A 501 c3 organization, unless it is a church, must prepare an application and request exemption directly from the IRS. Once exemption status is approved by the IRS, an organization’s related income is exempt from federal corporate income tax. Also, contributions to the organization are tax-deductible to the donor, to the extent permitted by law.

Tracy L. Boak is a partner with Perlman & Perlman, LLP, which specializes in providing legal counsel and compliance services to organizations and professionals in the nonprofit sector. Previously, she was the Director of the Pennsylvania Department of State’s Bureau of Charitable Organizations where she was responsivle for the management of the office that oversees the administration and enforcement of the State’s charitable solicitation law. Prior to working for the Commonwealth, Ms. Boak was in private practice in Harrisburg, PA, where she practiced commercial litigation.

In this CLE video clip, Tracy provides viewers with a full overview of 501(c)(3).

You can watch the complete Nonprofit Law CLE class here:
Watch the Full – Compliance for Charitable Organizations: Navigating the Maze of Financial, Compliance and Reporting Requirements CLE Class

Two types of 501(c)(3) organizations exist. First, public charities such as churches, schools, and hospitals, enjoy a preferred status in most cases, and must satisfy a “public support test.” Second, we have private foundations, which are organizations that do not meet the definition of “public charity” and/ or are funded by a small group of private donors. Private foundations are subject to more stringent and complicated rules than public charities. Also, the private foundations have a lower deductibility limitations in most cases.

There are many benefits of a 501(c)(3) exempt status. In addition to being eligible for tax-deductible contributions, state and local property tax exemptions generally follow, as well as, other tax exemptions that may apply as well. Among those additional benefits are diverse funding opportunities, reduced postal rates, by application, and exemption from federal unemployment tax.

The benefits of 501(c)(3) exempt status are many, though there are a few burdens to consider. 501(c)(3) status requires greater transparency and public accountability. These days it’s not just the IRS, or the states’ charity officials scrutinizing organizations, watchdog organizations, the media, and the federal trade commission are now very heavily involved. Guidestar, for example, makes information available to the public on various organizations.

Your organization’s form 990 is readily available, sites such as Guidestar posts this information for public observation. The exemption application for any exempt organization, must be made available upon request.