Frequently Asked Questions (FAQs) about Starting a Nonprofit

1. How much does it cost to file for nonprofit status?
   
   

   Action	Fee
   Application for Reservation of Name   (state)	$5.00
   Articles of Incorporation  (state)	$40.00
   File for Federal tax exempt status (IRS) (form 1023) If annual gross receipts will exceed $10,000 annually over a 4-year period, the fee is $750. If annual gross receipts will not exceed $10,000 annually over a 4 year period, the fee is $300.	$750/$300
   Obtain Maine sales tax exempt status State income tax exemption is automatic for organizations that have received their 501(c)(3) status from the IRS. However, sales tax exemption is not. Note: Each type of exempt organization is required to file a different application. This website will help to determine which form your organization must file.	$25
   Lawyer fee (if choosing to use a lawyer) Fee includes ten or so items, but not filing fees. The ten items typically are: Introductory Meeting Articles of Incorporation Bylaws and Explanation Memo Introductory Letter to Board of Directors for Organizational Meeting Sample Meeting Minutes and Agenda for Organizational Meeting Drafting of Conflict of Interest Policy and Memo Drafting Accountable Plan Filing of IRS Form 1023 Package Charitable Solicitation Application Closing Memo Explaining Year-to-Year Filing Requirements	$1,250 - $2,000 flat
   Total Cost (without a lawyer)	$820/$370

   
   

   Important Notice: Form changes occur periodically to implement new requirements. Forms may be eliminated or revised, or new forms may be created. Before submitting forms for filing, please be sure that you have the most recent version.

2. Where do I start?
   We recommend starting with our Check List, and we strongly encourage you to talk with as many people as you can about this enormous undertaking
   
   
3. How do I write a mission statement?
   A mission statement is a short, succinct description of your organization’s purpose.  It tells what your organization strives to achieve, but not how it goes about doing so. This process can be time-consuming, but a great unifier for your new board.

   Writing Your Mission Statement

4. Why would an organization not incorporate?
   This website will help you consider the pros and cons to incorporating.
   
   
5. How do I recruit new board members?
   United Way maintains a website to help match volunteers and potential board members with organizations.

   We also recommend you speak with your friends, neighbors and colleagues, as well as to people who do similar work with other organizations.  Look for those people who share your passion for your vision, and who bring the skills and experience necessary to best meet your new organization’s needs.

   Recruiting Board Members
   
   
6. If I serve multiple roles in my organization, do I still need 3 people to serve as board members?
   Yes, we believe the board should be made up of at least 5 persons unrelated to one another or to staff, to ensure appropriate deliberation and diversity. 
   
   
7. Can I solicit funds before I receive my 501c3 status?
   No, your organization may not solicit contributions from the general public until the organization has been registered with the AG's office for 30 days. However, you may apply for grants from foundations (with a fiscal sponsor), solicit funds from board members or other bonafide members, and you can accept unsolicited gifts.  Read the rules to be sure you understand what constitutes a “solicitation.”
   
   
8. What is Unrelated Business Income (UBI)?
   UBI is income from a regularly-carried-on trade or business that is not substantially related to the organization’s exempt purpose.  Determining whether or not your activities result in UBI, is sometimes difficult – merely using the money received for charitable purposes is not enough to exempt UBI from taxation.  The IRS has created a helpful tutorial .
   
   
9. How do I know what type of nonprofit I might be?
   The IRS has many classifications of tax exempt orgs.  Most new organizations are interested in becoming a public charity, exempt under 501(c)(3) of the tax code. Use the links below to help determine which type of nonprofit makes the most sense for your mission. Since it is complicated and widely variable, you may want to consult a lawyer.
   
   
   • List of the types of tax-exempt entities
     
   • Descriptions of the different types of 501(c)(3) organizations
     
   • IRS Publication 557 : “Tax Exempt Status for your Organization”, the definitive 72 page information pamphlet on federal tax-exemption. 
      
10. What does it mean to be tax exempt?
    All nonprofits are exempt from federal corporate income taxes. Some are also exempt from state and local property and sales taxes. Nonprofits are, of course, not exempt from withholding payroll taxes for employees, and they also are required to pay taxes on income from activities that are unrelated to their mission.
    
    
11. Are all nonprofits exempt from state sales tax?
    No. Organizations must apply to the state for this exemption. Nonprofits, such as hospitals, schools, churches and libraries, are eligible for the exemption from paying Maine Sales Tax on goods and services purchased.  Other organizations meeting certain requirements may be as well. 

    Find out if this exemption applies to your organization.

12. Are all nonprofits exempt from property tax?
    If you own property, you may be exempt from paying property taxes to the municipality in which it is located. Learn more about property tax-exemption in Maine from our Property Tax Exemption Fact Sheet .  An application form must be completed and submitted to the municipality in which your property is located.
    
    
13. What is a fiscal sponsor?
    A fiscal sponsor is a person or organization that will serve as your project's fiscal sponsor by receiving and administering the funds, while you await your organization’s nonprofit status.

    In searching for a fiscal sponsor, you should seek out organizations that have demonstrated an interest in programs or projects similar to yours. It will be easier to find a fiscal sponsor if your project enhances or furthers that organization's charitable purposes and/or if that organization benefits in some way from being associated with your project.

    Consider obtaining a Fiscal Sponsor to enhance your fundraising ability while you wait for your tax exempt status from the IRS.
    
    About Fiscal Sponsorship
    
    
14. Can a nonprofit make a profit?
    Operating any organization at a deficit or without a sufficient "rainy day" fund is not good business. In order to maintain the viability of any organization, it is important to operate with some "net revenue" at the end of a year. What distinguishes nonprofits is not whether they can make a profit, but what happens to profits. Nonprofits are prohibited from distributing profits in the same way for-profit corporations can. All revenue must be earmarked for the organization's mission.
    
    
15. Why are nonprofit organizations tax-exempt?
    All nonprofits are exempt from federal corporate income taxes. Most are also exempt from state and local property and sales taxes. Nonprofits are, of course, not exempt from withholding payroll taxes for employees, and they also are required to pay taxes on income from activities that are unrelated to their mission.

    Here are some of the reasons why nonprofit organizations are tax-exempt and why it makes sense to preserve these tax-exemptions:

    • Nonprofits relieve government's burden- Private schools and hospitals, day care centers, homeless shelters, and other nonprofits provide services that government might otherwise be required to offer. Through tax-exemptions, governments support the work of nonprofits and receive a direct benefit.
      
      
    • Nonprofits benefit society- Nonprofits encourage civic involvement, provide information on public policy issues, encourage economic development, and do a host of other things that enrich society and make it more vibrant.
      
      
    • Taxing nonprofits would be difficult and counterproductive. Determining what qualifies as taxable income would be extremely difficult according to many economists. The adverse effects of taxation on the viability and effectiveness of many nonprofits would be counterproductive and cost more to the community than the taxes it would generate.
      
      
    • Exemption for religious nonprofits preserves separation of church and state. Tax-exemption limits government's ability to use tax policy to influence religious choices.