Key insights
- Forming a nonprofit requires more than obtaining tax-exempt status.
- Early decisions about governance, compliance, and financial management can influence long-term success.
- Organizations should understand ongoing filing and reporting obligations before launching.
- Revoked exempt status can often be restored, but acting early may help reduce complications.
- Developing a compliance plan from the outset can help organizations stay focused on their mission.
Start your nonprofit’s mission with fewer roadblocks.
Starting or restoring a nonprofit organization is an exciting opportunity to create meaningful impact in your community.
However, navigating the formation process or reinstating a revoked exemption can be complex, time-consuming, and filled with regulatory requirements that many organizations are not prepared to manage on their own.
From incorporation and IRS exemption applications to governance policies, financial processes, and ongoing filing requirements, organizations must address a range of legal and administrative responsibilities before they can fully focus on their programs and community impact.
Understanding these requirements early can help reduce delays, avoid compliance issues, and establish a stronger foundation for long-term sustainability.
The challenges of forming a nonprofit
Questions to consider before starting the formation process
- Does your organization have a clearly defined charitable purpose?
- Have you identified an engaged board of directors with appropriate skills and oversight responsibilities?
- Do you have a realistic funding strategy for the first one to three years?
- Are you prepared to meet annual federal and state filing requirements?
- Is forming a new nonprofit the right choice, or would fiscal sponsorship be a better starting point?
Many passionate founders begin with a great mission but quickly discover that nonprofit formation involves much more than filing a few forms.
Organizations must properly incorporate at the state level, obtain a federal tax identification number, prepare governing documents, complete complex IRS exemption applications, and establish accounting and compliance processes as well as continued compliance requirements to retain their nonprofit status.
Without proper guidance, you could experience delays, incomplete applications, or compliance oversights that can result in significant setbacks, increased costs, or denied applications.
Teaming up with knowledgeable advisors, legal counsel, and tax professionals can help you identify issues before they become costly.
Key steps in forming a nonprofit organization
Most organizations will need to address several foundational requirements, including:
- Defining the mission and charitable purpose
- Obtaining a federal Employer Identification Number (EIN)
- State incorporation filings
- Preparation and submission of Form 1023 or Form 1024 applications
- Navigating the IRS review process
- Organizational setup and compliance requirements
- Initial federal and state information returns
Working with industry-specialized professionals can help your organization assess its compliance history, determine the appropriate reinstatement strategy, prepare required filings, and navigate communications with the IRS.
What happens after approval of exempt status
You may think obtaining tax-exempt status is the finish line, but compliance is an ongoing responsibility. As your organization grows, so do its reporting, governance, and operational obligations.
Nonprofits should be prepared to regularly address:
- Annual Form 990 filing requirements
- Board oversight and governance responsibilities
- Document retention and recordkeeping practices
- Grant compliance and reporting expectations
- Internal controls and financial transparency
- State registration and compliance obligations
- Accounting and financial reporting requirements
- Payroll and employment-related compliance requirements
- Audit or other financial statement requirements, when applicable
- New nonprofit compliance considerations that may arise with growth, additional funding, or expanded programs
Professional guidance may be helpful when applications involve complex activities, multiple funding sources, prior compliance issues, expedited timelines, or significant growth plans.
Reinstating revoked exempt status
A growing number of organizations find themselves needing assistance after their tax-exempt status has been revoked due to missed filing requirements or compliance issues.
For these organizations, the path to reinstatement can be especially challenging. Restoring exempt status often requires addressing multiple years of delinquent filings, correcting compliance deficiencies, and preparing reinstatement applications.
While every situation is different, organizations seeking reinstatement often need to work through the following steps before they can return to good standing:
- Confirm your organization’s revocation status with the IRS
- Identify missed filings and compliance issues
- Gather required financial and organizational records
- Complete and submit delinquent filings
- Prepare and submit reinstatement materials
- Establish procedures to support ongoing compliance
Different levels of support for the nonprofit formation process
Not every organization approaches nonprofit formation in the same way. Some founders seek comprehensive assistance throughout the process, while others prefer to take a more hands-on role after completing much of the required documentation themselves.
For organizations that have already drafted governing documents, prepared application materials, or developed required narratives, a review-based approach can help identify potential gaps, clarify technical requirements, and address questions before materials are submitted.
This type of advisory support allows nonprofit leaders to remain actively involved in the process while obtaining additional perspective on complex regulatory requirements.
How CLA can help with forming a nonprofit
The nonprofit sector has unique regulatory requirements, governance considerations, and reporting obligations that differ significantly from those of for-profit organizations.
Our nonprofit professionals work exclusively with nonprofit and tax-exempt, mission-driven organizations across a wide range of sectors, helping founders, boards, and management teams understand not only the requirements for obtaining exempt status, but also what is needed to maintain compliance and achieve long-term sustainability.
CLA is committed to helping mission-driven organizations navigate complex regulatory requirements, reduce administrative burdens, and focus on what matters most — advancing their mission and serving their communities.
Contact us
Start your nonprofit’s mission with fewer roadblocks and less guesswork. Complete the form below to connect with CLA.