501(c)(3) New York Nonprofit Formation Service
Start a Nonprofit in New York

Want to start a 501(c)(3) nonprofit organization in New York?
Our NYC 501(c)(3) nonprofit formation lawyer can help!

Starting a 501(c)(3) nonprofit in New York is a complicated process. Extensive knowledge of state corporate law and federal tax law is required to do it without mistakes. Since 2015, James Hsui, our NYC law firm’s 501(c)(3) nonprofit startup lawyer, has formed hundreds of New York 501(c)(3) nonprofits for visionaries. He has extensive experience in navigating how to start a nonprofit in New York; and getting federal tax-exempt status from the Internal Revenue Service (IRS—the United States tax authority).

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What’s a 501(c)(3) New York nonprofit organization?

A New York 501(c)(3) nonprofit is an organization that can conduct activities in New York State, and is set up only for purposes described in Section 501(c)(3) of the Internal Revenue Code (the U.S. tax law). To do so, you must form a nonprofit under New York law; or register it as an out-of-state nonprofit in New York. The nonprofit must also be specifically dedicated to Section 501(c)(3) purposes.

Section 501(c)(3) purposes include charity, education, religion, science and literature. Some examples of 501(c)(3) tax exempt organizations in New York are houses of worship, schools, and soup kitchens. However, the meaning of “charity” is very broad, and encompasses a wide range of things that the government considers good for the public. 501(c)(3) charitable organizations include those that support animal welfare, gender equality, disaster relief efforts, health, amateur sports, and government operations, among others.

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Benefits of starting a nonprofit organization in New York with 501(c)(3) tax exemption

Forming a New York 501(c)(3) is a great choice to achieve your vision. 501(c)(3) organizations receive many benefits. They are the only type of nonprofit that can provide donors tax benefits for their donations. Donors can deduct donations from their taxes. Donors also do not need to pay gift tax on their donations. This reduces their federal and New York taxes, and gives them more incentive to donate.

A New York 501(c)(3) organization doesn’t need to pay taxes on donations received. It also doesn’t need to pay taxes for income related to its mission. For example, a 501(c)(3) school doesn’t have to pay income tax on the tuition fees it charges. This is because the tuition fees are for teaching services, and teaching helps the school’s mission of supporting education.

New York 501(c)(3) nonprofits can also get exemption from New York corporation taxes and sales taxes. If they own property, all or part of the property may also be exempt from property tax.

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New York nonprofit corporations and other options to start a nonprofit in New York State

A 501(c)(3) nonprofit organization can be formed as a corporation, association, trust, or LLC. Most choose to be nonprofit corporations for the same reason new businesses are formed as business corporations—corporations shield the personal assets of those who are part of it from the organization’s liabilities. Associations and trusts don’t provide as much protection, and an LLCs cannot qualify as a 501(c)(3) unless all its owners are 501(c)(3) or government organizations. This is why the nonprofit corporation structure is the best for most 501(c)(3) organizations.

Pros and Cons of New York not-for-profit corporations

New York has two types of nonprofit corporation: those that are for charitable purposes and those that are not. A 501(c)(3) nonprofit can be formed as a charitable corporation.

Where a corporation is formed determines the corporate law that it’s subject to. New York has one of the strictest nonprofit corporate laws in the United States. For this reason, many nonprofits choose to incorporate in another state, and then register to run in New York.

A New York charitable corporation has some advantages. It doesn’t cost much to form. Also, if it needs special New York licenses, for example, to run a clinic, these are easier to get as a New York corporation than an out-of-state one. New York City and State restrict some grants to New York corporations.

A New York charitable corporation has a big disadvantage. It has to follow very strict rules. New York state law requires a minimum of three directors, that directors be of a certain age, and that the directors serve only for a certain length of time. It also requires more than a majority vote on some issues. Membership nonprofit corporations must have at least three members. There are restrictions on who can be the president. Most significantly, New York’s rules on conflicts of interest are wider than IRS requirements. They are so wide that they can harm businesses that have nothing to do with the nonprofit.

The New York attorney general has lots of control over New York charitable nonprofits. This can be both an advantage and a disadvantage. Attorney general approval is needed for some actions. These include changing the mission, moving out of state, or even closing down. Large transactions must also be approved. It is an advantage when there are troublemakers in the nonprofit trying to take unauthorized action. However, it takes many months to get approval. This is a disadvantage when legitimate action needs to be taken.

Avoiding the disadvantages of New York nonprofit corporation structure

A New York charitable corporation has many disadvantages. You can avoid them by forming your new nonprofit outside the state of New York. But by doing so, you’ll lose the advantages as well. So you’ll want to weigh the disadvantages against the advantages to see if it is worth it. You’ll also want to think about the other state’s pros and cons. We often recommend Delaware as an alternative because it has the most permissive corporate laws in the country.

You can form a nonprofit corporation in Delaware and register it in New York. This allows you to run your nonprofit in New York under Delaware rules, and avoid New York problems.

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Requirements for nonprofit corporations in New York

A corporation is formed by filing its certificate of incorporation or articles of incorporation with the state corporation’s authority. In New York, this is done by filing a certificate of incorporation with the New York State Department of State, Division of Corporations. If incorporated outside New York, a nonprofit corporation needs to register in New York by filing an application for authority with the Department of State to be licensed to operate in New York. In either case, the filing will be rejected if certain filing requirements are not met.

Board of director requirements

A New York charitable corporation needs at least 3 directors. The names and addresses of all directors must be listed in its certificate of incorporation. This is not required for nonprofits formed in another state.

Naming requirements

The New York Department of State requires that all corporation names must contain one of the following words: “Inc.,” “Corp.,” “Ltd.,” “Incorporated.,” “Corporation” or “Limited.” There are also certain words that are restricted or prohibited. These words include “college,” “endowment” and “museum.”

Obtaining NY agency approval

New York restricts certain activities, such as running a clinic, school or museum. A 501(c)(3) nonprofit organization formed to conduct activities in New York cannot do so unless the appropriate New York state agency has approved. The approval must be filed with the incorporation or registration paperwork.

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Requirements for 501(c)(3) tax exemption

A New York nonprofit organization may apply for recognition of 501(c)(3) tax exempt status from the IRS. It does so by filing either an IRS Form 1023 or Form 1023-EZ (application for recognition of exemption under Section 501(c)(3) of the Internal Revenue Code). To qualify for federal tax exemption, the nonprofit must convince the IRS that:

• The nonprofit’s certificate or articles of incorporation contain the right language

• Almost all the nonprofit’s activities are charitable, educational, religious, scientific or literary in nature

• The nonprofit won’t do anything to support or oppose the election of any candidate for public office

• The nonprofit won’t conduct more than insubstantial activity to change laws

• Any benefits provided by the nonprofit to any private persons is strongly outweighed by the benefit to the public, society or community

• The nonprofit’s assets are forever dedicated to 501(c)(3) purposes

• The nonprofit won’t use its income or assets to provide improper economic benefits to officers and directors, and others with a relationship to the nonprofit

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Requirements for New York State tax exemptions

A New York 501(c)(3) nonprofit corporation is exempt from federal income tax. However, it is not automatically exempt from New York State corporation franchise tax, or sales and use tax. It is also not exempt from New York City business corporation tax or general corporation tax.

To be exempt from franchise taxes, the organization must file Form CT-247 with the New York State Department of Taxation and Finance. For sales tax exemption, it must file Form ST-119.2 with the same department. To obtain an exemption from business corporation tax or general corporation tax, it needs to submit an affidavit to the New York City Department of Finance. Requirements for the affidavit are in the instructions for Form NYC-245. Most times, the State and City of New York will approve the tax exemptions based on the federal exemption.

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Requirements for New York State fundraising

Each state has its own rules about fundraising within its borders. To raise funds from New York sources, a 501(c)(3) must register with the New York charities bureau. This is done by filing a Form CHAR 410 with the bureau.

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Overview of Steps to form a New York 501(c)(3) Nonprofit Organization

1. Choose name of your nonprofit corporation
2. File certificate or articles of organization with a state to incorporate the nonprofit
3. If nonprofit is not incorporated in New York, file an application for authority for nonprofit to be allowed to operate in New York
4. Prepare bylaws
5. Prepare conflict of interest policy
6. Prepare whistleblower and document retention policies (recommended, not required)
7. Hold organizational meeting of the board to adopt bylaws, policies and other initial resolutions of the directors
8. Obtain employer identification number (EIN) for nonprofit
9. Prepare and submit online application for recognition of exemption under section 501(c)(3) of the internal revenue code with the IRS
10. Respond to any IRS follow-up queries
11. Prepare and submit NYS charitable organization registration application with the NYS charities bureau
12. Prepare and submit NYS corporate franchise tax and sales tax exemption applications to NYS department of taxation and finance
13. Prepare and submit NYC general corporation tax and business corporation tax exemption affidavit to NYC department of finance

Want to form a New York 501(c)(3) nonprofit?

Contact Us Today or Schedule Appointment
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