How to start a 501(c)3 nonprofit as quickly as possible
A guide to all the things you can do to speed up the time it takes to get 501(c)3 status.
This is absolutely not legal advice, and all people considering launching organizations should consult with lawyers.
You can launch a 501(c)3 really quickly if you want. If you have a funder lined up, you can go from an idea to having a nonprofit with 501(c)3 status and with staff on payroll within around 40 days. I think this is around the fastest you can consistently do this, though if lucky, you can make it happen a bit faster (I just think you’re significantly less likely to succeed at getting 501(c)3 status in that window).
This outcome isn’t guaranteed, and steps in this list can go wrong. In particular, expediting your 501(c)3 application, discussed below, has, in my experience, about a 60% success rate for working within your requested timeline (but has a 95%+ success rate for expediting *to some extent*). So that means that doing this, there is something like a 40% chance it’ll take longer than you expect, because you’ll have to wait longer to get 501(c)3 status.
Note that having 501(c)3 status doesn’t hold you up from receiving grants or setting up payroll. The IRS treats organizations that intend to file for 501(c)3 status as 501(c)3s retroactively to their date of incorporation as long as they get the status within 27 months. And, donor gifts in that period are retroactively tax deductible (once you receive the status). You can open bank accounts, run payroll, get insurance, etc. without 501(c)3 status. Public charities can mostly make grants to you. However, donor advised funds and private foundations might have a harder time getting funding to you without the status.
These comments are based on my own experience starting several 501(c)3s, and seeing several dozen go through the expedite process. Everything in this post is very much not legal advice, and you should always seek legal advice when forming a nonprofit.
What is a 501(c)3?
501(c)3 is a special tax status for US corporations. Most corporations in the US are formed at the state-level (e.g. in the State of Delaware). 501(c)3 is a tax status granted by the federal government that makes your corporation exempt from federal income tax, and makes donations to your organization tax deductible.
After you form, you have 27 months to secure 501(c)3 status. During this period, the federal government treats you as a 501(c)3. And, while you’re pre-status, you can still open a bank account, have staff, etc. So, many of the steps described below can happen in parallel, even if you’re waiting for your status.
The maximum speed path
1. Get a donor who only wants to give to you if you’re a 501(c)3 (∞ days)
The only way to get 501(c)3 status remotely quickly is to have a donor lined up who will only give you funds if you’re a 501(c)3 and who will remove the offer of funding if you don’t get it by a certain date, such that you can credibly claim you need the status quickly to get the funds.
If you don’t have this, getting 501(c)3 takes 8-10 months (and it’s unclear if this timeline has changed (for better or worse) in the current era of IRS staffing cuts).
Ideally, this donor is giving somewhere between 10% and 50% of your first year budget. I’ve heard people say it can be higher than 50%, but I’ve only seen successful 501(c)3 expedite requests in that range.
It helps if the donor is a private foundation or a donor advised fund, as these organizations can credibly claim that they need you to be a 501(c)3 (since they’d otherwise have to do expenditure responsibility, and many DAFs are unwilling to). But, this isn’t strictly necessary.
It can help if the donor is willing to write a letter that says “I’ll give you the money if you get 501(c)3 status but this date, otherwise you lose it” but this isn’t strictly necessary.
You’ll need to write a letter yourself to include in your application. Aaron Hamlin has a good template for this.
Finally, I’ve heard lawyers advise that the IRS doesn’t like it if the donor is a board member or other person affiliated with the organization. However, I’ve also seen the IRS expedite applications where the donor is a board member, so I’m not sure how true this is. But it probably doesn’t hurt for the donor to be unrelated.
Ideal case
The donor is a DAF or private foundation
The donor is giving 10%-50% of your first year of operating budget.
The donor writes a letter awarding you the grant, with the exploding deadline stated clearly.
The donor isn’t a board member or person related to the organization.
2. Incorporate in Delaware or another speedy state (2 days)
Next, you need to form a corporation in a specific state. Work with a registered agent service to do this, which will provide an address in the state you’re incorporating in. Note that this address is not a mailing address — it’s exclusively used for communication with the state about corporate activity. Don’t use it elsewhere.
I usually recommend Northwest Registered Agent. It’s part of a massive, shadowy registered agent conglomerate, but it’s the segment of that conglomerate that has the best customer service.
You can choose what state to incorporate in. Often people incorporate in the state that they live in (because you’ll probably need to register there anyway), or Delaware. But registering as a foreign corporation is easy, and registering in Delaware is very fast, so I prefer to register in Delaware, then do a foreign qualification in the state I live in. Definitely seek legal advice on this / this is not legal advice.
You can expedite Delaware registration for a few hundred dollars and incorporate in under 24 hours, but it’s generally pretty fast even if you don’t do this.
In Delaware, 501(c)3s are usually incorporated as an “exempt” corporation. This corporation type only requires 1 board member (the IRS requires 3 when you register as a 501(c)3 but you can incorporate with 1). The IRS cares about two things in your incorporation documents in particular: that it states you are formed exclusively to do 501(c)3 stuff, and that it states upon dissolution, you’ll distribute assets to other 501(c)3s. Template articles for exempt corporations from registered agents usually. include this, but it’s worth double-checking them before they are filed.
Registered agent template articles of incorporation will usually have charitable purposes listed as “any charitable purpose” or similar. You can make this a more specific purpose. Sometimes, this might matter a ton so if you’re planning on becoming a leading AI lab, you should probably have a lawyer look at them.
DO NOT pay the registered agent to get your employer identification number (EIN). They’ll often add it as a service by default for free, so you have to actively uncheck a box requesting it. This is tempting, but the IRS takes weeks to respond to their applications, so it’s a mistake if you’re trying to move quickly. See section 5 below for information on getting your EIN yourself.
3. Get an address (1 day)
You’ll need an address on file with the IRS. You should choose a stable address, that you can reliably receive mail at. Don’t use your registered agent’s address in the state of incorporation — registered agents will usually only open mail from the secretary of state for you.
You can use an office, a home (though if you’re on a lease, make sure it is okay), or a mailbox for this. Note that this address will be public. Changing your address with the IRS is annoying to do, and the IRS will occasionally make large, annoying mistakes if you start using a different address (like assigning the new address a different employer identification number). So, make sure you can reliably access this address into the future.
Many virtual office or mailbox providers will require you to sign and notarize a post office document to receive your mail — you can do this online, and it takes just a few minutes, but you’ll need an US ID typically.
What state should the address be in?
For many functions, like insurance, you’ll need to choose a “headquarters” in a specific state. If you have a main office, this location might be obvious. Often, people will choose the state where their executive director is located.
The state you choose has at least one extremely important impact on your organization: how expensive your health insurance quotes will be.
Health insurance companies in the US set rates partially based on the state of their customers, and they rely heavily on your mailing address to make this determination. Some states have significantly higher health insurance costs. For example, having an address in New York State for health insurance will probably double the quotes you’ll receive compared to pricing you’ll get if you are located in Pennsylvania.
If you use my preferred payroll provider, Justworks, the state you’re in will also impact if you get UnitedHealthcare (bad insurance (in my opinion) and slow to quote) or Aetna (good insurance and fast to quote) insurance plans offered to you. I believe this is also true for other PEOs, so it is worth asking the PEO how your address impacts health insurance plans you’re offered.
How to find a virtual mailbox provider
Virtual mailbox providers use a gig-economy-esque business where they provide a software tool, and various businesses receive and scan your mail. When you sign up with a service like Anytime Mailbox or PostScan Mail, both of which are fine options, they provide software to a local business, who receives and scans your mail.
So, when choosing an address, search the address in Google Maps before committing, and see what kind of business is getting your mail (you can look at it in Streetview if nothing comes up). It might be a grocery store or a liquor store or a mechanic. I prefer to find a mail service provider, who is in the business of processing mail, as they are typically more reliable and faster. You can also look up the business up and see if they have positive reviews online before committing!
Once you find a good provider, commit to your address!
4. DO NOT pay a third party service to get your EIN. Get it yourself (5 minutes)
You’ll need need an employment identification number (US tax ID). Registered agents can apply for these for you, but they usually fax or mail in the application (I’m not sure if they are required to but they always do). This takes weeks for the IRS to respond to!
If you have a US social security number, you don’t have to mail it in! You can apply online. It takes 5 minutes, and the form basically requires just your address (from above), a bit of information about your business, plus the reason you need it (usually to hire employees and to file tax returns). You’ll get it issued instantaneously. Save the PDF that the IRS website generates at the end of the application, as it is extremely annoying to get a copy of it if you don’t.
If you aren’t a US person, you’ll need to mail/fax in the application anyway, so have your registered agent do it to save you the trouble, but you’ll need to add two weeks to the timeline outlined here, as the 1023 and bank won’t be able to move forward without an EIN.
5. Adopt policies (0 days)
Before you apply for 501(c)3 status, your board should adopt bylaws (articles governing the corporation) and a board conflict of interest policy. When you incorporate, you usually need to file bylaws with the state, and your registered agent will often file some boilerplate ones. You can work with a lawyer to update those, or adapt one of many templates online. Similarly, there are many templates for board conflict of interest policies online that should meet IRS requirements.
6. File Form 1023 with an expedite request (5 days)
Form 1023 is your application for 501(c)3 status. If you’re doing anything remotely weird, complicated, or not obviously charitable, you should get a lawyer to help you complete it! You probably should get a lawyer regardless, and the below isn’t legal advice, and you shouldn’t rely on it as such.
You can file Form 1023 yourself online. It costs $600, and takes around 20 minutes to complete, besides writing out your narrative description of your activities (which is important to get right). In Form 1023, you’ll describe your organization, list your board members, describe various policies you have, how you’ll use the intellectual property you’ll create, etc.
This is important to get right! This is the IRS’s understanding of what you do as a charity, and your 501(c)3 status is conditioned on doing the activities you describe in your Form 1023.
In the 1023, you’ll write a narrative description of your activities. Lawyers will right you a treatise with lots of reference to charity law. The IRS will also accept three sentence descriptions of what you plan to do that are very high level. When I’ve dug into this with lawyers, I’ve not gotten a good understanding of why they take a different approach (usually, they are under the impression that the IRS will reject very short applications, but that isn’t true). But, the IRS does evaluate your charitable status on the basis of this description, so it should describe your work accurately!
Besides a narrative, you’ll also need a 3 year budget for your organization. This can be a projection based on your current plans.
You’ll need to attach a variety of documents to your 1023, including your articles of incorporation, your bylaws, and if you plan to expedite your application, a letter from your organization requesting expediting (template here). You can also include a letter from your funder as additional evidence of the expedite request, but it isn’t required.
Then you just submit, and sit back and wait! (or do all the steps below, which you don’t need 501(c)3 status to advance — you can complete them while you wait for your status).
7. Expedite your 1023 properly
Your expedite request is not guaranteed. In my experience, something like 60% of expedite requests are met in the window originally requested. However, 100% of expedite requests I’ve seen submitted are approved in a shorter period than the typical review period (6-8 months) — it might just take a few months instead of 30 days.
If you work with a lawyer on your 1023, they very likely will not do the following steps, but the following steps will significantly increase the chances of your expedite request working, so it’s worth asking them about it.
Expediting your 501(c)3 status doesn’t stop when you submit it! My rough understanding of what happens when you click the “expedite” box in the application is that your application goes into the 1023 review queue. Someone has the job of sorting through that queue, and the review backlog is months long. Your expedited application request is mixed in with every other request. It doesn’t go into an “expedite” track. So, you need to get your expedite request out of that queue, and assigned to a review officer!
The best thing you can do to achieve this is to fax your expedite request to the IRS. This is because when the fax machine goes off, someone notices it, sees that you requested an expedited review, and pulls your application out of the queue and assigns it to someone. The IRS’s exempt fax number is here. Online fax services like Dropbox Fax work great, and cost around $1.50. You just need to send your expedite request letter, and a cover sheet explaining what application it is in relation to.
Then, wait around 1-2 weeks, and call the IRS tax exempt toll-free number. You’ll have to wait on hold for 1-2 hours typically, but you get to listen to the dulcet tones of Fresh Optimism…
…so that’s something. When you get connected, you can ask about the status of your application, and specifically ask to be connected to the review officer. You can politely emphasize why you need it expedited, and thank them profusely. Be genuinely nice to them and they are helping you out! I don’t recommend calling in again.
8. Get 501(c)3 status (30 days)
At best, it’ll take around 30 days to get an expedited application approved. Sometimes, you’ll get a letter from the IRS asking for clarification about something in your application. This letter will indicate the review officer (if you didn’t do the above and want to get in touch). My sense is these letters are usually a positive sign (e.g. the IRS’s review is almost complete), and after responding to it, you’ll get a response fairly quickly.
But, while you wait for your 501(c)3 status to be approved, you can still proceed with opening up other operational necessities!
9. Open a bank account (2 days if American)
You’ll need a bank account in your business’s name. My typical recommendation is that businesses open an account with Mercury first if trying to move quickly, then an account with Chase after they get 501(c)3 status.
I recommend Mercury for a handful of reasons:
They are fast: they will approve an application from an American in around 24 hours, and from a non-American in around 3 days.
They are profitable, (which other fintech startup banks that are also fast are not) which suggests to me that they are slightly less likely to fail randomly (which would be annoying, since they hold your money!)
They have a good user interface, good customer service, and are easy to work with.
I recommend opening an account with Chase after becoming a 501(c)3 because I think a good financial risk mitigation strategy is having a systemically important bank account and Chase is the least bad options among major US ones. But, it will be a significantly worse experience than opening the Mercury account, and it won’t be fast.
10. Setup payroll (2 weeks)
US payroll takes around 2 weeks to set up, but can be faster if needed. My default recommendation is Justworks, a PEO). I recommend them because their customer service is typically very good, and PEOs seem better for basically any organization that doesn’t have enough staff to require a full-time person working on US payroll compliance. You pay slightly more per month, but don’t have to deal with workers compensation audits, you pay lower health insurance and workers compensation insurance rates, and don’t have to deal with state-level registrations for employment tax accounts in most states.
Health insurance takes around 30 days to set up in the US, and 401(k)s take around 45 days, so if you plan to offer these benefits, you’ll need more time.
11. Set up accounting (1 day)
Finally, you’ll need to set up accounting for tracking financial transactions. Often, organizations will partner with a bookkeeping firm (I’m happy to provide recommendations).
If you choose to do bookkeeping yourself, I recommend Quickbooks Online (which is terrible, but so are all its competitors) because it is the most widely used, and has the best integrations with other software. But, unless you plan to have very high volumes of transactions immediately, wait until you get your 501(c)3 status to buy it. If you wait, you can purchase it through TechSoup, a service that provides discounted software for nonprofits. You can save around $1,000 a year buying it via TechSoup (or more for fancier versions), but it is painful to transfer from a normal account to a TechSoup account, so just buy it later, and catch up on your bookkeeping then.
If you are going to work with an outside firm, and they plan to charge you for the Quickbooks subscription they’ll use, have them wait too — spreadsheets are usually fine for tracking things in the 30 days until you get your 501(c)3 status.
Things to do next
After you complete these steps, you basically are good to go and be a nonprofit! Things that you probably should be thinking about early in the course of your operations include:
Getting insurance (1 month)
Many organizations secure both Directors and Officers and General Liability insurance. If you have employees, you’ll also need workers compensation insurance (though if you work with Justworks or another PEO, it will be provided via the PEO).
Doing board things (1 month)
You likely should have a board meeting early on to set your strategy and plans!