What Is a 501C Status?
When a corporation has 501C status, it means the Internal Revenue Service recognizes it as a tax-exempt, not-for-profit organization. There are more than two dozen types of 501C organizations listed under the IRS rules.
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Who Qualifies?
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The IRS lists 26 types of organization including horticultural groups, fraternal groups and teacher retirement funds. 501C (3), for charitable organizations, is the kind you're most likely to encounter.
Requirements
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501C organizations must be trusts, corporations or associations organized and operated exclusively for the exempt purposes under the statutes. None of their money goes to private shareholders or individuals.
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Benefits
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501C organizations are exempt from most federal income taxes, though they may have to pay some taxes. For example if a charity runs a business unrelated to its primary tax-exempt purpose, that money might be taxable. 501C (3) groups may be exempt from some state taxes as well.
Paperwork
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Tax-exempt 501C groups still have to keep track of their revenue and expenses and make reports to the IRS. Groups that don't keep good records could be penalized.
Qualifying
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The first step to becoming a 501C organization is to form a non-profit corporation or association. After that, irs.gov provides a step-by-step guide to applying for 501C status.
Lobbying
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Some organizations, such as 501C (3) charities, are not allowed to be politically active. A 501C (4) social-welfare group may support legislation that relates to the mission of the organization.
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References
Resources
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