The Twenty-Seven-Month Rule
If you have not been in business for twenty-seven months, you may have a chance of switching from a for-profit to a nonprofit. From the viewpoint of the IRS, you are simply a business paying your corporate taxes like anyone else.
If there was ever a time to consult with your general tax advisor and a lawyer who is well versed in current IRS law, this is it. You are going into some of the most complicated areas on nonprofit law. A general guide is no substitute for professional advice geared specifically to your situation.
The first question, provided you are indeed within the window, is what you indicated when you incorporated with the state. Remember, all your documentation regarding incorporation is a state issue not a federal one. You will most likely need to file extensive articles of amendments, essentially reforming your organization to comply with the nonprofit standards as opposed to the for-profit ones you originally created.
Either you or your attorney needs to make an initial inquiry to your state secretary of state or the office where you filed your original articles of incorporation to determine the process you need to follow to make the switch at the state level. Get the names of each person you speak with, and prepare a follow-up note to reiterate the issues discussed.
Be certain that every single thing you do is in writing. Telephone calls are fine for general questions, but they are worthless in establishing a paper trail.
Inside the Twenty-Seven-Month WindowIf you are within the twenty-seven-month window, you must still check with the office in your state where you filed the articles of incorporation and make the necessary changes to your core corporate documents. You may have to file articles of amendment, but more than likely you will also have to engage in detailed correspondence to explain how and why the original circumstances have changed and why your organization is now seeking incorporation as a nonprofit. It may also be possible that you simply made a mistake in filing the initial articles of incorporation, which can be rectified with a letter of explanation and amended articles.
Past the Twenty-Seven-Month WindowIf, on the other hand, you incorporated as a traditional for-profit business, have been operating as a for-profit business for twenty-seven months or longer, and now decide you are really a nonprofit charitable organization, you will face an uphill struggle. It is highly unlikely your group will be able to gain a favorable decision, and it may be time to seek an alternative route to gaining nonprofit status.
