Benefits of 501(c)(3) Status
Obtaining 501(c)(3) status provides benefits: being exempt from federal taxes, and eligibility for grants. The 501(c)(3) designation remains unless revoked by the IRS. To receive 501(c)(3) status, organizations must file an application with the IRS which must recognize the organization.
Restrictions and Considerations for 501(c)(3) Organizations
- A 501(c)(3) cannot influence legislation substantially
- A 501(c)(3) cannot participate in political campaigns
- A 501(c)(3) cannot pay employees unreasonably
If income is generated from unrelated activities, 501(c)(3) tax-exempt status can be lost. Donations to 501(c)(3)s are tax-deductible. Other benefits include possible exemption from income, sales, and property taxes.
Common Purposes of 501(c)(3) Organizations
A 501(c)(3) organization usually exists for charitable, educational, religious, literary, scientific purposes, testing for public safety, fostering amateur sports competitions, or preventing cruelty to children/animals.