In the non-profit world, having 501(c)(3) status is a pretty big thing. It’s a term you hear a lot, but what exactly does it mean?
501(c)(3) refers to the section of the US Internal Revenue Code that allows for certain non-profit organizations to be exempt from paying federal taxes, specifically public charities, private foundations or private operating foundations. While organizations may qualify under different sections of the code from 501(c)(1) to 501(c)(28), the designation of 501(c)(3) offers several unique provisions including the tax deductibility of donations.
While a non-profit can certainly operate without 501(c)(3) exemption, they will be required to pay federal taxes and donations to that organization are not tax deductible which may turn off prospective donors, particularly corporate donors.
It’s also important to understand that the specific activities and financial dealings of a 501(c)(3) organization are highly regulated by the IRS and must adhere strictly to their definition of charitable. Qualifying entities must be organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or education purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.
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