For those who are passionate about a cause, it can be frustrating and time consuming to prepare the legal and tax documents required to create a new nonprofit. For those that prefer to obtain professional assistance from attorneys experienced in representing nonprofits, we offer a complete, start-up package on a fixed fee basis. Our clients prefer fixed fee and retainer packages because they permit them to accurately budget their resources and to call us when they have a need, without worrying about the meter running.
Our fixed fee package includes all of the legal steps required to create the organization and gain tax-exempt status for it. In addition, we are often able to add value by helping founders shape their plans and make connections through our vast experience and knowledge of the nonprofit field.
- Conferencing with you to discuss the purpose, programs and budget in detail;
- Reserving the desired name with the desired state of incorporation;
- Providing an Action List of start-up tasks;
- Drafting the articles of incorporation to conform to 501 (c)(3) requirements and state law;
- Filing articles of incorporation;
- Publishing articles of incorporation;
- Obtaining a new EIN number for the new corporation;
- Drafting the bylaws to reflect the desired governance structure;
- Drafting organizational meeting minutes with required resolutions;
- Drafting various governance policies the IRS recommends including, as applicable, conflict of interest, gift acceptance, document retention and destruction, joint venture, fundraising, compensation, and travel and expense reimbursement;
- Drafting certain ancillary documents that may be called for by the business plan including scholarship guidelines, grant agreements, and resource sharing agreements;
- Drafting and filing the Form 2848 Power of Attorney;
- Drafting and filing the IRS exemption application (either Form 1023 or 1024) and related statements;
- Representation before the IRS and response to an unlimited number of IRS follow-up questions;
- Providing a Board Action Calendar summarizing key governance and compliance deadlines;
- Providing an explanatory letter regarding operational rules applicable to new the nonprofit including guides to taking minutes and acknowledging gifts; and
- Providing a minute book of all corporate documents.
The fee for a typical start-up is $5,000 to $10,000 (depending on complexity and novelty) exclusive of costs which are typically $1,000. The fee for groups that qualify for the new 1023-EZ is typically $3,000 but may be more if there is a complex corporate structure. A fixed fee will be determined after consultation and is based on the nature of the proposed organization’s activities and our experience regarding the level of documentation and follow-up that will be required to obtain exemption. Certain activities increase the likelihood of IRS follow-up questions. These include, by way of example, schools, organizations with foreign activities, organizations basing their tax-exemption on novel or untested theories, and organizations with high compensation being paid to insiders.
Frequently Asked Questions:
How do we get started?
First you should contact our firm either by phone (602) 456-0071 or by e-mail at email@example.com. Ellis or another lawyer will discuss your proposed organization with you and determine whether it qualifies for exemption. If we believe your project can qualify and agree to represent you, you will need to sign an engagement letter confirming your understanding of the work we will perform on your behalf and the fees for our services as well as pay our one half of our flat fee in advance. If your organization needs more time to raise start-up funds, we can divide the project into several stages. Once we have accepted the representation, we will send you a questionnaire designed to gather the specific information we will need to prepare all of the documentation required to turn your dreams into reality.
How long does it take to prepare the documents?
Once we have received the completed client questionnaire detailing the your plans with respect to the proposed organization, it can take two to three weeks to prepare a completed draft that is ready to file with the IRS. Rush services are available but will add to flat fee quote.
Are Costs In Addition To The Fixed Fee?
Clients are also responsible for the fee to file and publish the articles of incorporation in their state, typically $100-500, and for the IRS filing fee. The IRS filing fee is currently $850 if your organization expects to receive revenues of $10,000 or more per year. If your annual revenue is expected to be less than $10,000 the IRS filing fee is $400. Occasionally, we will charge for other expenses such as overnight mail delivery if you request it. We do not routinely charge for copies, phone calls or other routine administrative expenses for flat fee engagements. These are all included in the flat rate for the start-up package.
How Long Does The Process Take Once We Provide The Requested Information?
We will review the information you provided and confer with you, either in person, over the telephone, or online, to clarify any additional questions you or we may have about your plans. We will then prepare articles of incorporation, bylaws, organizational meeting minutes, governance policies, as well as the required IRS forms. Once drafts have been prepared, they will be sent to you for review and approval prior to filing with the IRS.
How Long Does It Take To Receive A Determination Letter?
Once the Application is filed, the IRS typically takes approximately three weeks to acknowledge receipt of the application. The IRS then screens the applications. Those that the IRS determines do not raise issues of fact or law are processed within a few weeks to a few months. However, if the IRS has any issues or concerns, it assigns the application to a reviewer. Current processing times for applications assigned to a reviewer are posted on the IRS its website at:
For example, as of December 2013, the IRS was assigning for review applications received nineteen months earlier.
Once the case has been assigned to a reviewer, obtaining a final result can take from several weeks to several months. Once assigned, the reviewer will typically contact us with follow-up questions within a few weeks. Typically, the questions are clarifications or confirmation of information that has been provided. However, there are some cases that require multiple responses to resolve all of the IRS reviewer’s concerns.
Is It Possible To Speed Up The Process?
It is possible to expedite the review process if a grant is pending and will be lost unless the new charity sends the funder a favorable IRS determination letter by a certain date. Be prepared to substantiate a request for an expedited review with a letter from the grantor. Letters from members of Congress in support of an Application for Exemption can also be helpful.
When Can The New Organization Start Fundraising?
If the organization files its Form 1023, Application for Recognition of Exemption, within 27 months of the date the entity is legally formed, and is ultimately successful in obtaining tax-exempt status, the IRS’s determination of exemption will be retroactive to the entity’s date of formation.
Until the IRS determination letter is issued, new entities should explain to potential donors that an application for tax-exempt status is pending. Donors who claim a charitable contribution deduction for their gifts before then take the risk of an adverse IRS decision.
What If A Funder Wants To Make A Grant Now but Requires A Determination Letter?
Organizations whose status is pending can either defer acceptance of the grant if the grantmaker is willing or find a fiscal sponsor. A fiscal sponsor is a recognized charitable organization that is willing to offer legal and fiscal sponsorship of the project until the organization receives its tax-exempt status. For more information see our blog post on Fiscal Sponsorship v. Fiscal Agency.
How Often Does The IRS Deny Tax-exempt Status?
If we believe there is a risk that the application will not be approved, we will counsel you as to the risks at the beginning of the representation. If we do not think the organization will qualify, we will not take your case. To date, we have never had an application denied. This is due, at least in part, because we do not take cases that we do not believe will qualify for tax-exempt status.
What if We Want to Prepare Our Own Application and Just Pay for a Review?
For those with more time than money on their hands, we recommend self-preparing the application and are happy to recommend resources to assist self-preparers. We offer a review for a flat fee of $800 for which we will spend up to 4 hours reviewing the application and attachments, making comments, and providing suggested language where necessary.