Scottsdale, AZ asked in Business Formation for Arizona

Q: We are looking at forming a non-profit 501c in AZ, have heard there may be an advantage in forming a C-Corp 1st

We are looking at registering a non-profit 501c in AZ, and have heard there may be some advantage to registering as a C-Corp first, then converting to a 501c. Are there advantages to this approach? -Thanks!

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1 Lawyer Answer
Michael Gerity
Michael Gerity
  • Phoenix, AZ
  • Licensed in Arizona

A: I think the first thing we need to do is to cover the difference between a "non-profit" corporation and one granted tax exempt status by the IRS (a 503(c)(3) non-profit), as they are technically different things. A corporation can be a non-profit without having tax exempt status. A non-profit corporation simply has to put all of its profits back into the corporation. Getting tax exempt status is then a separate step, which makes it so that the corporation does not have to pay income tax and contributions to the corporation can be written off by the donor. Getting to 501(c)(3) status is therefore a two step process. First, you have to form the corporate entity. In Arizona, there is a specific corporate entity type for a non-profit. The next step is to apply to the Internal Revenue Service for recognition of tax exemption by filing IRS Form 1023.

As for your specific question, I cannot think of any advantage whatsoever to filing as a regular corporation, and then converting to a non-profit prior to seeking the tax exempt status. In fact, it seems like a tremendous amount of needless complexity.

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