In addition, all assets are permanently dedicated to a charitable purpose. In the event that a 501(c)(3) organization must cease operations, all assets remaining after debts are paid must be distributed for a charitable purpose. A private foundation is typically held by an individual, a family, or a corporation. Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. For more information about lobbying activities by charities, see the article Lobbying Issues PDF; for more information about political activities of charities, see the FY-2002 CPE topic Election Year Issues PDF.

• You may also want to view some of our tools designed to help you apply for exemption.
• Below are a few IRS tools to get your organization moving in the right direction.
• Most nonprofit organizations are required to file Form 1023 or Form 1023-EZ within 27 months from their date of incorporation to apply for tax-exempt status under Section 501(c)(3).
• For the first five years, the group will maintain its public charity status regardless of how much public support it actually receives.
• All earnings must be used solely for the advancement of the organization’s mission.

Public Charity

The American Red Cross, established in 1881 and congressionally chartered in 1900, is one of the United States’ oldest nonprofit organizations. A 501(c)(3) organization cannot use its activities to influence legislation in a substantial way, including participating in any campaign activities to support or deny any particular political candidate. A 501(c)(3) nonprofit is typically cannot engage in lobbying retained earnings except in instances when its expenditures are below a certain amount. A collection of links to State government web sites with useful information for exempt organizations.

Exemption requirements – 501(c)( organizations

Donations to private foundations can be tax-deductible to the individual donor up to 30% of the donor’s income. Governance of a private foundation can be much more closely held than in a public charity. For example, a family foundation is a common example of a private Bookkeeping for Veterinarians foundation.

Limitations on political activity

• See Application Process for a step-by-step review of what an organization needs to know and to do in order to apply for recognition by the IRS of tax-exempt status.
• The charitable organization must include its articles of incorporation and provide documents that prove that the organization’s mission qualifies it for tax-exempt status.
• Go to the Eligibility Worksheet to see if you qualify to file Form 1023-EZ.
• If your nonprofit is a public charity, you will want to include all the information necessary to avoid misclassification as a private foundation.
• Apply for the 501(c)(3) IRS exemption (Form 1023) and state tax exemption for nonprofit organizations after you’ve filed.

Section 501(c)(3) is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations that meet the code’s requirements. These nonprofits may be considered public charities, private foundations, or private operating foundations, which we’ll explain in more detail later. Generally, organizations required to apply for recognition of exemption must notify the Service within 27 months from the date of their formation to be treated as described in section 501(c)(3) from the date formed. When the IRS determines that an organization qualifies for exemption under section 501(c)(3), it will also be classified as a private foundation, unless it meets the requirements to be treated as a public charity. If you find an organization listed on the Auto-Revocation List, it may have been reinstated by the IRS since the automatic revocation date.

26 U.S.C. § 170 provides a deduction, for federal income tax purposes, for donors who make charitable contributions to most types of 501(c)(3) organizations. Regulations specify which such deductions must be verified in order to be allowed. Private foundations are usually thought of as nonprofits that support the work of public charities through grants, though that is not always the case.

The Tax Exempt Organization Search Tool

Nonprofits that engage in lobbying activity are discouraged from filing Form 1023-EZ and should file a complete Form 1023 instead. 501(c)(3) is just one category of 501(c) organizations, but it is the primary nonprofit status through which donations made to the organization are tax-deductible. 501(c)(3) status is regulated and administered by the US Department of Treasury through the Internal Revenue Service. Any unrelated business from sales of merchandise or rental properties must be limited, or the organization could lose its 501(c)(3) status. To apply for tax-exempt status, you must complete IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

• These organizations usually receive a substantial portion of their revenue from the general public or from the government.
• If the IRS approves your nonprofit’s 501(c)(3) status, you will receive a determination letter confirming their recognition.
• By law, tax-exempt status is automatically be revoked if an organization does not file the required Form 990-series returns or notices yearly for 3 consecutive years.
• Donations to public charities can be tax-deductible to the individual donor up to 60% of the donor’s income, although other tax and income circumstances can affect the deductibility of contributions to public charities.
• Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.