Filing with the federal government is one of the most challenging steps in the process of establishing a nonprofit. As soon as an organization has incorporated within its state and received its EIN, or tax ID number, it may begin the application process.
Almost all educational nonprofits are considered private foundations unless they meet the requirements that might make them a public charity.[i] The main difference between private foundations and public charities is the method by which they are funded. Those that are funded by a wide support base that is often accompanied by constant appeals to the public are considered charities, whereas those that have been set up with some sort of primary single source of private funding are considered foundations (IRS-4220, 2003). Organizations that file as public charities will have greater latitude in accepting donations, and are subject to more favorable tax rules.
[i] As per Section 509(a)(3) – IRS publications, online. http://www.irs.gov/charities/article/0,,id=137609,00.html
