Nonprofit Law

What is a nonprofit?

A nonprofit is typically a business corporation that does not distribute its income to its members, directors, or officers. A nonprofit is organized for a purpose other than generating profit. Some nonprofits are also tax-exempt organizations. Tax-exempt organizations are recognized under the federal Internal Revenue Service (IRS) as operating exclusively for charitable, religious, scientific, educational, or certain other purposes recognized by the IRS.

Tax-exemption has two main benefits.

1. The nonprofit organization is not liable to pay any federal income tax.
2. Donors to the organization may deduct their charitable contributions from their own taxes.

What are some of the steps to forming a nonprofit, tax-exempt organization?

Forming a nonprofit and applying for tax-exempt status can be complex. Not every organization will follow the same steps as listed below. Many of these steps may require an expert’s assistance.

1. Develop a mission, organize a group of people dedicated to that mission, and develop a fundraising plan.
2. Draft bylaws to govern the Board of Directors.
3. Incorporate as a nonstock corporation with the state of Maryland by filing Articles of Incorporation with the State Department of Assessments and Taxation (SDAT).
4. File a Trade Name registration with SDAT if using a different name than the one listed in the Articles of Incorporation.
5. Obtain a federal Employer Identification Number (EIN) from the IRS.
6. Hold an organizational meeting.
7. Apply for IRS tax exemption by completing and filing a form 1023, or form 1023-ez.
8. Register with the State(s) for charitable solicitation. Read the law: Md. Code, Business Regulation Title 6
9. Complete the Combined Registration Application with the State, obtain insurance, and apply for other necessary licenses or permits.
10. Follow ongoing requirements, based on the developing needs of the organization. These may include:
    1. If incorporated, filing a Form 1 Personal Property return with SDAT.
    2. If tax exempt, file annual IRS forms (990-N, 990-EZ, or 990).
    3. Follow employment laws if you have employees or independent contractors.
    4. Obtain insurance for organization, board members, and officers.