501c3 or 501(c)(3) refers to a non-profit organization that is eligible for tax exemption status in the United States. The requirements for attaining tax exempt status are described by sections 503 to 505 of the Internal Revenue Code. Such exemption can be beneficial to non-profit organizations, since it frees up funds that can be used for the organization’s agenda. 501c3 organizations are broadly categorized as either private foundations, private operating foundations, and public charities. More specifically, some of the organizations that can be eligible for 501(c)(3) status include:
- Charitable foundations
- Religious bodies
- Educational institutions
- Scientific bodies
- Literary organizations
- Organizations dedicated to preventing cruelty to children and animals
In order to maintain their tax exemption status, organizations that are described in section 501(c)(3) have to comply to certain requirements. These include prohibition from activities such as taking part in political campaigning. It is also necessary for a tax-exempt organization to file annual tax returns despite not paying taxes.
One of the key provisions that are unique to 501c3 organizations when compared to other tax- exempt organizations is the tax deductibility of donations. Federal income tax payers can obtain a deduction when making charitable contributions to 501(c)(3) organizations. When it comes to other unique provisions, this can vary by states. Most states in the country allow for tax deductibility for state income tax, just like the federal law. In addition, 501c3 organizations are usually exempted from property taxes and sales tax on purchases in many states.
To register an organization for tax exemption status under the 501c3 code successfully, it is important to work with law firms with strong experience in tax law. Attorneys can carry out an assessment of the organization’s activities to find out if it is eligible for tax exemption, and provide advice on modification of the organization’s policies to ensure that they are in line with the tax exemption requirements, before helping the organization apply for the tax exemption status under code 501(c)(3).