A 501(c)(3) organization is a United States corporation, trust, unincorporated association, or other type of organization exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is one of the 29 types of 501(c) nonprofit organizations in the U.S.
501(c)(3) tax-exemptions apply to entities that are organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, or for testing for public safety, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals. The 501(c)(3) exemption applies also for any non-incorporated community chest, fund, cooperating association or foundation organized and operated exclusively for those purposes.IRS Publication 557 "Tax-Exempt Status For Your Organization", Page 19, (Rev. June 2008), Cat. No 46573C., Retrieved March 9, 2009. There are also supporting organizations—often referred to in shorthand form as Friends of organizations.Judith S. Ballan, "How To Aid a Foreign Charity Through an 'American Friends of' Organization", in Proceedings of the Twenty-Third New York University Conference on Tax Planning.
26 U.S.C. § 170 provides a deduction for federal income tax purposes, for some donors who make charitable contributions to most types of 501(c)(3) organizations, among others. Regulations specify which such deductions must be verifiable to be allowed (e.g., receipts for donations of $250 or more).
Due to the tax deductions associated with donations, loss of 501(c)(3) status can be highly challenging if not fatal to a charity's continued operation, as many foundations and corporate matching funds do not grant funds to a charity without such status, and individual donors often do not donate to such a charity due to the unavailability of tax deduction for contributions.
Types The two exempt classifications of 501(c)(3) organizations are as follows: A public charity, identified by the Internal Revenue Service (IRS) as "not a private foundation", normally receives a substantial part of its income, directly or indirectly, from the general public or from the government. The public support must be fairly broad, not limited to a few individuals or families. Public charities are defined in the Internal Revenue Code under sections 509(a)(0) through 509(a)(4). A private foundation, sometimes called a non-operating foundation, receives most of its income from investments and endowments. This income is used to make grants to other organizations, rather than being disbursed directly for charitable activities. Private foundations are defined in the Internal Revenue Code under section 509(a) as 501(c)(3) organizations, which do not qualify as public charities.
Obtaining status The basic requirement of obtaining tax-exempt status is that the organization is specifically limited in powers to purposes that the IRS classifies as tax-exempt purposes. Unlike for-profit corporations that benefit from broad and general purposes, non-profit organizations need to be limited in powers to function with tax-exempt status, but a non-profit corporation is by default not limited in powers until specifically limiting itself in the articles of incorporation or nonprofit corporate bylaws. This limiting of the powers is crucial to obtaining tax exempt status with the IRS and then on the state level."IRS Exemption requirements: 501(c)(3) organizations". Internal Revenue Service. April 15, 2016. Organizations acquire 501(c)(3) tax exemption by filing IRS Form 1023.Phillips, Marlissa J. "tax zone: Nonprofit Not Tax Exempt?" The Atlanta Tribune. December 2002. p. 64. , the form must be accompanied by an $850 filing fee if the yearly gross receipts for the organization are expected to average $10,000 or more.IRS "Form 1023" (Rev. 6-2006), p. 12.IRS Exempt Organizations Website Retrieved on September 7, 2009. If yearly gross receipts are expected to average less than $10,000, the filing fee is reduced to $400. There are some classes of organizations that automatically are treated as tax exempt under 501(c)(3), without the need to file Form 1023: Churches, their integrated auxiliaries, and conventions or associations of churches. A convention or association of churches generally refers to the organizational structure of congregational churches."Lutheran Social Service of Minnesota v. United States". 758 F.2d 1283 (8th Cir. 1985). A convention or association of churches can also refer to a cooperative undertaking of churches of various denominations that works together to perform religious activities."Revenue Ruling 74–224". 1974-1 C.B. 61. Organizations that are not private foundations and that have gross receipts that normally are not more than $5,000
The IRS released a software tool called Cyber Assistant in 2013, which was succeeded by Form 1023-EZ in 2014.
There is an alternative way for an organization to obtain status if an organization has applied for a determination and either there is an actual controversy regarding a determination or the Internal Revenue Service has failed to make a determination. In these cases, the United States Tax Court, the United States District Court for the District of Columbia, and the United States Court of Federal Claims have concurrent jurisdiction to issue a declaratory judgment of the organization's qualification if the organization has exhausted administrative remedies with the Internal Revenue Service.
Prior to December 30, 1969, nonprofit organizations could declare themselves to be tax-exempt under Section 501(c)(3) without first obtaining Internal Revenue Service recognition by filing Form 1023 and receiving a determination letter. A nonprofit organization that did so prior to that date could still be subject to challenge of its status by the Internal Revenue Service.
Tax-deductible charitable contributions Individuals may take a tax deduction on a charitable gift to a 501(c)(3) organization that is organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.Internal Revenue Code Section 170(c)(2)(B).
An individual may not take a tax deduction on gifts made to a 501(c)(3) organization that is organized and operated exclusively for the testing for public safety.Walden, Steve. "Not all charitable gifts tax-deductible, IRS says". The Oklahoman (Oklahoma City, Oklahoma). February 14, 1983.
In the case of tuition fees paid to a private 501(c)(3) school or a church school, the payments are not tax-deductible charitable contributions because they are payments for services rendered to the payee or the payee's children.Rev. Rul. 54-580, 1954-2 C.B. 97.Rev. Rul. 71-112, 1971-1 C.B. 93.Oppewal v. Commissioner, 468 F.2d 1000 (1st Cir. 1972). The payments are not tax-deductible charitable contributions even if a significant portion of a church school's curriculum is religious education."DeJong v. Commissioner, 36 T.C. 896 (1961), affirmed, 309 F.2d 373 (9th Cir. 1962).Rev. Rul. 76-232, 1976-1 C.B. 62. For a payment to be a tax-deductible charitable contribution, it must be a voluntary transfer of money or other property with no expectation of procuring financial benefit equal to the transfer amount.Rev. Rul. 67-246, 1967-2 C.B. 104.
Before donating to a 501(c)(3) organization, a donor can consult the searchable online IRS list of charitable organizations to verify that the organization qualifies to receive tax-deductible charitable contributions.
Consumers may file IRS Form 13909, with documentation, to complain about inappropriate or fraudulent (i.e., fundraising, political campaigning, lobbying) activities by any 501(c)(3) organization.
Most 501(c)(3) must disclose the names and addresses of certain large donors to the Internal Revenue Service on their annual returns, but this information is not required to be made available to the public, unless the organization is an independent foundation. Churches are generally exempt from this reporting requirement."Annual Exempt Organization Return: Who Must File". Internal Revenue Service. December 13, 2016. Retrieved February 4, 2017.
Transparency Every 501(c)(3) organization must make available for public inspection its application for tax-exemption, including its Form 1023 or Form 1023-EZ and any attachments, supporting documents, and follow-up correspondence with the Internal Revenue Service."Public Disclosure and Availability of Exempt Organizations Returns and Applications: Documents Subject to Public Disclosure". Internal Revenue Service. April 17, 2018. The same public inspection requirement applies to the organization's annual return, namely its Form 990, Form 990-EZ, Form 990-PF, Form 990-T, and Form 1065, including any attachments, supporting documents, and follow-up correspondence with the Internal Revenue Service, with the exception of the names and addresses of donors on Schedule B."Public Inspection and Disclosure of Form 990-T". Internal Revenue Service. April 2, 2018. Annual returns must be publicly available for a three-year period beginning with the due date of the return, including any extension of time for filing.
Churches and religious organizations, however, are not required to file Form 990.
The Internal Revenue Service provides information about specific 501(c)(3) organizations through its Tax Exempt Organization Search online. A private nonprofit organization, GuideStar, provides information on 501(c)(3) organizations."About Us". Guidestar. Retrieved July 26, 2018. ProPublica's Nonprofit Explorer provides copies of each organization's Form 990 and, for some organizations, audited financial statements.Tigas, Mike; Wei, Sisi, Schwencke, Ken; Glassford, Alec. " "Nonprofit Explorer". ProPublica. WikiCharities, is a nonprofit database of nonprofits and charities by name, location, and topic,"WikiCharities". Journal of Nonprofit Innovation. that allows each organization to report its financials, leadership, contacts, and other activities."Sample Nonprofit Webpage". Journal of Nonprofit Innovation. However, Open990 was a searchable database of information about organizations that had to shut down due to IRS delays in posting information online.The IRS Hasn’t Released Nearly Half a Million Nonprofit Tax Records ProPublica
Limitations on political activity
Section 501(c)(3) organizations are prohibited from supporting political candidates, as a result of the Johnson Amendment enacted in 1954.McLean, Chuck. "Perspectives on the Johnson Amendment". Guidestar. February 9, 2017. Section 501(c)(3) organizations are subject to limits on lobbying, having a choice between two sets of rules establishing an upper bound for their lobbying activities. Section 501(c)(3) organizations risk loss of their tax-exempt status if these rules are violated.Elacqua, Amelia. "Eyes wide shut: The ambiguous "political activity" prohibition and its effects on 501(c)(3) organizations ". Houston Business and Tax Journal. 2008. p. 119, 141. Referenced February 16, 2012.
An organization that loses its 501(c)(3) status due to being engaged in political activities cannot subsequently qualify for 501(c)(3) status. As a result, it is common for 501(c)(3) organizations to have affiliated nonprofits that are classified as 501(c)(4) organizations, allowing the affiliate to engage in political activity without threatening 501(c)(3) status.
Churches and religious organizations Churches must meet specific requirements to obtain and maintain tax-exempt status; these are described in "IRS Publication 1828: Tax Guide for Churches and Religious Organizations", which outlines activities which are allowed and not allowed by churches under the 501(c)(3) designation.