What is a 501(c)(3) Nonprofit Organization?

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes (further explained below), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates. Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3)are eligible to receive tax-deductible contributions in accordance with Code section 170.

The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization’s net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction. Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct.

 

What Are “Exempt Purposes?”

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

 

What Are The Benefits Of Being A 501(c)(3) Nonprofit Tax-Exempt Organization?”

The main benefit of being tax-exempt under IRC Section 501(c)(3) is that your organization will be able to solicit and receive contributions and donations that are tax-deductible to the donor. Additional benefits consist of the following:

1. Ability to apply for grants available only to IRS-recognized, 501(c)(3) organizations
2. Possible exemption from federal and/or state corporate income tax
3. Possible exemption from state sales and property taxes (varies by state)
4. Potentially higher thresholds before incurring federal and/or state unemployment tax liabilities

 

What Does A 501(c)(3) Tax Exempt Organization Consist Of?

• A Nonprofit Corporation established and certified by the Secretary of State outlining it’s charitable exempt purposes
• Organizational documents to include bylaws for the nonprofit corporation designating the 3 board members of the entity
• A Tax ID number as a nonprofit entity from the IRS
• Submission of application detailing charitable activities, management structure, fundraising activities, financial history, etc. and approval for tax-exempt status from the IRS

 

Our Offered Support

Sams Contracting Consulting and Training offers professional and timely support to help charitable organizations apply for and obtain 501(c)(3) tax exempt status in the San Antonio Texas area for a flat investment of $2,500 (includes all associated IRS and State fees). Please feel free to reach out to contact us to begin the application process, and we look forward to working with your organization.