Built on purpose: CPA’s 6 steps to starting a not-for-profit

Navigating the complexities of establishing a not-for-profit organization can be daunting. It’s not simple or easy to form a board with the right mix of expertise and personal connection or to set up governance and financial systems that provide donors with transparency and accountability while not running afoul of tax requirements.

When I agreed in 2021 to become the founding treasurer of the Agnes McCarthy Caregiver Foundation — a small 501(c)(3) nonprofit formed to support caregivers of individuals with mental health challenges — I had more than a decade of experience in public and corporate accounting and an interest in not-for-profit work.

The lessons I learned on how to form a 501(c)(3), including complying with IRS requirements and setting up sound governance from Day 1, apply broadly to any CPA helping start or advise a not-for-profit.

HOW TO START A 501(c)(3)

The AICPA advises members to carefully consider whether an existing nonprofit could accomplish the mission before starting a new one with the same focus. We applied this principle by first exploring options such as a donor-advised fund (DAF), fiscal sponsorship, or independent incorporation — assessing each for governance autonomy, speed of launch, cost structure, and long-term sustainability. Each offered trade-offs in control, timeline, and operational complexity. While a DAF would have allowed quick startup and donor tax deductibility, it limited our governance. We chose independent incorporation to maintain full authority and accountability.

The following six steps ensured the not-for-profit’s work stayed on mission, proper processes and controls were developed, and the IRS recognized the not-for-profit for tax exemption early to establish credibility with donors and stakeholders:

1. Incorporate and set up a structure

Forming a board that combined professional expertise with personal connection to our mission was important. Our board included a nonprofit fundraiser, an attorney, several CPAs (including myself), a guidance counselor, a mental health counselor, and two business owners. More than half of our board members were current or former caregivers, bringing lived experience that directly supported our mission.

Although the not-for-profit was family-oriented in mission, we intentionally included independent directors who were not related to the founding family. I was one of them. As founding treasurer, I led the development of the foundation’s financial systems — overseeing governance policies, internal controls, budget modeling, reporting infrastructure, and regulatory documentation from the ground up. I managed everything from the chart of accounts to banking and audit readiness.

We incorporated in Delaware in February 2021. Key founding documents included:

• Articles of incorporation with the required IRS charitable clauses.
• Bylaws outlining board duties, quorum rules, and remote meetings.
• A board-approved conflict-of-interest and benevolence policy.

We operated as a working board, which meant we did much of the work, including meeting monthly, reviewing grants, developing policies, and building the foundation’s capacity. One board member — our part-time executive director who also served as secretary — was the only compensated board participant per policy.

2. Customize Form 1023

Even though we qualified to file Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, we chose to file the standard Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, due to our grantmaking to individuals. We included:

• Delaware articles and certified bylaws.
• Board roles, compensation disclosures, and policies.
• Conflict-of-interest and benevolence policies.
• Narrative of programs and grant criteria.
• Three-year projected budget.

Our grants supported urgent needs for caregivers: groceries, therapy copays, rent, and funeral expenses. Applications required documented hardship, and reviews were subject to board procedures.

We emphasized controls, governance, and transparency in our submission.

3. File Form 1023 with an expedited processing request

Given our mission’s relevance to the COVID-19 pandemic, which added hardships to many a caregiver’s life, we submitted an expedited processing request with our full Form 1023 application.

Our expedited criteria were direct services to a population impacted by COVID and pending donor commitments requiring IRS determination.

We included supporting documentation such as mental health impact data from the American Psychological Association, Gallup, and Johns Hopkins University; program plans; and timelines for service launch.

The IRS processed our application in a timely manner, aided by a detailed and well- substantiated request.

4. Set up financial systems

We used a discounted version of Intuit QuickBooks via TechSoup, enabling:

• Fund accounting and grant tracking.
• Expense categorization and reconciliation.
• Donor tracking and reporting.

Google Workspace for Nonprofits provided infrastructure for email, file storage, and collaboration.

Each month, I prepared financial reports for the board outlining:

• Cash position and budget vs. actual.
• Donation trends.
• Grant and program activity.

These reports doubled as board education tools and a backbone of our fiscal discipline.

Early on, I walked the board through the IRS public support test. This helped guide our donor cultivation strategy from Day 1.

5. Operate as a remote, working board

We began with weekly Zoom meetings during the early planning-and-launch stage, which allowed us to work collaboratively and build cohesion despite pandemic restrictions. Once the foundation was operational, we transitioned to monthly meetings. As a working board, we:

• Reviewed all grant requests and required documentation.
• Delegated limited grant authority to the executive director.
• Maintained board minutes, disclosures, and conflict logs.
• Approved and distributed an annual report to donors.

Transparency to donors is core to our operations. We issue an annual report that includes the percentage of funds going directly to programs and the background of the board members and send out periodic email updates.

6. Meet the public support test

Newly formed 501(c)(3) public charities must demonstrate that at least one-third of their total support comes from the general public to retain public charity status beyond the five-year advance ruling period. Contributions from any single individual (other than government or public charities) exceeding 2% of total support may be excluded from the public support numerator. For example, if a single donor contributes well above 2% of total support, only part of their contribution counts toward the public support numerator — making diversified donor support essential for long-term compliance.

Our early support came from board members — common in startups — but concentrated giving risks future compliance. We tracked contributions with this test in mind from the beginning.

INSIGHTS LEARNED IN THE PROCESS

From governance design to regulatory navigation, here are key takeaways:

• Understand the public support test early: Model scenarios and educate your board to avoid surprises.
• Choose the full Form 1023 when appropriate: It adds credibility, especially if making grants to individuals.
• Educate the board on financial oversight: Regular reports and board tutorials build alignment and confidence.
• Use scaled tools: Leverage TechSoup, which also provides discounted access to QuickBooks Online, and Google Workspace.
• Document diligently: Protect the mission with strong records.
• Demonstrate transparency to donors: Even if your nonprofit qualifies to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, consider filing the full Form 990, Return of Organization Exempt From Income Tax. It provides more- detailed financial disclosures and enhances credibility with foundations, grant makers, and charity assessment organizations like Charity Navigator. We chose Form 990 from the beginning to show seriousness and support donor confidence.

Launching a nonprofit underscored how structure and clarity create trust. For us, that context happened to be during a crisis, but the lesson holds true in any environment. As a CPA, I saw how financial stewardship is about more than compliance — it’s also about mission integrity.

For CPAs considering nonprofit board service or startup guidance, there’s a unique opportunity to bring order, accountability, and impact to the communities we serve.

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About the author

Anthony Vinci, CPA, MBA, is a senior director at the Financial Industry Regulatory Authority (FINRA), overseeing broker-dealer accounting and financial responsibility policy, and a former treasurer and board member of the Agnes McCarthy Caregiver Foundation. Before joining FINRA, he worked as an auditor at EY and as treasurer and CFO at securities brokerages on Wall Street. The views expressed in this article are his own and do not necessarily reflect the views of his employer. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

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