A 501(c)(3) organization is an organization that is recognized as exempt from federal income tax under Internal Revenue Code section 501(a). An organization organized and operated primarily for charitable, educational, or health and welfare purposes can be exempt from federal and state income tax as a 501(c)(3) organization.

Charitable generally means (i) relief of the poor, distressed or under privileged; (ii) advancement of religion; (iii) advancement of education or science; (iv) erecting or maintaining public buildings, monuments, or works; (v) lessening the burden of government; (vi) eliminating prejudice and discrimination; (vii) defending human and civil rights secured by law; and (viii) combating community deterioration and juvenile delinquency.

You do not have to request exempt status from the IRS to operate as an exempt organization, however an organization will want to request exempt status if it receives contributions from donors who would like to claim a charitable deduction on their tax return.  In some cases, donors will like to see the determination letter issued from the IRS granting the organization exempt status as a 501(c)(3) organization before a donation is made.

Form 1023, Application for 501(c)(3) Status

In order to receive a determination letter, you must complete Form 1023 and demonstrate that the organization is (1) organized and (2) operated for a 501(c)(3) purpose and not for private purposes.  Organized means to be a corporation or unincorporated association; have articles of incorporation that limit the organization’s primary purpose to one or more purposes in Internal Revenue Code section 501(c)(3); and have a dissolution provision in the articles of incorporation which provides that if the organization is dissolved, all of the assets will go to the federal, state, or local government or another similar 501(c)(3) organization.  The IRS’s website and Pub. 557 has sample articles of incorporation that contain the required provisions that can be copied word for word as part of an organization’s organizing documents.

An organization is operated for a 501(c)(3) purpose if its primary activity will be charitable, religious, educational, scientific, literacy, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  Beginning in 2019, Form 1023 must be filed electronically so before beginning the application a responsible person for the organization should have the following information ready:

• name, address, and list of officers, directors, or key employees
• EIN for the organization
• statement of the primary activity of the organization
• list of expected source(s) of revenue such as grants, fees, donations, contributions
• list of expected expenses
• articles of incorporation with the appropriate organization and operational clause – if the articles do not contain both clauses, the articles will have to be amended to include them
• governing documents such as bylaws
• print a copy of Form 1023 then review all the questions to see which ones apply and which do not; whether other forms and schedules need to be completed; whether detailed explanations are required; and what other actions may need to be taken.

After completing the application, a user fee will have to be paid before the application process is complete.  So, have payment information ready as well.  A responsible person for the organization can file the application or an attorney, accountant, or other professional can file the application on the organization’s behalf.  Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization can be used to give the attorney or accountant authority to represent the organization before the IRS.

Types of 501(c)(3) Organizations

The following are examples of the type of activities, exempt status as a 501(c)(3) organizations has been granted for.

• Assisted living facilities
• Care for the Needy – alleviating or satisfying an existing need; needy is defined as a person who lacks the necessities of life as a result of poverty or temporary relief
• Charitable – financial support to other organizations
• Civil Rights – eliminating discrimination against members of minorities seeking employment in the construction trades by recruiting, educating, and counseling workers; providing technical assistance to attorney involved in suits to enforce workers in rights and acting as court appointed monitor after successful suits
• Colleges, Universities, and other institutions of education
• Day Care Center – operating a day care center for young children of needy working parents who have no means to provide care for their children during the day
• Disaster Relief – resources for contributions and donations for survivors of a natural disaster
• Educational – advocating for a particular view point
• Environmental – conservation of easements; environmental and historic preservation; preserving a lake that is used extensively as a public recreational facility and improves the condition of the water in the lake to enhance its recreational features
• Health and welfare – promotion of community health
• Hospitals and Health care facilities
• Human Services – elderly housing
• Relief of the Poor:
  • low income housing
  • providing instruction and guidance to low-income families in need of adequate housing and interested in building their own homes
  • furthering the rehabilitation of ex-convicts and parolees in order to make them self-supporting
  • assisting needy families in developing countries
  • marketing cooking and needlework for needy women
  • providing free legal services to indigent persons who are otherwise financial incapable of obtaining such services
  • helping low-income individuals and families reduce personal bankruptcy by aiding and informing the public on personal money management
• Scientific – intellectual property