Forming and running a nonprofit in Alabama means dealing with four agencies: the Alabama Secretary of State to incorporate, the IRS for federal tax-exempt status, the Alabama Department of Revenue for state tax treatment, and the Attorney General’s Office for charitable solicitation. Alabama nonprofit filing requirements start with roughly $528 to $853 in government fees at formation, depending on which IRS application you file, and continue every year through federal Form 990 returns and a state charitable report. Skip a step in the sequence and you’ll usually have to redo an earlier one.
Incorporating With the Secretary of State
Start by reserving your corporate name. The reservation costs $25, plus a $3 processing fee if you file through Alabama.gov, for $28 online.1Alabama Secretary of State. Secretary of State Online Services
Next, file the Certificate of Formation. It must include your organization’s name, the name and address of an Alabama registered agent, and a clear statement of purpose.2Alabama Secretary of State. Domestic Corporations The filing fee is $200.3Alabama Secretary of State. Fee Schedule
Include a dissolution clause. The IRS requires your organizing documents to state that if the organization dissolves, remaining assets will pass to another 501(c)(3), the federal government, or a state or local government for a public purpose.4Internal Revenue Service. Organizational Test Internal Revenue Code Section 501(c)(3) Leave it out and you’ll amend the Certificate before the IRS will process your exemption.
Alabama law requires only one director for a nonprofit corporation,5Alabama Legislature. Alabama Code 10A-3-2.09 – Number and Election of Directors but most organizations start with at least three to meet IRS expectations about independent governance. After incorporation, adopt bylaws covering board structure, meetings, officer roles, and voting. You’ll submit them with both your federal exemption application and your charitable solicitation registration.
Applying for Federal Tax-Exempt Status
Once your Certificate of Formation is on file, get an Employer Identification Number from the IRS. The online application at irs.gov is free. Don’t request the EIN earlier: the IRS treats the date you receive it as the start of your filing obligations.6Internal Revenue Service. Obtaining an Employer Identification Number for an Exempt Organization
With your EIN, apply for 501(c)(3) recognition by filing Form 1023 electronically through Pay.gov.7Internal Revenue Service. About Form 1023 The user fee is $600.8Internal Revenue Service. Form 1023 and 1023-EZ Amount of User Fee The form asks for detailed information about your activities, governance, and finances, including projected budgets covering three to five years depending on how long you’ve existed.9Internal Revenue Service. Form 1023 Required Financial Information
A shorter Form 1023-EZ is available if your organization projects annual gross receipts of $50,000 or less and holds total assets under $250,000.10Internal Revenue Service. Instructions for Form 1023-EZ The user fee is $275,8Internal Revenue Service. Form 1023 and 1023-EZ Amount of User Fee and you must complete an eligibility worksheet before filing.
Organizations with annual gross receipts normally at or below $5,000 are treated as automatically exempt and don’t need to apply.11Internal Revenue Service. Instructions for Form 1023 A determination letter is still worth having. Banks, grantmakers, and donors routinely ask for one.
State Tax Treatment in Alabama
Alabama handles state tax exemptions in pieces. There’s no single application.
Income Tax
After the IRS issues your determination letter, Alabama generally recognizes your exemption from state corporate income tax without a separate application. Unrelated business income remains taxable at both the federal and state level.12Internal Revenue Service. Exemption Requirements for 501(c)(3) Organizations
Property Tax
The Alabama Constitution exempts property used exclusively for religious worship, schools, or purely charitable purposes.13Justia Law. Alabama Constitution Section 91 “Exclusively” is the operative word. Property rented out or used for business purposes doesn’t qualify, even when the income is directed to charitable work.14Alabama Legislature. Alabama Code Title 40-9-1 – Exemption of Persons and Property From Ad Valorem Taxation
Sales and Use Tax
Alabama does not offer a general sales tax exemption for churches or charitable nonprofits.15Alabama Department of Revenue. Statutorily Tax Exempt Entities Only entities specifically listed in the statute qualify. Those that do must apply to the Department of Revenue using Form ST:EX-A1-SE and file a quadrennial report every four years to keep the exemption active.16Alabama Department of Revenue. Application for Sales Tax Certificate of Exemption Most charitable organizations should plan on paying sales tax on their purchases.
Registering to Solicit Contributions
If your nonprofit will raise money from the public in Alabama, you must register with the Attorney General’s Consumer Protection Division before soliciting any contributions.17Alabama Legislature. Alabama Code 13A-9-71 – Registration of Charitable Organizations The registration fee is $25.18Alabama Attorney General’s Office. Charitable Organizations
The initial filing uses the registration statement prescribed by the Attorney General and includes copies of your Certificate of Formation, bylaws, and IRS determination letter, plus the names and addresses of officers, directors, and any professional fundraisers acting on your behalf.17Alabama Legislature. Alabama Code 13A-9-71 – Registration of Charitable Organizations
Organizations receiving less than $25,000 in contributions during a fiscal year are exempt from registration, but only if all fundraising is handled by unpaid volunteers.17Alabama Legislature. Alabama Code 13A-9-71 – Registration of Charitable Organizations Hire a paid fundraiser or cross the dollar threshold, and you have to register.
Annual Filings to Keep Your Status
Missing annual filings is the fastest way to lose your tax-exempt status. Penalties range from daily fines to outright revocation, and reinstatement means starting the exemption process over.
IRS Form 990 Series
Every tax-exempt organization files an annual return with the IRS, due on the 15th day of the fifth month after the end of your fiscal year.19Internal Revenue Service. Annual Exempt Organization Return Due Date For calendar-year organizations, that’s May 15. The form depends on size:
- Form 990-N (e-Postcard) for organizations with gross receipts of $50,000 or less.
- Form 990-EZ for organizations with gross receipts under $200,000 and total assets under $500,000.
- Form 990 for organizations above those thresholds.
Fail to file for three consecutive years and the IRS automatically revokes your tax-exempt status with no warning and no hearing.20Internal Revenue Service. Automatic Revocation of Exemption Small organizations get hit hardest because many assume the e-Postcard is optional. It isn’t. A single late filing triggers a penalty of $20 per day, up to $10,500 or 5% of gross receipts, whichever is less.21Internal Revenue Service. Annual Exempt Organization Return Penalties for Failure to File Organizations with gross receipts above roughly $1 million face daily penalties of $105, up to $54,500.
Attorney General Annual Report
Every charitable organization registered with the Attorney General files an annual report within 90 days of the close of its fiscal year.17Alabama Legislature. Alabama Code 13A-9-71 – Registration of Charitable Organizations The report requires a sworn financial statement covering that fiscal year, and the filing fee is $25.18Alabama Attorney General’s Office. Charitable Organizations
Secretary of State
Alabama does not require nonprofits to file an annual report with the Secretary of State.22Alabama Secretary of State. Business Entities That’s one fewer obligation than in many states, but it also means no periodic state-level reminder about your other filings.
Public Disclosure and Governance
Federal law requires your organization to make its Form 990 or 990-EZ available for public inspection for three years from the filing due date or the date actually filed, whichever is later. The same rule applies to your original exemption application, including all schedules and attachments.23Internal Revenue Service. Public Disclosure and Availability of Exempt Organization Returns and Applications You must allow in-person inspection at your principal office during business hours, even if you also post the forms online. Organizations other than private foundations do not have to disclose donor names and addresses.
Alabama’s one-director minimum is permissive,5Alabama Legislature. Alabama Code 10A-3-2.09 – Number and Election of Directors but IRS scrutiny goes further. A conflict-of-interest policy isn’t required under Alabama statute, but Form 1023 asks about it, and operating without one raises questions during review.
The real enforcement teeth come from the federal excess benefit rules under Section 4958. If a board member, officer, or other person with significant influence receives compensation or benefits exceeding fair market value, the person owes an excise tax of 25% of the excess, rising to 200% if not corrected in time.24Internal Revenue Service. Intermediate Sanctions – Excise Taxes Board members or officers who knowingly approved the transaction face a separate 10% tax, capped at $20,000 per transaction. Correction requires repayment of the excess benefit plus interest at no less than the applicable federal rate.25Internal Revenue Service. Intermediate Sanctions – Excess Benefit Transactions Documenting every compensation decision with comparable market data and a vote by disinterested board members creates a rebuttable presumption that the arrangement was reasonable.