What Is a 501 C 3 Organization?

By David Ingram
Organizations, a Public Need
Image by Flickr.com, courtesy of Daniel Lobo

A 501(c)(3) organization is a charity or public service entity that qualifies for tax exemption under Internal Revenue Code Section 501(c)(3).

Types

A 501(c)(3) organization can be classified as a public charity, which derives at least one third of its income from a wide base of public or government funding, or a private foundation, which may conduct charitable activities itself or exist to help fund other organizations. According to 501c3.org, common forms of organization for these entities include nonprofit corporations, trusts, associations and LLC's.

Activities

In order to obtain 501(c)(3) status, an organization must exist to serve specific purposes, including public charity, scientific research, public safety, promotion of literacy and prevention of animal cruelty.

Regulation

501(c)(3) organizations are strictly regulated by the IRS, and must submit to regular audits of their financial activities and operations. The activities and composition of the company's board of directors and management are also subject to legal regulation.

Tax Benefits

According to 501c3.org, a large number of states provide exemptions for sales and property tax to qualified 501(c)(3) organizations.

Donor Benefits

A unique attraction of 501(c)(3) status is the ability of donors to claim tax deductions based on their contributions to the organization. Donors contributing to organizations classified as public charities may deduct up to 50 percent of their taxable income, or 30 percent for private foundations.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.