What Are the Requirements of a 501C3?

501(c)(3) organizations are tax-exempt.

A 501(c)(3) organization is an organization that is exempt from paying taxes under the Internal Revenue Code. The name "501(c)(3) organization" is a reference to the portion of the IRC Code which exempts such organizations from taxation. Likewise, such organizations are also referred to as "charitable organizations." There are four chief requirements for qualifying as a 501(c)(3) organization.

Proper Legal Formation

In order to qualify as a 501(c)(3) organization, the organization must be in the proper legal form. The organization must be organized as a trust, corporation or association under its state's laws and be capable of providing proof of such to the IRS. Proof of proper legal formation includes presenting a federal tax identification number (EIN) and the organization's formation documents (e.g., articles of incorporation) to the IRS. The organization must be in existence for at least three tax years, and capable of evidencing such with financial documents, before it may apply for 501(c)(3) status with the IRS.

Exempt Purpose

In order to qualify as a 501(c)(3) organization, the organization must be organized and devoted solely to one of the exempt purposes identified in IRC Section 501(c)(3). According to IRC Section 501(c)(3) there are eight exempt purposes: "religious, charitable, scientific, testing for public safety, literary or educational purposes, or to foster national or international amateur sports competition...or for the prevention of cruelty to children or animals."

Non-Profit

In order to qualify as a 501(c)(3) organization, the organization's net earnings may not accumulate or be distributed for the benefit of a private party. This requirement is why 501(c)(3) organizations are sometimes referred to as non-profit organizations.

Proper Political Behavior

In order to qualify as a 501(c)(3) organization, the organization must refrain from substantially engaging in political activity such as lobbying. To assess whether an organization is "substantially" involved in influencing legislation, IRC Section 501(h)(1) provides that the organization's lobbying expenditures be compared to the lobbying expenditure ceiling, under IRC Section 4911, for that organization. Expenditures exceeding the ceiling can make an organization ineligible for 501(c)(3) status.

Finally, in order to qualify as a 501(c)(3) organization, the organization must completely refrain from political campaigning. The organization may not participate in any type of propaganda aimed at electing a candidate to public office. However, political acts which are non-partisan, such as voter education programs, will not endanger an organization's 501(c)(3) status.

References

• Cornell University Law School: U.S. Code § 501. Exemption from tax on corporations, certain trusts, etc.
• Cornell University Law School: U.S. Code § 4911. Tax on excess expenditures to influence legislation

Resources

• IRS Publication 557: Tax-Exempt Status for Your Organization
• IRS Publication 4220: Applying for 501(c)(3) Tax-Exempt Status