This is one of the most common — and most expensive — misunderstandings I see with new nonprofits: “We have our EIN, so we’re tax-exempt.”
You are not. Those are two completely different things.
An EIN is simply your organization’s federal tax ID number, like a Social Security number for a business. The IRS issues it quickly, often in minutes, and getting one says nothing about whether you are exempt from tax. Every corporation can get an EIN, including a regular for-profit company.
Tax-exempt status is separate. For most charities, that means applying to the IRS for recognition under 501(c)(3) — with Form 1023-EZ if you qualify, or the full Form 1023 if you do not. Only when the IRS approves that application do you receive a determination letter, and that letter is your proof.
Why does the difference matter?
1. Donations. Donors can generally only deduct contributions if you are actually recognized as tax-exempt — not just because you have an EIN.
2. Grants. Foundations and government funders almost always ask for your determination letter, not your EIN letter.
3. State benefits. Sales-tax and property-tax exemptions, and registering to fundraise, usually require proof of federal tax-exempt status as a first step.
4. The annual Form 990 clock. Once you are recognized, you have a yearly filing duty. Miss three years in a row and your status is automatically revoked — EIN or no EIN.
So keep both letters, but know what each one proves. Your EIN identifies you. Your determination letter exempts you. If you only have the first one, your paperwork is not finished yet.
— 501c3 Expert
We handle all your 501(c)(3) paperwork — nonprofits set up from start to finish, and Form 990s prepared every year.
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