What Is The Difference Between Incorporation and 501(c)(3) Status

It is easy to become confused by the difference between being an incorporated nonprofit organization and a tax-exempt nonprofit. Incorporation happens at the state level. When a group decides to form a nonprofit, one of the first steps is to incorporate as a nonprofit corporation in the state where the nonprofit’s principle office is located. Each state has its own rules and procedures for incorporation, which are all similar but different is subtle ways. All require a filing fee which ranges from $25 – $200.

TAX-EXEMPT STATUS. Obtaining tax-exempt status happens on the federal level.

Most nonprofits want to be a 501(c)(3) because it carries more tax benefits than other types of nonprofits. Becoming a 501(c)(3) requires that the group obtain an Employer Identification Number (EIN) and to submit form 1023 to the IRS, along with a fee of $850 (or in some cases, depending to anticipated revenue, $400).

NOTE: Incorporating as a nonprofit organization is a fairly easy process. Applying for 501(c)(3) status is not easy, and is further complicated by the fact that if you did not incorporate in the way the IRS requires, the IRS will require that you amend your original Articles of Incorporation and file for state incorporation all over again.

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