501c3

501(c)(3) is a provision of the U.S. Internal Revenue Code that grants federal income tax exemption to nonprofit organizations organized and operated for charitable, religious, educational, scientific, literary, or similar purposes. Organizations with 501(c)(3) status are also eligible to receive tax-deductible charitable contributions from donors, subject to IRS limits.

To qualify, an organization must be organized as a corporation, a trust, or an unincorporated association with a formal governing document and a defined exempt purpose. It must be operated exclusively for the public benefit and must not distribute profits to individuals beyond reasonable compensation or charitable program costs. The activities may include charitable, religious, educational, scientific, literary, or certain other purposes. Political campaign activities on behalf of or in opposition to candidates are prohibited; lobbying is permitted within certain limits.

Two main categories exist: public charities and private foundations. Public charities generally receive broad public support and tend to have more favorable funding rules; private foundations are typically funded by a limited number of donors and face stricter rules and excise taxes on investment income.

Application and compliance: organizations apply to the IRS with Form 1023 or Form 1023-EZ. After approval, they file annual returns (Form 990, 990-EZ, or 990-N) and comply with state charitable registration, governance, reporting, and recordkeeping requirements. They must avoid private inurement and maintain necessary governance practices, such as conflict-of-interest policies. In addition to federal requirements, many states regulate charitable organizations through registration and annual reporting, and some offer separate state tax exemptions.

Donors may deduct contributions, subject to AGI-based limits. 501(c)(3) status can be revoked for failure to meet ongoing requirements, and the organization may owe taxes on unrelated business income if applicable.