You have a vision. You see the need in your community. You have the passion to do something about it. And you are ready to make it official — to start a nonprofit organization.
But before you file a single form, there are things you absolutely need to know. Things that, if you skip them, can cost you months of delays, thousands of dollars, and in some cases, your organization altogether.
In a recent live conversation with Tina Augustus, President of the Chicago West Side Chamber of Commerce, I shared the hard truths that most aspiring nonprofit founders never hear until it is too late. Here is what came up — and why it matters for you.
Common Sense Will Get You Rejected
One of the most consistent patterns I have seen across 30+ years in the nonprofit sector is this: good people use common sense to fill out government forms, and common sense fails them every time.
The IRS operates with specific language requirements. Your mission statement might be beautifully written, legally permitted by the state of Illinois, and deeply aligned with community need — and still fail to pass muster with the IRS because it does not use the right words.
“There is certain language that you absolutely have to plagiarize, word for word, if you are going to get tax exempt status.”
This is not about intelligence. It is about knowing a code that most people have never been taught. That is exactly what my work is designed to fix.
Five Mistakes Founders Make Before They File
1. Using Friends and Family as Your Board
It feels natural. It feels safe. You trust them. But loading your board with close friends and family members creates conflicts of interest that will raise red flags with the IRS. The IRS looks closely at personal and business relationships on your board, and if it appears that your charitable purpose is being overshadowed by insider benefit, your application can be denied — or your organization disbanded.
2. Skipping State Registration and Going Straight to the IRS
Tina Augustus put it plainly from her own experience: she has seen founders name their organization, print T-shirts, recruit youth, hold competitions, and start taking money — before ever forming the organization legally. Filing Articles of Incorporation with the Secretary of State and registering with the Attorney General are not optional steps. They are the foundation. Without them, everything else collapses.
3. Assuming You Do Not Need Money to Do Good
Nonprofit does not mean no profit. It means profit is not distributed to shareholders. Everything you do — every service you provide, every program you run — costs money. Founders who approach their organization with a charity mindset instead of a business mindset run out of runway quickly. Nonprofits are businesses. They just have a different tax structure.
4. Not Really Understanding the Community Need
We grow up in our communities. We live there. We love the people. But love does not replace data. Too many founders launch a service based on an assumption about community need, without ever looking at the demographics, studying what other organizations are already doing, or identifying where the real gaps are. Ask yourself: How many people actually need this? Who else is doing it? Could I partner with an existing organization instead of duplicating their work?
5. Seeking Partisan Political Support
This one can quietly disqualify you before you even get started. 501(c)(3) organizations are prohibited from supporting or opposing political candidates. Getting entangled in partisan politics during your formation — even informally — can jeopardize your application and your mission.
The IRS Has 13 Specific Reasons to Say No
Over decades of working with nonprofits, and drawing directly from IRS guidance, I have identified 13 specific reasons the IRS rejects nonprofit applications. The common thread running through almost all of them is the same: the appearance that someone is personally profiting from charitable work.
“The IRS has disbanded organizations that looked like they were not there for the community — but for the enrichment of themselves.”
In exchange for tax-exempt status, the IRS requires heightened transparency and full disclosure of your activities, relationships, and finances. If conflicts of interest exist and are not properly disclosed, that is a problem. If conflicts of interest are so numerous that your charitable mission appears secondary, that is an even bigger problem.
We will go deep on all 13 reasons during the 3-Day Nonprofit Decision Sprint — with a bonus reason or two the IRS does not advertise but founders discover the hard way.
Do You Actually Need a Lawyer?
Here is the honest answer: probably not. But the system is designed to make you think you do.
When you visit the Secretary of State’s office or the Attorney General’s office to start the process, they send you to an attorney. The forms are written in language that feels like a legal code, because in many ways it is. And when you feel confused and overwhelmed, paying someone to handle it feels like the only option.
“If you do a little bit of research — shall I say, a lot of research — you will find that people like you and I know the process, and we can help you navigate the language.”
The language is the key. Not the law degree. During the 3-Day Sprint, I will walk you through the actual forms, show you exactly what language to use and what to avoid, and demonstrate step by step how to incorporate a legal nonprofit organization — for free, without an attorney.
The State of Nonprofit Formation Right Now
There are over 2 million nonprofits in the United States. Over 6,000 in Chicago alone. In my own neighborhood of North Lawndale — a four-square-mile community — there are more than 250 organizations. People will tell you we have enough. But look out your window. The needs are still great.
Yes, this is a challenging moment. The current federal climate has introduced new barriers for nonprofits. And in Illinois, roughly the same number of organizations go out of business involuntarily each year as start up. Many of them dissolve not because their mission failed — but because they forgot to file a $10 annual report with the Secretary of State.
“There are people who actually lose their organizations because they don’t think about filing with the Secretary of State. A letter comes in the mail… and that’s it.”
Systems matter. Compliance calendars matter. Knowing what you are required to do — and when — is not a nice-to-have. It is a survival skill.
What Comes Next: The 3-Day Sprint and 90-Day Course
The 3-Day Nonprofit Decision Sprint (Free) — February 23–25
This free three-day sprint is designed to give you clarity before you commit. Here is what each day covers:
Day 1 — The Questions to Ask Before You Start: Passion is not enough. On Day 1, we look at the questions you need to honestly answer about your capacity, your community, your purpose, and your competition before you spend a dollar or file a form.
Day 2 — The 13 Reasons the IRS Says No: We go deep on every reason the IRS rejects applications — plus bonus reasons most people never see coming. This session alone could save you a year of back-and-forth.
Day 3 — How to Incorporate Without an Attorney: Step by step, I will show you how to legally incorporate a nonprofit organization online, using the right language, without paying attorney fees.
90 Days to a New Nonprofit — Launching March 2
For those ready to go all the way, my flagship course takes you from idea to fully compliant, fundraising-ready organization in three months. You will complete every form at the state and federal level, prepare for your first board meeting, develop an evidence-based program model that funders recognize, and learn how to pitch funders — with private coaching available at higher enrollment tiers.
When I started my first nonprofit, I had access to some of the best attorneys and consultants in the city. Most founders do not have that. This course is how I make that expertise available to everyone — regardless of zip code, budget, or background.
The Bottom Line
“It is possible to start an organization, do it the right way, find the right board members, and raise money coming out of the gate. We are going to help you make it easier.”
The community you want to serve cannot afford for you to wait. And with the right knowledge, the right systems, and the right support, you do not have to.
Ready to Take the Next Step?
Join us for the FREE 3-Day Nonprofit Decision Sprint, February 23–25. Then mark your calendar for March 2, when 90 Days to a New Nonprofit officially launches.
Registration details are available at NonprofitUtopia.com or through the links in our social channels on Facebook (Nonprofit Utopia), LinkedIn (Valerie Leonard), and YouTube (Nonprofit Utopia).
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Valerie F. Leonard is the founder and managing director of Nonprofit Utopia, LLC, a capacity-building ecosystem serving nonprofit founders and executive directors. With 30+ years of experience and her proprietary LEGACY™ and ASCEND™ frameworks, she has helped nearly 1,000 leaders raise over $100 million.
