A 501(c)(3) is a nonprofit organization the IRS recognizes as tax-exempt under section 501(c)(3) of the tax code. The organization pays no federal income tax on money tied to its charitable work, and donations people give it are generally tax-deductible. To qualify, it has to be organized and run for a purpose the IRS accepts as exempt — charitable, religious, educational, or scientific work.
What does 501(c)(3) actually mean?
It's the part of the federal tax code that covers most charitable nonprofits. When the IRS grants this status, your organization is exempt from federal income tax on income related to your mission. It also puts you in the group of nonprofits that donors can give to and claim a deduction for.
What are the requirements?
The IRS looks at two things: how you're organized and how you operate. You must be organized and run exclusively for an exempt purpose, none of your earnings can go to a private individual or shareholder, and you can't participate in political campaigns for or against candidates. Lobbying to influence legislation is allowed only in limited amounts.
Public charity or private foundation?
Every 501(c)(3) is classified as one or the other. The IRS treats a new 501(c)(3) as a private foundation by default unless it qualifies as a public charity. Public charities usually draw support from many sources and run their own programs; private foundations often have one main funding source and mostly make grants to others.
How do you get 501(c)(3) status?
You apply to the IRS, usually with Form 1023 or the shorter Form 1023-EZ. Smaller organizations that meet the IRS eligibility rules can use the 1023-EZ; larger or more complex ones file the full 1023. Before you apply, you generally need to form your nonprofit under state law and get an EIN.
Key terms
- 501(c)(3) — The section of the federal tax code that makes qualifying charitable nonprofits tax-exempt.
- Public charity — A 501(c)(3) that typically gets support from many sources and runs its own programs.
- Private foundation — A 501(c)(3), often funded by one source, that mainly makes grants to others.
- Tax-exempt — Not required to pay federal income tax on income tied to the exempt purpose.
- Tax-deductible — A donation the donor can subtract from taxable income, generally true for gifts to 501(c)(3)s.
- EIN — The Employer Identification Number the IRS assigns your organization, needed before you apply.