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Nonprofit Law

Do you have an idea to make your community a better place? Would you like to start a nonprofit organization? Check out these tips, forms, sample documents, and information about getting started as a nonprofit.

Getting Started

Getting started as a nonprofit isn’t difficult. All it takes are the right tools and a little time and planning.
Getting Started

Every organization needs a tax ID# – you can apply online instantly, or refer to the form for more information.
This language goes in Article VII of the Articles of Incorporation – required for IRS tax exempt status.
File online or fill in the form and mail to the IN SOS office – Foundation document for a corporatoin.
Indiana’s required “tax return” for nonprofit organizations.
Nonprofits may be exempt from paying sales tax on things you buy. File this form to receive the exemption certificate. Note – not the same as collecting sale tax for things you sell.
There are 23 types of nonprofits – which are you? IRS guide to different kinds of nonprofit organizations.
Sample bylaws for nonprofit corporations – contains elements required by Indiana law and IRS tax exempt application.

Frequently Asked Questions

This PDF document contains the frequently asked questions in a printer friendly format.
  • Can a Nonprofit make a profit?
    • YES. What you do with your “profit” determines your “nonprofit-ness” If you use leftover funds to further your exempt purpose, you are still a nonprofit. You can LOSE nonprofit status if your profits go to individuals, members, or for personal gain.
  • We’re not incorporated, yet – can we accept donations?
    • YES, but those donations are not tax-deductible to the donor. If you need to accept donations before you are incorporated, ask another §501(c)(3) organization to accept the donations on your behalf as a fiscal sponsor.
  • We’re incorporated, but we don’t have §501(c)(3) status – can we accept donations?
    • YES. If your annual income is <$5000 per year or you are a church, you can accept donations and inform your donors that the donation is tax-deductible.
    • YES. If your annual income is >$5000 per year, you should seek §501(c)(3) status.
    • While the paperwork is pending you can “act like” a §501(c)(3) organization; however, you may not be eligible for grants.
  • After we get our §501(c)(3) status, what do we have to tell the IRS?
    • File annual 990 return (990N for <$25,000, 990EZ or 990 for >$25,000 gross income)
    • File any substantial changes in bylaws (change in mission, change in service area, change in funding)
    • If you have employees, keep up with employment taxes!
  • What do we have to tell the State of Indiana?
    • File Annually –
      • Business Entity Report with IN Secretary of State
      • NP20A with Indiana Department of Revenue
      • If you have employees, keep up with employment taxes!
  • What do we have to tell the public, if asked?
    • Application for Tax Exempt Status
    • Bylaws
    • 990 tax return
    • Public grant applications, if the grant funding is from a government agency, or if the private granting organization requires it
  • Do we have to allow the public to attend board meetings?
    • NO. You don’t even have to let your members attend board meetings, unless your bylaws or board policy requires it. However, it’s a good idea to be as “open” as possible to avoid appearance of unfair or illegal dealing – especially when government money is involved.
  • Can a Nonprofit charge for services?
    • YES. many nonprofits count on fees from services they offer to clients for part of their annual incomes. Be aware of Unrelated Business Income consequences:
      • Unrelated Business Income (UBIT) – are the services related to the mission of the organization? If not, you may be charged with Unrelated Business Income Tax (example: Child Advocacy Nonprofit owns and leases an apartment building – rental income is not related to its purpose, so may be taxed on that income)
  • Can a Nonprofit sell adspace on its newsletter or website?
    • Mostly, YES. A nonprofit does not jeopardize nonprofit status by putting advertisements on its newsletter or other mailings. There are two considerations:
      • Unrelated business income – If the advertisements are unrelated to the mission of the nonprofit organization, or if the unrelated advertisements exceed a certain threshhold of the organization’s total income, the organization may have to pay “Unrelated Business Income Tax.”
      • US Postal Service Regulations for Nonprofit Mailing – Nonprofit mail stamps cannot be used for certain types of advertising, including, advertisements that promote credit, debit, or charge cards, offers of travel or insurance policies (unless promoted only to members), and mailing that are more than 75% advertising.
  • There is pending legislation that will affect my nonprofit – can we talk to our legislators about it?
    • IT DEPENDS. §501(c)(3) are prohibited from engaging in political activity. This means that a significant part of your operating budget cannot be used to effect legislation or political change. However, you can provide information about pending legislation, and give information as to how the legislation will affect you. Your members can be personally active in promoting (or opposing) particular legislation, as long as they are acting as individuals, and not as your representatives.
  • Can we reimburse expenses to our Directors?
    • YES (mostly). The Board can approve policy which permits reimbursement of reasonable expenses incurred by Directors, including mileage for attending events as a Board representative, reimbursement of registration or admission fees to workshops, events, etc., and overnight accommodations. Care must be taken to be sure that the Director is not receiving undue benefit from the reimbursement (for example, can reimburse dinner, but not a night of bar-hopping at an event)
  • Can the Directors be personally liable for liability of the Nonprofit?
    • IT DEPENDS. Indiana Nonprofit Law protects Directors from most actions done in the course of their service as nonprofit directors. However, a Director can become liable for the Nonprofit’s actions under certain circumstances:
      • If the Director personally and directly injures someone
      • If the Director personally guarantees a bank loan or a business debt on which the corporation defaults
      • If the Director fails to deposit taxes or file any necessary tax returns (or knows that the returns are not being filed, and does nothing about it)
      • If the Director does something intentionally fraudulent, illegal, or clearly wrong-headed that causes harm, or
      • If the Director co-mingles nonprofit and personal funds.

Nonprofit Toolbox

Once you have your nonprofit up and running, you need these tools to keep you in line with IRS and State nonprofit requirements, as well as satisfy a nonprofit’s duty to take care of the resources put into its trust.
Meeting Room

Collect information about each member of your board of directors – helps determine where to place board members in the structure of the board and the organization.
Summary of your board’s demographic make up. Quick way to see where there might be gaps in skill sets on your board.
How mature is your board? This tool will help you determine your board and organizational strength – and weaknesses.
All nonprofits should have a Conflict of Interest policy. Each board members should complete and sign before every year of board service. This information does not need to be made public, but should serve as a reminder and guide for the board and staff.
Contrary to popular belief, you don’t have to keep all corporation documents forever. This guide will help you decide when you can destroy old documents.
Sample policy which sets forth 10 common financial controls to protect the nonprofit.
IRS-issued guidance for good governance – nice overview for new boards and nice review for existing boards
Guidelines for policies and procedures to manage financial risk.
Basic starting point for any nonprofit board meeting. Use as a checklist to plan your meeting agenda.

Nonprofit Top 10’s

Top 10 lists are popular, and for good reason – they provide a quick breakdown of critical information, in an easy-absorb format. (Yes, I know – not everything listed is a “Top 10”)
Laptop, Notepad, and Books

Tips for managing your fund raising programs in a down economy will also work in general practice.
In an uncertain economy, it’s critical to plan for crisis – thinking ahead will save money, time and heartache and help reduce the effect of drastic reduction in revenue.
Regardless of your best efforts, your organization may be forced to reduce staff in order to survive. Here are a few tips to help you evaluate staffing options and, if necessary, properly reduce staff.
Bingo, Raffles, Casino Nights – all popular ways to raise money for nonprofits and all tightly regulated by the Indiana Gaming Commission. Check out this list and then do your research before trying to raise money through Charity Gaming.
Before you file the paperwork, you need to think about how you will structure your organization. Here are some tips to get you started.
The IRS Application for Tax Exempt Status is detailed-oriented. If you miss these easy “checklist” items, your application will be delayed.
Nonprofits are legal creatures and require certain formalities in order to be valid.
There are many, many great resources for Nonprofits on the Internet. Here is my list of the ones I think are the most important, or (in my opinion) the most helpful.
There are literally millions of nonprofit organizations competing for donor dollars. The quickest way to lose donors is to fall into one of these “Top 10” pet peeves.
A loyal donor can support your organization for many, many years. Here are some guidelines for the “care and feeding” of donors to encourage a healthy, long, and prosperous relationship.
There are 10 general principles of corporate governance emerging from the Sarbanes-Oxley reforms, which may be worthy of consideration for the governance of nonprofit organizations
Financial Controls to Minimize Employee Fraud
 Fraud and error can occur both within and without an organization

Nonprofit Workshops

Below are PDF files containing past presentations on various nonprofit topics. Check out the navigation bar for the most recent information and presentations on Nonprofit Basics, Formation of Nonprofits, Nonprofit Governance and Risk Management for Nonprofits.