Who is eligible for 501 c 3

Section c 3 is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations, specifically those that are considered public charities , private foundations or private operating foundations. There are other c organizations, indicated by categories c 1 — c This discussion will focus on c 3.

Entities that can seek c 3 determination from the IRS include corporations, trusts, community chests, LLCs 1 , and unincorporated associations. The overwhelming majority of c 3 organizations are nonprofit corporations. One of the most distinct provisions unique to Section c 3 organizations as compared with other tax exempt entities is the tax deductibility of donations.

Other unique provisions tend to vary by state. Like federal law, most states allow for deductibility for state income tax purposes. Also, many states allow c 3 organizations to be exempt from sales tax on purchases, as well as exemption from property taxes. Special nonprofit, bulk rate postage discounts are available from the Post Office to qualifying organizations. Learn how to navigate 10 issues and challenges facing every new social entrepreneur.

Our free resource guide will equip you with the knowledge you need to get off to the right start. Public charity. Public charities are what most people recognize as those organizations with active programs. Examples include churches, benevolence organizations, animal welfare agencies, educational organizations, etc.

These groups are under restrictions when it comes to how much political and legislative activity they can engage in and how much lobbying attempting to influence legislative activity they can do. They also may not contribute to any political campaign or particular candidate. Once your organization receives approval from the IRS, you still need to take steps to maintain its status and qualify for tax exemption.

The IRS generally requires c 3 s to file annual returns , depending on its gross receipts and total assets. Certain nonprofit groups with very small budgets may be exempt from this requirement. However, state law may also require them to file reports annually or biannually. As a general rule, any c 3 should refrain from all political campaign activity. This includes contributing to a campaign, endorsing a particular candidate, and even making a public statement for or against a candidate.

A nonprofit organization may not have substantial amounts of income derived from an activity unrelated to its exempt purpose. Unrelated business income can include money made from renting out office space or selling merchandise. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

Section c 3 organizations are restricted in how much political and legislative lobbying activities they may conduct. For a detailed discussion, see Political and Lobbying Activities.

If your nonprofit is a "successor" to an incorporated or preexisting organization such as an unincorporated association , the IRS wants to know this. Your nonprofit is most likely a successor organization if it has:. This part asks about certain types of activities, such as political activity and fundraising, that the IRS scrutinizes closely.

For example:. All groups wishing to obtain c 3 exempt status must provide a statement of revenues and expenses and a balance sheet. An organization that has been in existence for five years or more must provide financial data for its most recent five years. Other groups must provide financial data for each year they have been in existence and good faith estimates for future years for a total of three or four years, depending on how long the organization has been in existence.

These revised financial data requirements relate to IRS rules that automatically classify all new c 3 groups as public charities as long as they can show in their Form that they reasonably expect to receive qualifying public support.

If your nonprofit is a public charity, you will want to include all the information necessary to avoid misclassification as a private foundation.

This section relates to your nonprofit's classification as a public charity or private foundation. Public charities, which include churches, schools, hospitals, and a number of other groups, derive most of their support from the public or receive most of their revenue from activities related to tax-exempt purposes. Most groups want to be classified as a public charity because private foundations are subject to strict operating rules and regulations.

Under IRS regulations all new c 3 groups are automatically classified as public charities for the first five years as long as they demonstrate in their Form that they reasonably expect to receive qualifying public support.

This way new groups applying for c 3 tax-exempt status need not seek an advance IRS ruling on their public charity status. For the first five years, the group will maintain its public charity status regardless of how much public support it actually receives. After the initial five-year period, the IRS will start to monitor whether the group receives the public support necessary to qualify as a public charity.

You must pay a fee when you submit your Form application. Check the IRS website for the current user fee. Certain types of nonprofits must attach an additional schedule to their Form application. Most of these schedules concern statutory public charities--nonprofits like churches and hospitals that are automatically classified as a public charity no matter how much public support they receive.

Each schedule asks for additional information geared to the type of nonprofit. For example, Schedule A for churches asks a series of questions designed to show whether the organization really is a church for tax purposes, such as whether it has a creed or form of worship.