1. Urban Food, Farm & Agriculture
Law Practicum
NonProfit Organizations: Applying
for Tax Exempt Status
Diana Basel

2. Urban Food, Farm & Agriculture
Law Practicum
Are Nonprofit And Tax-exempt Statuses The Same?
- No. However, nearly all organizations that are nonprofit also wish
to have tax-exempt status
- Becoming nonprofit and becoming tax-exempt are different
processes, and are done by different government agencies
- Granting nonprofit status is done by the state
- Applying for tax-exempt designation (such as 501(c)(3), the
charitable tax-exemption) is granted by the federal
government, by the IRS.
- To apply for federal tax-exemption, you need to have been
granted nonprofit status first. Further, not all nonprofits are
eligible to be tax-exempt.

3. Urban Food, Farm & Agriculture
Law Practicum
Forming a Nonprofit Organization
Forming a charitable nonprofit
organization:
1) File for an Employee ID number AND
Apply for 501(c)(3) status with the
Internal Revenue Service (IRS).
2) File Articles of Incorporation (or other
required organizing document) with the
appropriate agency in their state
(usually the Secretary of State)

4. Urban Food, Farm & Agriculture
Law Practicum
Requirements for Nonprofit Articles of Incorporation
1) Limit the organization’s purpose to one or more of the exempt
purposes set forth in Section 501(c)(3): religious, charitable,
educational, literary or scientific.
2) Must not expressly empower the organization to engage in activities
that undermine or distract from the purpose, and none of its earnings
can advantage/benefit any private shareholder or individual
3) Must permanently dedicate assets of the organization to an exempt
purpose described under Section 501(c)(3)
- If an organization dissolves, its assets must be distributed for an
exempt purpose described in section 501(c)(3), or to the
government (local, state or federal) for a public purpose.

5. Urban Food, Farm & Agriculture
Law Practicum
What are bylaws?
- Bylaws are an organization’s internal operating rules
- Federal tax law does not require specific language in
the bylaws of most organizations.
- State law may require an organization to adopt bylaws
- The Internal Revenue Service requires the submission
of bylaws, if adopted, with an application for
exemption under section 501(c)(3), and will review
these documents to ensure that the applicant is
organized exclusively for exempt purposes and that the
applicant’s proposed or actual activities are consistent
with those documents.

6. Urban Food, Farm & Agriculture
Law Practicum
Advantages of Having Tax-Exempt Status
- Exemption from federal corporate and income taxes
for most types of revenue.
- Organizations designated as 501(c)(3) are able to solicit
tax deductible contributions.
- You can apply for grant funds directly. Almost all grants
require evidence of federal tax-exempt (501(c)(3))
status.

7. Urban Food, Farm & Agriculture
Law Practicum
Things to Keep in Mind
- Tax-exempt organizations are taxable, to the extent that
they participate in activities unrelated to the
performance of tax-exempt functions.
- Incorporation creates another level of complexity and
responsibility
- e.g. Reporting and Renewal Requirements
- Hire legal counsel to help you make decisions and guide
you through the process