The Difference Between a Nonprofit Corporation and a 501(c)(3)

Not all nonprofits are tax-exempt, and not all tax-exempt organizations are charities. If that sounds confusing, you’ll need to learn the differences among the various types of nonprofit organizations, including those with a 501(c) designation, which provide different benefits and responsibilities, depending on the nonprofits IRS classification.

Nonprofit Corporations

The first step for becoming a nonprofit organization is to register at the state level as a nonprofit corporation. This requires creating a board of directors and submitting specific paperwork to your secretary of state, including your articles of incorporation. Articles of incorporation include basic information about the organization, such as its purpose, officers and address. The process is simple, can often be done online and usually requires a fee of less than $100. Once an organization receives its nonprofit corporation status, it receives certain benefits from the state, such as not having to pay sales tax or the opportunity to apply for certain types of grants.

Federal Tax-Exempt Status

Once a business becomes a nonprofit corporation, it can apply for tax-exempt status at the federal level. This requires applying for a federal tax ID number, then applying to the Internal Revenue Service for recognition as 501(c), or tax-exempt organization. There more than 50 different 501(c) classifications an organization can receive, depending on its purpose and activities. For example, trade associations receive a 501(c)(6) designation, while community recreation organizations receive a 501(c)(4) designation. While 501(c) organizations receive tax-exemption, meaning they don’t pay taxes on certain types of income, not all receive a charitable status that allows donors to receive a tax write off.

501(c)(3) Organizations

A 501(c)(3) organization starts as a nonprofit corporation, then becomes a federally tax-exempt charity that does not pay income or sales tax, and allows donors to write off contributions. Many for-profit organizations, and some nonprofit organizations, set up related 501(c)(3) organizations to do charitable work. For example, a 501(c)(6) trade organization for accountants might set up a 501(c)(3) nonprofit to collect and disburse funds for scholarships or educational purposes.

Financial Documents

To learn what type of nonprofit an organization is, visit the website of the secretary of state in which the organization is incorporated. The site might have a directory of corporations you can search to find out information about individual corporations. Some will provide year-end tax filings available to the public. Organizations with 501(c) designation file a Form 990, available to the public in a variety of ways. You can visit the office of the nonprofit and request to view the document or request the last three filings in writing, contact the IRS for the organization’s last three Form 990s, or visit websites such as or to download free copies.


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