- Establish a Board of Directors and create bylaws for the group.
- Once the organization is legally established (see page 9 of IRS Publication 4220), obtain an Employer Identification Number (EIN) from the IRS online, by mail, or by phone (1-800-829-4933). Applying for an EIN triggers filing requirements, so do not complete this step until you are prepared to move forward with your other forms.
- File Articles of Incorporation for the group with the State of North Dakota as per NDCC 10-33. The paperwork can be found here. There is a $40 filing fee that must accompany the completed form. The ND Secretary of State Office and other state agencies created a guide to beginning and maintaining a nonprofit corporation in ND that can be found here.
- Submit the IRS Form 1023-EZ or Form 1023 depending on your eligibility. Eligibility can be determined using the worksheet in the 1023-EZ directions. Directions for the forms can be found here (1023-EZ) or here (1023).
**You may be exempt from this requirement if your organization has gross receipts in each taxable year that are normally not more than $5,000. Please see http://bit.ly/2REnkD0 for more details.**
- Before the group can solicit contributions, it may need to be registered as a charitable organization through the North Dakota Secretary of State’s office as per NDCC 50-22. That process can be found here.
- The organization will need to follow the tax-code for a 501(c)(3) during the time that their application is in processing. See the IRS page “Tax Law Compliance before Exempt Status is Recognized” for more information. All bank accounts, books, and records for the group need to be separate from the library’s records.
Once the group has acquired 501(c)(3) status, they will need to follow all state and federal filing guidelines to maintain that status. This includes the annual filing of Form 990 and other, unrelated income tax filings, state filings, charitable solicitations reporting, donation substantiation reporting, etc. Additionally, records should be kept for things such as executive compensation, transactions with board members, sources of revenue, accomplishments, expense allocations, details of investments, and organization structure. These things help assure that the group will maintain annual compliance. Most records of the 501(c)(3) group will be subject to public disclosure requirements.
- Secretary of State Nonprofit Services: http://bit.ly/2QMMVsX
- Employer Identification Number information: http://bit.ly/2Tes6bw
- How to start a 501(c)(3) nonprofit: https://www.501c3.org/how-to-start-a-501c3-nonprofit/
- Stay Exempt: https://www.stayexempt.irs.gov/
- IRS Pub 4220—Applying for 501(c)(3) Tax-Exempt Status: https://www.irs.gov/pub/irs-pdf/p4220.pdf
- Publication 557—Tax Exempt Status for Your Organization: https://www.irs.gov/pub/irs-pdf/p557.pdf
- ND SOS Nonprofit Guide: https://sos.nd.gov/files/uploaded_documents/nonprofit-guide-october-2017.pdf
- Obtaining and Maintaining Tax Exempt Status