If you’re interested in forming a 501(c)(3) nonprofit in the state of New Mexico there are a few steps you’ll need to complete, which include applying to both state and federal agencies. Typically, 501(c)(3) nonprofits are eligible for tax exemptions under state and federal laws, and the process is not the same as it is for a traditional corporation.
In order for your nonprofit to qualify as a 501(c)(3) tax-exempt organization, it must exist for one (or more) exclusively charitable purposes. These purposes include charitable, religious, educational, scientific, literary, testing for public safety, fostering of national or international amateur sports, and prevention of cruelty to animals and children.
There are a number of benefits to achieving 501(c)(3) tax-exempt status for your nonprofit. Some of these benefits include exemption from federal and state corporate income taxes, the ability to apply for grants and other allocations reserved for 501(c)(3) organizations, discounted postage rates, public credibility, and more.
8 Steps to Forming Your 501(c)(3) Nonprofit in New Mexico
To successfully form a 501(c)(3) nonprofit in the state of New Mexico, you’ll need to complete the following 8 steps outlined below. Before jumping in, it’s helpful to know that the process begins by first forming a nonprofit, then applying for your nonprofit’s 501(c)(3) status with the Internal Revenue Service (IRS).1. Name Your Board of Directors
The individuals that make up your nonprofit’s board of directors will be in charge of overseeing the organizations operations. These board positions can include president, vice president, secretary, treasurer, and other defined officer positions.
When it comes to naming individuals to your board of directors, you must choose at least 3 directors. Additionally, at least 3 of your directors must not be related to one another.2. Choose a Name for Your Nonprofit
The next step, which shouldn’t be overlooked, is naming your nonprofit organization. You’ll want to choose a name that accurately captures the purpose of your organization while also complying with New Mexico’s name requirements.
Your nonprofit name cannot be misleading or imply something other than the explicit purpose of your nonprofit as defined in your articles of incorporation. Additionally, you must choose a name that is unique from all other registered entities in the state of New Mexico.
To check for name availability, use the Entity Name Search available on the New Mexico Secretary of State website. The search tool is free to use and will help ensure that you have a name for your nonprofit that is unique and available for use.
Depending on the nature of your nonprofit, you may also want to check the web domain availability of your nonprofit’s name at this time. Even if there’s not immediate need for it, it’s often worthwhile to purchase it now while available, rather than scrambling for an alternative down the line.3. File Articles of Incorporation
Next, you must file articles of incorporation with the New Mexico Secretary of State. These articles serve as a legal document that establishes your corporation with the state. Articles of incorporation are necessary before your organization can apply for a tax ID, EIN, and 501(c)(3) tax-exempt status with the IRS, among other licenses and permits.
In order to be eligible for 501(c)(3) status, be sure that your articles include language detailing your organization’s purpose and dissolution process. The purpose must be in line with the recognized charitable purposes noted above. And your dissolution process must detail how the organization’s asset will be used and what will happen to them upon dissolution.4. Adopt Nonprofit Bylaws
Bylaws are a helpful legal document adopted by your board of directors that detail the purpose, structure, and operations of your organization. In order for your nonprofit to be eligible for 501(c)(3) status, having bylaws in place is a requirement.
Your bylaws will need to address a number of your organization’s basic operating procedures. This includes information such as the board’s meeting schedule, voting procedures, quorum requirements, process for amending bylaws, and more.
Important: Your nonprofit bylaws must be adopted at the first official meeting of your organization, the same meeting in which your board of directors is appointed.5. Draft Conflict of Interest Policy
Another important step to complete for your nonprofit is drafting a conflict of interest policy. This policy will help to ensure that no member of your board of directors can personally, financially, or otherwise benefit from board decisions or activities. The conflict of interest policy should prevent a board member from discussing or voting in such an event where a conflict is present.
Additionally, this conflict of interest policy is an IRS requirement. Nonprofit entities must complete an IRS Form 990 on an annual basis that signals they have a conflict of interest policy, as well as how those conflicts are determined and managed.
Important: Just as with your nonprofit’s bylaws, the conflict of interest policy must be adopted at the first official meeting of your organization.6. Maintain a Registered Agent
Your nonprofit must also choose either an individual or business entity to serve in the role of registered agent. The registered agent has the role of being available to receive legal documents and notices on behalf of your organization.
Note that all business entities in the state of New Mexico are required to have a registered agent and this role must be maintained to uphold good standing with the state. Additionally, keep in mind that your registered agent must be a resident of New Mexico, or if an entity, authorized to conduct business in New Mexico.7. Obtain an Employer Identification Number (EIN)
An Employer Identification Number, also known as a Federal Tax ID number, is a unique nine-digit number that’s assigned specifically to your organization by the IRS. In effect, it’s similar to a social security number for entities.
Obtaining an EIN from the IRS for your organization is required before you can successfully do a number of things, such as open a bank account, hire employees, apply for 501(c)(3) tax-exempt status, and more.8. Apply for 501(c)(3) Status with the IRS
If you’ve followed the steps outlined above, then you’re ready to apply for 501(c)(3) tax-exempt status with the IRS. To do so, you must complete IRS Form-1023: Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
Note that you must file your Form-1023 within 27 months of your organization’s creation. The 27-month timeline begins at the end of the month in which your organization was created.
Once you submit your application, you should receive acknowledgement of receipt from the IRS soon after. The actual processing of the form will take longer, however. Expect to receive your determination letter from the IRS within 180 days of submitting.
Setting Up Your New Mexico 501(c)(3) Nonprofit
As you may have discerned from the formation steps detailed above, there is no requirement that you use an attorney to form your 501(c)(3) nonprofit in New Mexico. However, the benefit you receive from enlisting the help of an attorney is expertise.
The formation process for a 501(c)(3) nonprofit can require many hours of research and execution. Utilizing an attorney will save you time and help to ensure your nonprofit is set up correctly.
Additionally, keep in mind that once your 501(c)(3) nonprofit has been formed successfully there remains ongoing compliance that you must adhere to. There are both state and federal compliance requirements to follow that include IRS Form 990, annual reports, and state charitable solicitations registration and renewal. If you feel this isn't the best fit, then consider a traditional corporation.