In United States federal law, a 501(c) organization is a nonprofit organization according to Internal Revenue Code (26 U.S.C. § 501(c)). Such organizations are exempt from some federal income taxes. Sections 503 through 505 set out the requirements for obtaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals, corporations, and unions.
For example, a nonprofit organization may be tax-exempt under section 501(c)(3) if its primary activities are charitable, religious, educational, scientific, literary, testing for public safety, or preventing cruelty to children or animals.
Types According to the IRS Publication 557, in the Organization Reference Chart section, the following is an exact list of 501(c) organization types (29 in total) and their corresponding descriptions. +Organization typeDescription501(c)(1)Corporations Organized Under Act of Congress, including Federal Credit UnionsRev. Rul. 89-94 , 1989–2 C.B. 233. and National Farm Loan AssociationsInternal Revenue Code of 1939. Section 101(15).501(c)(2)Title-holding Corporations for Exempt Organizations501(c)(3)Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations501(c)(4)Civic Leagues, Social Welfare Organizations, and Local Associations of Employees501(c)(5)Labor, Agricultural and Horticultural Organizations501(c)(6)Business Leagues, Chambers of Commerce, Real Estate Boards501(c)(7)Social and Recreational Clubs501(c)(8)Fraternal Beneficiary Societies and Associations501(c)(9)Voluntary Employee Beneficiary Associations501(c)(10)Domestic Fraternal Societies and Associations501(c)(11)Teachers' Retirement Fund Associations501(c)(12)Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies, and Like Organizations501(c)(13)Cemetery Companies501(c)(14)State-Chartered Credit Unions, Mutual Reserve Funds501(c)(15)Mutual Insurance Companies or Associations501(c)(16)Cooperative Organizations to Finance Crop Operations501(c)(17)Supplemental Unemployment Benefit Trusts501(c)(18)Employee Funded Pension Trust (created before June 25, 1959)501(c)(19)Post or Organization of Past or Present Members of the Armed Forces501(c)(20)Group Legal Services Plan Organizations501(c)(21)Black Lung Benefit Trusts501(c)(22)Withdrawal Liability Payment Fund501(c)(23)Veterans Organizations (created before 1880)501(c)(24)Section 4049 ERISA Trusts501(c)(25)Real Property Title-Holding Corporations or Trusts with Multiple ParentsZiffner, Yosef (June 25, 2019). "Legal Structuring for Nonprofit Organizations: Creating Systems, Affiliates, and Subsidiaries". Venable LLP.501(c)(26)State-Sponsored Organization Providing Health Coverage for High-Risk Individuals501(c)(27)State-Sponsored Workers' Compensation Reinsurance Organization501(c)(28)National Railroad Retirement Investment Trust501(c)(29)Qualified Nonprofit Health Insurance Issuers
General compliance A 501(c) organization is subject to tax on its unrelated business income. For most organizations, an organization's activity generates unrelated business income if it is regularly carried on and it is not substantially related to furthering the exempt purpose of the organization. There are several exceptions to this..
Disposal of donated goods valued over $2,500, or acceptance of goods worth over $5,000 may trigger special filing and record-keeping requirements.
A 501(c) organization must maintain proper records and file certain annual or special-purpose tax returns, e.g., and . Prior to 2008, an annual return was not generally required from an exempt organization with less than $25,000 in gross income yearly.Internal Revenue Bulletin 23, 1982, exercising . Since 2008, most organizations whose annual gross receipts are less than $50,000 must file an annual information return known as Form 990-N. Form 990-N, Form 990, Form 990-EZ, and Form 990-PF must be submitted electronically.
Failure to file required returns such as Form 990 (Return of Organization Exempt From Income Tax) may result in fines of up to $250,000 per year. Exempt or political organizations, excluding churches or similar religious entities, must make their returns, reports, notices, and exempt applications available for public inspection. The organization's Form 990 (or similar such public record as the Form 990-EZ or Form 990-PF) must be available for public inspection and photocopying at the offices of the exempt organization, through a written request and payment for photocopies by mail from the exempt organization, or through a direct Form 4506-A "Request for Public Inspection or Copy or Political Organization IRS Form" request to the IRS of for the past three tax years. Form 4506-A also allows the public inspection or photocopying access to Form 1023 "Application for Recognition of Exemption" or Form 1024, Form 8871 "Political Organization Notice of Section 527 Status", and Form 8872 "Political Organization Report of Contribution and Expenditures". Internet access to many organizations' 990 and some other forms are available through GuideStar. Certain organizations are exempt from filing Form 990, such as churches, their integrated auxiliaries, and conventions or associations of churches; the exclusively religious activities of any religious order; and religious organizations; and most organizations whose annual gross receipts are less than $5,000. Failure to file such timely returns and to make other specific information available to the public also is prohibited.
Between 2010 and 2017 the IRS revoked the nonprofit status of more than 760,000 nonprofit organizations for failing to file the 990 form.Wyland, Michael. (July 17, 2018). "How Many Nonprofits Are There?: What the IRS's Nonprofit Automatic Revocation and 1023-EZ Processes Left Behind." Nonprofit Quarterly website Retrieved December 6, 2018.
501(c)(3)
501(c)(3) tax-exemptions apply to entities that are organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes; or for testing for public safety, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals. The 501(c)(3) exemption also applies for any unincorporated community chest, fund, cooperating association, or foundation that is organized and operated exclusively for those purposes.Exempt Purposes – Internal Revenue Code Section 501(c)(3) . There are also supporting organizations—often referred to in shorthand form as "Friends of" organizations.Judith S. Ballan, "How To Aid a Foreign Charity Through an 'American Friends of' Organization", in Proceedings of the Twenty-Third New York University Conference on Tax Planning. , provides a deduction, for federal income tax purposes, for some donors who make charitable contributions to most types of 501(c)(3) organizations, among others.
The IRS explains that to be tax-exempt, "an organization must be organized and operated exclusively for
... and none of its earnings may inure to any private shareholder or individual." Private inurement means that the organization's assets must not unduly benefit a person.
Organizations described in section 501(c)(3) are prohibited from conducting political campaign activities to intervene in elections to public office. On the other hand, public charities (but not private foundations) may conduct a limited amount of lobbying to influence legislation. Although the law states that "No substantial part..." of a public charity's activities can go to lobbying, charities may register for a 501(h) election allowing them to lawfully conduct lobbying activities as long as their financial expenditure does not exceed a specified amount. 501(c)(3) organizations risk loss of tax exempt status if any of these rules are violated.
A 501(c)(3) organization is allowed to conduct some or all of its charitable activities outside the United States."Rev. Rul. 71-460, 1971-2 C.B. 231". Internal Revenue Service. 1971. ."Domestic Organizations with Foreign Operations". Exempt Organization Continuing Professional Education Text. Internal Revenue Service. 1983. . Donors' contributions to a 501(c)(3) organization are tax-deductible only if the contribution is for the use of the 501(c)(3) organization, and that the 501(c)(3) organization is not merely serving as an agent or conduit of a foreign charitable organization."Rev. Rul. 63-252, 1963-2 C.B. 101". Internal Revenue Service via Bradford Tax Institute. 1963. . Additional procedures are required of 501(c)(3) organizations that are private foundations.
501(c)(4)
A 501(c)(4) organization is a social welfare organization, such as a civic organization or a neighborhood association. An organization is considered by the IRS to be operated exclusively for the promotion of social welfare if it is primarily engaged in promoting the common good and general welfare of the people of the community.Reg. 1.501(c)(4)-1(a)(2)(i) Net earnings must be exclusively used for charitable, educational, or recreational purposes.
According to The Washington Post, 501(c)(4) organizations:...are allowed to participate in politics, so long as politics do not become their primary focus. What that means in practice is that they must spend less than 50 percent of their money on politics. So long as they don't run afoul of that threshold, the groups can influence elections, which they typically do through advertising.
Allowed activities
501(c)(4)s are similar to 501(c)(5)s and 501(c)(6)s in that the organizations may inform the public on controversial subjects and attempt to influence legislation relevant to its program. Unlike 501(c)(3) organizations, they may also participate in political campaigns and elections, as long as their primary activity is the promotion of social welfare and related to the organization's purpose.
The income tax exemption for 501(c)(4) organizations applies to most of their operations, but income spent on political activities—generally the advocacy of a particular candidate in an election—is taxable. An "action" organization generally qualifies as a 501(c)(4) organization. An "action" organization is one whose activities substantially include, or are exclusively, direct or grassroots lobbying related to advocacy for or against legislation or proposing, supporting, or opposing legislation that is related to its purpose.
A 501(c)(4) organization may directly or indirectly support or oppose a candidate for public office as long as such activities are not a substantial amount of its activities.
A 501(c)(4) organization that lobbies must register with the Clerk of the House if it lobbies members of the House or their staff. Likewise, a organization must register with the Secretary of the Senate if it lobbies members of the Senate or their staff. In addition, the organization must either inform its members the amount it spends on lobbying or pay a proxy tax to the Internal Revenue Service. Lobbying expenses and political expenses are not deductible as business expenses.
Electioneering communications The use of 501(c)(4), 501(c)(5), and 501(c)(6) organizations has been affected by the 2007 case FEC v. Wisconsin Right to Life, Inc., in which the Supreme Court struck down the part of the McCain-Feingold Act that prohibited 501(c)(4)s, 501(c)(5)s, and 501(c)(6)s from broadcasting electioneering communications. The Act defined an electioneering communication as a communication that mentions a candidate's name 60 days before a primary or 30 days before a general election.
Contributions