501(c)(3) Types
Section 501 of the Internal Revenue Code exempts certain organizations from federal income taxes. There are 28 different tax-exempt organizations described in Section 501. Most organizations use one of the allowable forms in section 501(c)(3) to create their nonprofit organization. A 501(c)(3) organization operates for a specific exempt purpose, as defined by the IRC.
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Charitable Organizations
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Charitable organizations operate for some type of benevolent purpose. It is a broad category. The entity must operate exclusively to benefit public interest and the community. The Internal Revenue Service regulations consider an organization that provides relief to the poor, advances religion, eliminates prejudice or defends civil rights as a few examples of a charitable organization. The Red Cross and the Salvation Army are two examples.
Religious and Educational Nonprofits
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The IRS uses two guidelines for religious organizations: the religious beliefs must be truly and sincerely held and the practices cannot be illegal or contrary to public interest. Churches are the most common form of religious 501(c)(3) entity. Educational nonprofits must operate to advance academics or for some other educational purpose. The National Collegiate Athletic Association is a 501(c)(3) organization. The NCAA operates exclusively for an educational purpose; it believes that college athletics are an integral part of higher education.
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Scientific Organizations
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Scientific organizations must operate in the public interest. They must be able to explain the nature of the research and why the research would benefit the public. A common reason to form a scientific organization is to discover a cure for a disease. The Michael J. Fox Foundation is a scientific 501(c)(3); it operates to promote research and seek treatment and cure for Parkinson’s Disease.
Other Allowable Forms
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Other allowable 501(c)(3) forms include literary organizations, amateur athletic organizations, and organizations that prevent cruelty to children and animals. Literary organizations operate to promote literacy or to engage in book-publishing activities. Amateur athletic organizations foster national or amateur sports competitions. According to the IRS regulations, examples of an organization that prevents cruelty to children or animals include one that prevents children from working in hazardous environments or one that prevents unnecessary or harmful animal testing.
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