Tax Exemption • Nonprofits are not automatically tax-exempt. For federal tax exemption (such as 501(c)(3) status), you must apply to the IRS and then confirm exemption with the Minnesota Department of Revenue. • The IRS often requires specific language in your Articles of Incorporation—Minnesota’s generic forms may not be sufficient for IRS approval, so it’s important to review IRS Publication 557 and prepare your articles accordingly. • Donors may receive a tax deduction for contributions only if the organization has been recognized as tax-exempt by the IRS. Other Reporting and Compliance • A nonprofit that solicits charitable donations in Minnesota or employs fundraising professionals must also register with the Charities Division of the Minnesota Attorney General’s Office and file annual reports. • Nonprofits must file annual informational tax returns (IRS Form 990, Return of Organization Exempt from Income Tax, Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, or 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ ) regardless of revenue, or risk losing their tax- exempt status. • If a nonprofit earns unrelated business income (UBIT) —that is, income from a trade or business not related to its exempt purposes—it must file IRS Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)) and Minnesota M4NP, Unrelated Business Income Tax (UBIT) Return if more than $1,000 in such income is generated in a year. Best Practices and Technical Requirements • Draft bylaws to outline how the organization will be governed ( not filed with the state , but required for IRS recognition). • Maintain at least one annual board meeting, minutes, and up-to-date records as required by state law and IRS rules. • Review the IRS information: Charities and Nonp rofits; Before Applying for Tax Exempt Status ; Publication 557, Tax - Exempt Status for Your Organization. IRS contact information for charities and nonprofit organizations is available at Charities and nonprofits, About us . Professional Advisors Given the complexity of state and federal requirements for formation, reporting, and tax exemption, consult an attorney or qualified nonprofit advisor before finalizing articles, bylaws, or exemption applications.
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