Frequently Asked Questions

Straight answers for common questions from newly approved 501(c)(3) organizations.

By Nate Hanes · Last updated July 6, 2026 · 7 min read

What's the difference between 501(c)(3), 501(c)(4), and 501(c)(6)?

501(c)(3) (charitable, educational, religious, scientific) is the most common form for nonprofits. Donations to 501(c)(3)s are tax-deductible for the donor, and the organization faces the strictest limits on political activity and lobbying.

501(c)(4) (social welfare organizations, civic leagues) can engage in more political and lobbying activity than 501(c)(3)s and can even spend money on campaigns for or against ballot measures. However, donations to 501(c)(4)s are not tax-deductible for the donor. This is a major trade-off if fundraising is your primary goal.

501(c)(6) (business leagues, trade associations, chambers of commerce) is designed for industry groups. Membership dues may be deductible as a business expense (not a charitable donation), and these organizations have broad freedom on lobbying and political activity.

Most newly formed nonprofits choose 501(c)(3) because donors get a tax break, which makes fundraising easier. If you're running a new charitable mission, this is almost certainly the right choice.

Full comparison: 501(c)(3) vs 501(c)(4).

Do we need our own EIN, or can we use the founder's Social Security Number?

You must have your own EIN (Employer Identification Number). Even if your nonprofit is tiny and has no employees, the IRS requires a separate EIN as proof that your organization is a distinct legal entity.

An EIN is critical for: opening a business bank account, filing annual nonprofit tax forms (Form 990 or 990-N), hiring staff, and maintaining the legal separation between the founder and the organization (which protects both the org's tax-exempt status and the founder's personal liability).

Good news: you can apply for a free EIN directly at IRS.gov. Never pay a third party for this; services that charge for EINs are unnecessary. If you apply online, you get the EIN immediately.

Can our board members be paid?

Yes, board members can be compensated. Federal law does not prohibit it. However, any compensation must be "reasonable", meaning fair market value for the services provided. If you pay a board member more than that, it triggers an "excess benefit transaction," which results in a 25% excise tax on the person who received the overpayment and a 10% excise tax on board members who approved it (if they knew it was excessive).

Anyone paid over $600 per year for board service must receive a 1099 form for tax purposes.

Best practice: most governance experts recommend keeping a majority of your board uncompensated and independent. This signals to donors and grant-makers that your board is committed to the mission, not just collecting paychecks. If you do pay board members, document the decision clearly and have evidence that the amount is reasonable (e.g., a market rate study for similar roles).

If you're thinking about the founder drawing a salary rather than just board compensation, we cover that in detail in our nonprofit payroll guide.

Do we have to file anything with the IRS every year, even if we have almost no money?

Yes. If your organization's annual gross receipts are normally $50,000 or less, you must file Form 990-N (the e-Postcard) each year. Brand-new orgs get more headroom under the IRS's "normally" test: up to $75,000 in your first tax year, and a $60,000 average across your first two years, before the familiar $50,000 three-year average kicks in from year three. Full details on our Form 990-N page. It takes about 10 minutes to file online at IRS.gov and is free.

The deadline is the 15th day of the 5th month after your tax year ends (so for calendar-year nonprofits, May 15th).

If you miss this deadline three years in a row, the IRS will automatically revoke your tax-exempt status. At that point you'd have to reapply. It's easy to stay compliant if you remember the deadline or set a calendar reminder.

If your gross receipts exceed $50,000, you'll file the longer Form 990 or 990-EZ instead.

Do we need to register in every state before we fundraise there?

Many states require charitable solicitation registration before your nonprofit solicits donations from their residents, regardless of where you're incorporated. As of mid-2026, 40 states plus DC have some form of charitable solicitation registration requirement (in two of those, Arizona and Texas, it applies only to narrow categories of organizations).

However, 10 states currently have no statewide registration requirement: Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, Utah, Vermont, and Wyoming. Note that this list has changed over time and may change again. Some of these states may add requirements in the future.

Most states also have small-dollar exemptions (e.g., if you're raising under $5,000 that year, you may not need to register), and some have specific exemptions for religious organizations or online-only campaigns.

Before launching a multi-state fundraising push, verify the specific requirements for each state you'll be fundraising in. Don't rely on this general list. Contact your state's Attorney General's office, check their charity registration website, or start with our charitable registration guide.

State-specific guides: California, Texas, Florida, New York, Pennsylvania.

What is the IRS determination letter and why do people keep asking to see it?

Your IRS determination letter is the official document confirming that the IRS has recognized your organization as tax-exempt under 501(c)(3). It's proof that donations to your organization are deductible for donors.

People ask to see it because:

• Banks require it before opening a nonprofit account.
• Grant-makers need it before awarding grants to you.
• Large donors often request it before making major gifts, to confirm their donation will be tax-deductible.
• Some state and local agencies request it when you apply for property tax exemptions or licenses.

Keep a digital copy of your determination letter in a safe place. You'll send it to multiple people throughout your organization's life. You can also search for your organization on the IRS Tax Exempt Organization Search to confirm your status is current.

What is fiscal sponsorship, and when might a new nonprofit use it instead of forming their own 501(c)(3)?

Fiscal sponsorship is an arrangement where an existing 501(c)(3) organization acts as a legal "parent" for a new project, allowing it to fundraise and accept tax-deductible donations without forming its own separate 501(c)(3).

Here's how it works: you partner with a fiscal sponsor (usually a nonprofit with a broad mission that can absorb your program), they handle your banking and filing, and you operate as a project within their organization. Donors make gifts to the fiscal sponsor, who then allocates the money to your project.

Fiscal sponsorship makes sense if:

• You want to test your nonprofit idea before investing in forming a separate 501(c)(3).
• Your project is temporary or short-term (a one-time event, a pilot program).
• You lack the admin capacity to handle your own filings and compliance.
• You're a small grassroots initiative that wants to stay lean.

The trade-off: the fiscal sponsor typically takes 5–15% of funds raised as a fee for handling operations, and you have less independence in decision-making (the sponsor controls the bank account and legal liability).

Most growing nonprofits eventually form their own 501(c)(3) to gain full control and ownership, but fiscal sponsorship is a legitimate bridge for new or experimental initiatives. See our First 90 Days checklist for guidance on whether to form your own organization or pursue fiscal sponsorship, and our first grants guide, which covers fiscal sponsors in the context of early grant eligibility.

What's the difference between "nonprofit" and "tax-exempt"? Are they the same thing?

No, they are two separate concepts. This confusion trips up a lot of new organizers.

"Nonprofit" is a state corporate structure. When you incorporate your organization at the state level, you choose between for-profit and nonprofit incorporation. A nonprofit corporation is designed to serve a public or member benefit, and its bylaws reflect that (e.g., "no distributions to members" or "all revenue stays in the org").

"Tax-exempt" is a federal tax status granted by the IRS. It means your organization doesn't pay federal income tax on revenue (donations, grants, earned income) that's used for your mission.

You can have one without the other (uncommon, but possible): a nonprofit corporation that hasn't applied for tax-exempt status will still owe federal taxes. Conversely, some for-profit businesses have obtained 501(c)(3) status (very rare and usually only in specific circumstances).

In practice, most new nonprofits incorporate as a nonprofit at the state level and then apply for 501(c)(3) federal tax-exempt status. See our First 90 Days checklist for the step-by-step order.

How long does it take to go from filing incorporation papers to getting IRS tax-exempt status?

It depends on where you incorporate and how fast the IRS processes your application, but here's the typical timeline:

• State incorporation: 1–4 weeks (depending on your state; online filing is fastest).
• IRS Form 1023 (full 501(c)(3) application): 2–6 months for processing; some organizations wait longer depending on IRS workload.
• IRS Form 1023-EZ (simplified application, if you qualify): Can be processed in as little as 2 weeks, but not all organizations are eligible.

So from start to finish, expect 3–8 months in most cases. Your organization can start operating and raising money before you have IRS approval, but donations won't be tax-deductible until you receive your determination letter. Some donors will wait, so this delay is worth factoring into your fundraising plan.

See our First 90 Days checklist for the exact sequence and what paperwork you'll need.

Do we need a conflict-of-interest policy?

Legally, it depends on your state and your size. Practically speaking, yes, you should have one.

A conflict-of-interest policy is a document that defines potential conflicts (e.g., a board member voting on a contract with their spouse's company) and lays out how your organization will handle them (disclosure, recusal, approval by unaffected members, etc.).

Why it matters:

• Many grant-makers and donors require it as a condition of funding.
• It protects your organization's integrity and your board members' reputations.
• It shows the IRS that your organization is well-governed (helpful if you're ever audited).
• It prevents expensive conflicts from derailing your mission.

You don't need a fancy lawyer to write one. The National Council of Nonprofits provides free templates, and most state nonprofit associations have sample policies you can adapt.