Compliance Guide for 501(c)(3) Private Foundations

The IRS has strict guidelines for 501(c)(3) non-profit organizations.

Non-profits and charitable organizations are often recognized by the U.S. government as being exempt from paying certain taxes. Among these are agencies referred to as 501(c)(3) organizations. Although the tax breaks can help these non-profits serve more people, they must follow strict guidelines.

Qualifying

For a non-profit organization to qualify for status as a 501(c)(3), the agency must operate solely in certain areas, according to the Foundation Group. These areas include religious, education and scientific services, plus charitable agencies and services that test for safety. Organizations that address the problems and needs of abused children and animals also fall under the 501(c)(3) umbrella.

Additional Benefit

Non-profits that are considered 501(c)(3) are exempt from federal income tax, sometimes from state income tax. Donations to these groups are often tax-deductible. Depending on the state in which you operate the non-profit, other benefits might be available. These can include property tax exemptions and sales tax exemptions for items purchased strictly for agency use. Some 501(c)(3) organizations also qualify for bulk postage rates.

Restrictions

All 501(c)(3) non-profit organizations must operate under strict IRS guidelines. Operating procedures and outside activities are both controlled. When funding, including donations and grants is received, no part of this can go to the agency director, employees or volunteers.

Any involvement in political campaigns, including endorsements of candidates, violates the 501(c)(3) compliance rules. Lobbying or having any part in the legislative system is also strongly discouraged.

Open Records

All financial and other records must be kept public record, according to the IRS. Any non-profit not operating solely for the purposes that allow a tax-exempt status will lose their title of a 501(c)(3) status and could face excise taxes. In addition, inappropriate distribution of any agency income results in possible fines and loss of tax-exempt status. Excess business holdings by a 501(c)(3) organization is also prohibited.

References

• Foundation Group: Start a 501(c)(3) or Other Nonprofit
• Foundation Group: Nonprofit Fitness Assessment--Compliance, Public Image, Resource Capacity
• IRS: Life Cycle of a Private Foundation--Ongoing Compliance