Aside from the professional and personal satisfactions associated with creating a nonprofit in Illinois, it’s always important to remember that running a nonprofit takes hard work and stringent regulatory compliance. Therefore, if you’re thinking of starting a nonprofit in Illinois, it’s critical to get ahold of the facts, the processes that you’ll need to follow, and some tips and warnings so that you’re informed and prepared.
At James C. Provenza & Associates, we are some of the leading nonprofit attorneys in the Chicago area, and as a CPA and attorney, nonprofit lawyer James C. Provenza can help with all of your nonprofit issues, whether governance, compliance, tax-exempt statuses and reporting, and more. For a free consultation with our nonprofit law firm, call us today at (847) 729-3939.
The Nonprofit Articles of Incorporation
When starting a nonprofit, one of the essential founding documents is the Articles of Incorporation. In short, the Articles of Incorporation is the legal document that forms the nonprofit; this document is sometimes also referred to as the “charter.” You must complete and submit two (2) identical copies of the Articles of Incorporation, Form NP-102.10, with at least one copy being the original.
When forming the Articles of Incorporation, it is wise (and advised) to decide whether your nonprofit will apply for federal income tax exemptions, or 501(c)(3). To find out if your corporation may qualify for a tax-exempt status, consider looking at IRS Publication 557 — How to Apply for and Retain Exempt Status for Your Organization. If you decide to go for a tax-exempt status, you’ll need to complete Form 1023 or 1024, but you’ll need to be incorporated before the IRS will consider your application for the tax-exempt status.
The general requirements for the Articles of Incorporation include:
- Corporate name
- Registered agent and office in Illinois
- Purpose of the nonprofit
- Names of at least three (3) directors
- Names of one or more incorporators
- Other provisions
Filings After Incorporating
After filing the Articles of Incorporation, you’ll next need to prepare for all of your other essential filings. Yes, starting a nonprofit is completing a lot of documentation, but incomplete or missed filings could result in serious compliance issues while keeping your nonprofit from legally getting started in Illinois. These other filings after incorporating often include:
- Federal Income Tax Exemption — If you plan on filing for a federal income tax exemption, you’ll need to obtain the correct form from the IRS, complete, and send it to the IRS along with your copy your Articles and Bylaws. If accepted, you will thereafter need to send annual reports.
- If you don’t want a federal income tax exemption, you must file federal income tax returns and pay the appropriate tax.
- Illinois Income Tax Exemption — If the nonprofit is able to acquire the federal income tax exemption, you may be also eligible for Illinois income tax exemptions. You will still need to apply with the Illinois Department of Revenue, providing that you have the bylaws, articles of incorporation, Form STAX-1, and an IRS letter showing federal tax-exemption.
- Illinois Sales Tax — Some nonprofits in Illinois may qualify for an exemption from paying sales tax on goods and services for the use of the organization, as long as those goods and services are formed for exclusively charitable, religious or educational purposes or for senior citizens.
- Registration With the Illinois Attorney General — Certain charitable organizations must register with the Attorney General, Division of Charitable Trust and Solicitations, under either or both the Illinois Charitable Trust Act or the Illinois Solicitation Act.
Nonprofit Reporting Requirements
Not-for-profit organizations will need to continue filing and reporting after receiving their tax-exempt status, and a failure to provide annual reporting may result in the loss of the tax-exempt status at either or both the federal and the state level. According to Illinois law, nonprofits are required to keep correct and complete books of their accounts.
Nonprofits are also required to:
- File IRS Form 990. This is due annually on the 15th day of the 5th month following the end of the taxable year. If the tax year ends on December 31st, which is common for many nonprofits, then Form 990 is due May 15th.
- File the Illinois Annual Report. This is due annually by the end of the month prior to the corporation’s anniversary date. It can be filed up to 60 days prior to the start of the anniversary month.
- Renew the Charitable Solicitation Registration (Form AG990-IL). This is due annually six months after the close of the fiscal year. If the tax year ends on December 31st, then the renewal is due June 30th.
There are late fees and other consequences if you don’t maintain comprehensive and timely compliance reporting. For instance, there is a $100 fee for filing Form AG990-IL late; there is a $3 fee for filing the Illinois Annual Report late. Fees with the IRS are usually the heftiest. The IRS can impose a penalty on any tax-exempt organization for failure to file a tax return or failure to include complete or correct information on the tax return.
Make sure your Illinois nonprofit is compliant. Call Chicago nonprofit lawyer James C. Provenza today at (847) 729-3939