To Be or Not to Be a 501(c)(3)



Paola Prestini

You have a great idea, a great group of people with diverse talents, the drive, and the energy. Maybe it’s time to start a 501(c)(3)! To start, you’ll need to carefully consider several questions:

Why do I want to start a non-profit?
Is my mission clear?
Do I want to form my own non-profit, or should I join forces with an existing group?
Is my idea original? What is its lifespan?

Getting your 501(c)(3) status is a long and arduous process, but it is ultimately very rewarding. This community links you with other artists and individuals and you can apply for grants once you are approved by the IRS, but starting a non-profit also means you are doing something that nurtures your community. It means you are working towards a larger good and have a mission in mind that is clear and does not have a visible time limit. The beginning is nebulous, but the more questions you ask, and the more determined and adventurous you are, the more this path can lead to amazing and fulfilling results.

I co-founded VisionIntoArt (VIA) in 1999 with Nora Kroll-Rosenbaum. We are a diverse, multidisciplinary collective with a political bent that inhabits sound and explores process and creativity. We incorporated right when we graduated from Juilliard. We had a strong belief that collaboration sustained artistic innovation, and we wanted to promote a political, artistic, and social message that enhanced tolerance and artistic engagement within our communities. We had a long-term plan and a goal of one day starting an interdisciplinary school. We applied for our non-profit status in 2000 and received it within the year.

As your group gets started, you can choose to work under the umbrella of another non-profit organization and apply for grants if they agree to be your fiscal sponsor. This is a good idea if your group does not have the funds or the skills to start this venture alone or if your see your idea as a short-term plan. Umbrella organizations sometimes take a small percentage of the grants you get, yet they offer you a roadmap which can be very useful. If you choose to go through another non-profit, make sure you get solid legal advice for this and, as always, keep good records. You do not want to find yourself in a situation where your money is poorly tracked and ends up misplaced. To help prevent this, it is imperative that you have a solid contract in place before any transactions occur.

Early on you should open a small business bank account. This is essential as a way of keeping your fiscal house in order and your financial goals in mind. Even if your organization is very small, it is essential to separate your own personal finances from your organization’s.

You should build an advisory board. The members can be your personal and professional associates—perhaps one or two of your mentors and teachers can be persuaded to join. The advisory board will help establish your credentials and give the project credibility. The advisory board is not necessarily made up of potential donors. That would be nice but this board is different from your actual fiscal board. These are people who believe in your project and will meet with you to spark ideas. They should be able to help connect you with potential donors, presenting organizations, curators, foundations, and other grant-making organizations.

You’ll also have to form a governing board—a group of people ready to assume fiscal and legal responsibility for the organization. We were advised to keep the initial fiscal board small and within our artistic group (in our case, that meant the three composers who founded the organization). In the years that you are trying to define your mission, you should take on the governing role by not only leading the fiscal board but also by doing the nitty-gritty tasks. All the details and departments in a non-profit need to be overviewed by a good director and learning these things yourself is a smart way to understand non-profit finance as well as law and administration.

You will need to create bylaws and articles of incorporation. Your bylaws include responsibilities, board information, how your business is structured, and other details. Your articles of incorporation include who you are, your location, your mission, and more. You will need to incorporate with your state before you file for your tax-exempt status. Each state is different, but this is a quick and inexpensive process. Your certificate is filed with the Department of State pursuant to Section 402 of the Not-for-Profit Corporation Law. It can cost from $50-$100 and should take about two weeks but can take up to a month. The Free Management Library, an online library of articles and other resources for non-profits, offers a good guideline for writing your articles of incorporation.

You will need legal advice. It’s important to get to know and trust a lawyer, and it is always best to find someone who specializes in the non-profit sector. If you hire a lawyer to help with incorporating your organization and getting your non-profit status, it can be a lengthy process—perhaps as long as a year—and can cost anywhere from $500-$2000. In the beginning, you will likely meet with your lawyer several times face-to-face, and then multiple times by email. You will be asked to provide your bylaws and letters of incorporation. The process entails paper work and lots of research. We downloaded the actual application online so we could understand each detail of what was being done. If you choose to complete the application yourself, consult with a lawyer before submitting anything to the Internal Revenue Service.

On your application you will have to indicate your fiscal year. It is sometimes better to go by the calendar year rather than your season so that your tax year matches your donors’ tax schedule. This generally makes book keeping less of a headache.

When you incorporate, you go through an advance ruling period of approximately 60 months before you are reviewed by the IRS. This does not mean you are not a fully functioning non-profit. It just means you need to demonstrate you are fulfilling your mission, keeping good paper work, and are in good financial shape. Before the end of the 60 months, you will need to fill out and submit form 8734 to the IRS.

By this point, you should also have developed a good relationship with a tax accountant who can help you cover all your financial bases. Be aware that when your organization receives more than $25,000, you will have to file a 990 form with the IRS. This verifies you are non-profit for the reason stated in your mission and that you are abiding by the rules and regulations for which you applied for status. Any of your employees paid more than $600 per year needs to be given a W-2.

Once you begin receiving donations and grants, keep all your files in order. Always, always write a thank you letter to your donor when you receive a donation, mentioning the specific amount and giving them your tax exemption number.

Without the help of a lawyer, it is possible to do all the above. We actually learned a lot about finance and administration from grantmakers and friends who run their own non-profits.

As soon as you receive your non-profit status, you can begin applying for grants. That’s when you’ll need your press kit, work samples, and, above all, optimism. Keep trying and stay positive. You’ll be turned away and rejected many times, but that’s okay. Grantmakers need to learn about you. Develop relationships with your peers and with the folks who run these organizations. They’ll track your progress, and you need to track their guidelines and changes in their programs.

Burn out is all too common among those leading small organizations. If your creative team also doubles as your administrative team, make sure to be specific about roles, responsibilities, and tasks. Clarify what each position means and write it down. Who is the artistic director? Who will be in charge of marketing, public relations, grant-writing, and publicity materials? Wherever possible, make sure you delegate.

Finally, keep re-evaluating your goals as your group grows and develops. Open and honest communication within the group is important as your organization matures. Changes are inevitable. Perhaps you’ll need to organize a larger board, drawing in new people who weren’t there from the beginning. Financial needs will change and you should be thinking two or three or more years ahead about where you want to be financially. And don’t be afraid if your group has changed in ways you couldn’t imagine. The success of a group depends on its ability to adapt, to renew itself, to find new energy and strength. Embrace the inevitability of change. Be open to new ideas and roads.

Still ready to start your own 501(c)(3)? Start with your mission and get it on paper. You’ll rewrite your mission statement a billion times but keep every single version. It’s important to track your dreams and your goals and to see how they evolve.

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Italian born composer Paola Prestini is the director and founder of the non-profit interdisciplinary collective, VisionIntoArt. Her music has been performed throughout the U.S and abroad from Lincoln Center in New York City to the Phillips Collection in Washington, D.C., to the Palazzo Fondazione Cassa di Risparmio in Trento, Italy. She is a graduate of the Juilliard School and has been the recipient of numerous awards from organizations such as ASCAP, the American Music Center, Paul and Daisy Soros Fellowship, the Lower Manhattan Cutural Council, and New York State Council on the Arts.