What is a 501(c)3?
Section 501(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. It is regulated and administered by the US Department of Treasury through the Internal Revenue Service.
501(c)(3) organizations are the most common type of nonprofit. They include organizations that are religious, educational, charitable, scientific, and literary; groups that test for public safety that foster national or international amateur sports competition; or organizations engaged in the prevention of cruelty to children or animals.
All 501(c)(3) organizations are subdivided into five types:
1. Private Foundations. These are nonprofits that don’t qualify as public charities.
Foundations may be sub-classified as private operating foundations or private non-operating foundations, and receive some of the advantages of public charities.
2. 509(a)(1) are publicly-supported charities.
3. 509(a)(2) are exempt purpose activity-supported charities.
4. 509(a)(3) are supporting organizations for 509(a) or 509(a)(2) charities.
5. 509(a)(4) are public safety charities.
This type of nonprofit applies for its status using IRS form 1023, and files annually form 990, 990EZ, or 990-PF. Contributions are usually tax-exempt. It’s important to have a competent professional to handle the nonprofit accounting necessary to follow the regulations as outlined by the IRS.