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The short answer
A 501(c)(3) is built in two stages: you form a legal entity under state law (usually a nonprofit corporation), then ask the IRS to recognise it as exempt by filing Form 1023 or the shorter Form 1023-EZ through Pay.gov, with a user fee. If you file within 27 months of the end of the month you were formed and are approved, the exemption runs back to your formation date.
Many Nigerian community projects in the US start as a group of friends raising money for a school roof in the home town, a scholarship, or a medical mission. At some point donors ask for a receipt they can use at tax time, or a foundation asks for your exemption letter. That is when a 501(c)(3) comes up. This guide sets out the order of the steps, what each stage costs in kind, and the points that are different when the work happens in Nigeria.
Stage one: form the entity under state law
The IRS does not create nonprofits. A state does. Most community groups incorporate as a nonprofit corporation with their Secretary of State, in the state where the founders live and hold meetings. Filing fees, annual report rules and charitable solicitation registration are set by each state, so check your own state's business filing site for the current figures before you budget.
What the IRS cares about at this stage is the wording of your organising document (the articles of incorporation). Its Form 1023-EZ instructions (Rev. 01/2025) set two conditions:
- Purpose clause. The document must limit your purposes to those described in section 501(c)(3), such as charitable or educational purposes.
- Dissolution clause. It must permanently dedicate your assets to a section 501(c)(3) purpose, so if the organisation closes, what is left goes to another exempt purpose and not to members.
Write both clauses in before you file with the state. Fixing them later means an amendment filing and delay.
Stage two: the IRS application
Once formed, the organisation gets an Employer Identification Number from the IRS, adopts bylaws, appoints a board and opens a bank account in its own name. It then applies for recognition of exemption. There are two forms.
| Form 1023-EZ | Form 1023 | |
|---|---|---|
| Who can use it | Smaller organisations that answer "no" to every question on the Eligibility Worksheet at the end of the instructions | Any organisation, and anyone not eligible for the EZ |
| How filed | Online through Pay.gov, searching "1023-EZ" | Online, with full narrative and financial data |
| Not eligible for the EZ | LLCs, sole proprietorships, partnerships and loosely affiliated groups of individuals | n/a |
| User fee | Paid through Pay.gov when you file; the IRS points you to irs.gov or 877-829-5500 for the current amount | Check the current amount on irs.gov before filing |
The worksheet tests your projected and past gross receipts and your total assets. Read it before you choose a form: if you answer "yes" to any question you must use the full Form 1023. A town-union group that has been collecting money informally for years should look carefully at its past receipts.
The 27-month rule
The 1023-EZ instructions explain that if you file within 27 months after the end of the month in which you were legally formed, and the application is approved, your exemption takes effect from your formation date. File later and the effective date is the date you filed. Donations received in the gap may not be covered, which matters if you have already promised donors tax receipts.
What it costs, in practice
There is no single price. Budget for each line and fill in the current figure from its own source:
- State incorporation fee (Secretary of State site).
- IRS user fee for Form 1023 or 1023-EZ (irs.gov, paid on Pay.gov).
- State charitable solicitation registration, if your state requires it before you ask the public for money.
- Professional help, if you use a lawyer or accountant for the clauses, bylaws or the full Form 1023.
- Annual upkeep: state annual reports and the IRS Form 990 series once you are recognised.
Example only: a group of five Houston families running a scholarship for students from one Local Government Area might file the articles themselves, use the 1023-EZ if the worksheet allows, and pay for one hour of a lawyer's review of the clauses. Their real cost is the sum of the state fee, the IRS fee and that hour, each checked on the day.
When the work is in Nigeria
Form 1023-EZ asks whether you will conduct activities outside the United States. Answer it accurately. A US charity spending money in Nigeria needs records showing the money went to the charitable purpose: invoices from the school contractor, signed acknowledgements from scholarship recipients, photographs of completed work. Keep decisions about grants with your US board, in minutes, rather than leaving them to a relative on the ground.
If the project needs a permanent presence in Nigeria, with staff, property or a local bank account, the Nigerian side usually registers as incorporated trustees with the Corporate Affairs Commission. The CAC fee schedule gazetted on 29 May 2025 lists ₦5,000 for an incorporated trustees name reservation and ₦40,000 for registration. The full Part F process is covered in our Nigeria guide to registering an NGO with CAC. Nigerian incorporated trustees also file bi-annual statements with CAC, so someone must own that duty.
Where Pryme fits
A US nonprofit funding work in Nigeria needs to move dollars into naira and show where every payment went. A Pryme Business Account holds USD and NGN in one place; Swap shows the rate and the fee before you approve, and verifiable receipts and statements from VerifyDoc.ai give your board and donors records that can be checked as unaltered. If you are still deciding whether you need a 501(c)(3) at all, read our guide to hometown association structures and how fiscal sponsorship works.
Questions people ask
How much does it cost to start a 501(c)(3)?
It is the state incorporation fee plus the IRS user fee for Form 1023 or 1023-EZ, plus any state charity registration and professional help. Each is set by its own body, so check the state filing site and irs.gov on the day you file.
Can a Nigerian association use Form 1023-EZ?
Only once it is a legal entity such as a nonprofit corporation, and only if it answers no to every question on the Eligibility Worksheet. The IRS says loosely affiliated groups of individuals and LLCs cannot use the EZ.
Can a 501(c)(3) spend money in Nigeria?
Yes, the forms ask about activities outside the US, but the board should control the decisions and keep records proving the money served the charitable purpose.
What happens if we file the 1023 late?
If you file more than 27 months after the end of the month you were formed, exemption generally starts from the filing date rather than your formation date.
Sources
- IRS: Instructions for Form 1023-EZ (Rev. 01/2025) · accessed Oct 2026
- IRS: About Form 1023-EZ (page reviewed 30 Mar 2026) · accessed Oct 2026
- CAC: New Schedule of Fees (Gazette No. 92 Vol. 112, 29 May 2025) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.