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Is My Nonstock Corporation Automatically Tax-Exempt?

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Is my nonstock corporation automatically tax-exempt? by davis law group pc in chesapeake, virginia

Is My Nonstock Corporation Automatically Tax-Exempt?

December 14, 2023 Davis Law Group

Setting up a nonprofit on your own can be confusing.

People generally use the word “nonprofit” to refer to groups that are exempt from federal income tax under Internal Revenue Code Section 501(c)(3). However, federal tax exemption may be bestowed upon various types of entities.

Entities are created by filing organizing documents with the appropriate state authority, which in Virginia is the State Corporation Commission (SCC). Many types of entities may be created in Virginia, such as stock corporations, nonstock corporations, and limited liability companies. Individuals seeking to create a nonprofit will generally form a nonstock corporation.

The first step to setting up a nonprofit organization is to create an entity. (As mentioned above, the Virginia nonstock corporation is a great entity to create if you want to set up a nonprofit.) To create a nonstock corporation, you need to file Articles of Incorporation with the SCC. But it’s important to note that the nonstock corporation is not automatically tax-exempt upon filing the Articles of Incorporation. It will then need to apply for tax exemption recognition from the IRS to be granted an exemption from federal income tax. Generally, upon receiving federal income tax exemption recognition, the organization will also be eligible for exemption from state income taxes.

This process of creating an entity, filing a Form 1023, and validating this information with the state can be time consuming, confusing and expensive, and if done incorrectly can be damaging in the long run. Very particular information and specific language is required to meet the standards for a nonprofit status.

If you have a vision for a nonprofit organization, but need help getting started, please contact Davis Law Group today. Our experienced nonprofit law attorneys can help get you on the right track, taking the concern of legality off your plate so you can focus on the charitable work you have planned.