This post is informational. Nonprofit law involves significant IRS and state compliance requirements. The information here does not constitute legal advice. Contact an attorney for guidance specific to your organization.

Step 1: Form a Pennsylvania Nonprofit Corporation

Before you can apply for federal tax-exempt status, you need a legal entity. In Pennsylvania, that means filing Articles of Incorporation as a nonprofit corporation with the Pennsylvania Department of State under the Pennsylvania Nonprofit Corporation Law of 1988 (15 Pa. C.S. §§ 5101-6162).

The Articles of Incorporation must include your organization’s name, its purpose (must be limited to charitable purposes to support 501(c)(3) status), a dissolution clause directing assets to another exempt organization if you dissolve, and the name and address of your registered agent. The filing fee is approximately $125. Standard processing takes 7-10 business days; expedited processing (same-day) is available for an additional $100.

One critical point: Your purpose clause must be written in a way that satisfies the IRS. A vague purpose like “community improvement” can delay your application for months. A well-drafted clause specifically references the IRC § 501(c)(3) categories: charitable, religious, educational, scientific, or literary purposes.

Form 1023 vs. Form 1023-EZ: Which One Do You Need?

This is one of the most common questions At Lopes Law LLC, we receive from nonprofit founders, and the answer matters a lot for your timeline and costs.

Form 1023-EZ is the streamlined version. It costs $275 to file and typically receives a determination letter within 2-4 weeks. But you can only use it if your organization has: projected annual gross receipts of $50,000 or less for each of the next three years, and total assets under $250,000. Certain organization types are also excluded, including private foundations, supporting organizations, and churches.

Form 1023 is the full application. It costs $600 to file and takes 6-9 months for IRS review. It requires detailed narrative descriptions of your activities, financial projections, a complete copy of your bylaws, your conflict of interest policy, and information about your governing body. The IRS may issue correspondence requesting additional information, which extends the timeline further.

Many organizations that qualify for Form 1023-EZ should still consider the full Form 1023. A 1023-EZ approval gives the IRS minimal information to work with, which means more scrutiny later during audits. For organizations planning significant growth or grant funding, the full 1023 creates a cleaner record.

What Is the 27-Month Retroactivity Rule?

This rule is critically important and often overlooked. If you file your IRS Form 1023 within 27 months of your organization’s legal formation (the date your Articles of Incorporation were filed with Pennsylvania), your 501(c)(3) status is recognized retroactively to your formation date.

That means donations received before your IRS approval letter arrives are treated as tax-deductible, as long as you file within that 27-month window. If you miss the window and file later, your exemption only starts on the date the IRS receives your application, and donations made before that date are not retroactively deductible.

In practical terms: form your Pennsylvania corporation, then file your IRS application within 27 months. Do not wait two and a half years to get around to the federal paperwork.

Pennsylvania Charitable Solicitation Registration

Most Pennsylvania nonprofits that solicit contributions must register with the Pennsylvania Bureau of Charitable Organizations before soliciting a single dollar. This is a separate step from your state incorporation and your IRS exemption.

Registration is handled through the Pennsylvania Department of State and requires Form BCO-10 (or BCO-23 for renewals). Fees vary based on total contributions received:

• Under $25,000: exempt if you use only volunteers, but you may still need to file
• $25,001 to $100,000: $15
• $100,001 to $500,000: $100
• Over $500,000: $250

Soliciting without registration can result in fines. If your organization runs any fundraising campaigns, sends solicitation emails, or uses a website with a “Donate” button while based in Pennsylvania, you need to be registered.

What Goes in the Bylaws?

Your bylaws are the internal rulebook of your organization. The IRS requires a complete copy with Form 1023, and Pennsylvania requires bylaws to be adopted before you can operate properly. Your bylaws must cover:

• Governance structure (board of directors, officers, committees)
• Meeting requirements (frequency, quorum, notice requirements)
• Voting procedures and decision-making authority
• Officer terms and succession
• Conflict of interest policy (required by IRS; major omission point for rejected or delayed applications)
• Compensation approval procedures
• Amendment procedure for the bylaws themselves
• Dissolution procedure (must direct assets to another 501(c)(3) organization)

The conflict of interest policy deserves special attention. The IRS specifically asks in Form 1023 whether you have one and whether it has been adopted. Organizations that say “no” or leave the field blank almost always receive a follow-up letter before approval.

The Public Support Test: Public Charity vs. Private Foundation

Every 501(c)(3) organization is either a public charity or a private foundation. Private foundations face more restrictive rules, including excise taxes on investment income, minimum distribution requirements (5% of assets annually), and prohibitions on self-dealing. Most founders want public charity status.

To be a public charity, you need to meet one of several public support tests. The two most common are under IRC § 509(a)(1) and § 509(a)(2):

IRC § 509(a)(1): At least one-third of your total support must come from the general public, government sources, and other public charities. This is sometimes called the “one-third test.” Contributions from any single person or entity that exceed 2% of total support must be excluded when calculating public support (they count only up to 2%).

IRC § 509(a)(2): Designed for organizations that earn revenue from their activities (like selling tickets or charging program fees). You must show that more than one-third of support comes from gross receipts and public contributions, and less than one-third from investment income and unrelated business income.

During your first five years as a 501(c)(3), the IRS gives you a “facts and circumstances” grace period. You are presumed to be a public charity. After five years, you must demonstrate you meet the public support test based on actual financial data.

Common Mistakes That Delay or Kill Your Application

At Lopes Law LLC, we review nonprofit formation documents regularly, and the same mistakes appear again and again:

1. No conflict of interest policy. This is the single most common cause of IRS correspondence delays. Include a written policy in your bylaws and adopt it at your first board meeting.
2. Wrong fiscal year. If you pick a fiscal year end that conflicts with your formation date, you may be required to file Form 990 for a partial year immediately. Most organizations should use a calendar year (January 1 to December 31) or a year-end that gives them time to get organized.
3. Missing required bylaws provisions. The IRS checklist for Form 1023 is specific. Missing provisions lead to correspondence that can add 3-6 months to your timeline.
4. Vague activity descriptions. Form 1023 Part IV asks for a detailed description of your activities. “We will help people” is not sufficient. You need specifics: who you serve, how, where, with what resources, and how activities further your charitable purpose.
5. No dissolution clause in the Articles. If your Articles of Incorporation do not include a proper dissolution clause directing assets to another 501(c)(3), the IRS will require an amendment before approving your application.
6. Choosing the wrong form. Some organizations use Form 1023-EZ when they do not qualify (assets over $250,000 or projected receipts over $50,000). The IRS can revoke your exemption after approval if it was based on an ineligible filing.

Complete Timeline and Cost Summary

Sources: IRS Form 1023 instructions (irs.gov); Pennsylvania Nonprofit Corporation Law of 1988 (15 Pa. C.S. §§ 5101-6162); Pennsylvania Bureau of Charitable Organizations (dos.pa.gov); IRC §§ 501(c)(3), 509(a)(1), 509(a)(2). This post is informational only.