For many nonprofits, tax-exempt status is everything. Not only does this exemption allow nonprofits to avoid federal corporate taxes, but it allows donors to write off their contributions at the end of the year. In many states, IRS-granted, tax-exempt status can also open doors to other exemptions on property taxes and sales tax. But when filing the application for exemption, the process is daunting, if not utterly overwhelming.

The 501c3 application will always be difficult and likely it should be (the IRS recently streamlined the application process for small nonprofits with Form 1023EZ). But like anything else, if you break something down into smaller steps, even large tasks become doable.

The first step in obtaining tax exemption should be defining your nonprofit’s purpose.

Crafting Your Purpose

The IRS has identified 29 different 501c organizations—nonprofits exempt from some federal taxes. The vast majority of nonprofits formed will seek 501c3 status, commonly known as tax exemption for charitable organizations. But how do you convince the IRS that your nonprofit is actually a charitable organization? It all starts with the language in your nonprofit’s purpose.

Articles of incorporation (aka certificate of incorporation) are a nonprofit’s formation documents that you file with the state to create the entity. In the articles, you’ll find a section known as the purpose clause. The purpose clause is the section of your articles the IRS will look at the closest during your application period. Whether your nonprofit is actively preventing animal cruelty or donating yoga mats to needy Canadians, the purpose clause must be crafted with special language in mind. Fortunately, the IRS has provided nonprofits with the exact language it likes to see.

What You Need to Write

The IRS will be concerned with three aspects of your nonprofit’s purpose: that it’s exclusively charitable; that no part of the earnings will benefit an individual; and that upon dissolution the nonprofit’s assets will not benefit an individual. In total, the IRS wants to see that the nonprofit has been created for public good, not yours or someone else’s. The exact language provided by the IRS follows below:




Submitting Your Articles of Incorporation

Most secretary of state websites offer templates for articles of incorporation. However, most leave very little room to include the specific language you need. You should type the purpose on a separate page and attach it to the filing. Feel free to include a few sentences on the specialized purpose of the nonprofit (i.e. stating that the nonprofit seeks to end animal cruelty). Some nonprofit purposes take up several pages; others are only a few sentences.

Once your articles of incorporation are complete, you will also want to adopt the language used in the purpose in your organization’s bylaws.

To learn more about bylaws and articles of incorporation, check out the following links:

Sample Bylaws

Articles of Incorporation

About the Author(s)

 Drake  Forester


Legal Strategy Officer, Northwest Registered Agent
A nonprofit team having a meeting in a conference room