Hyden, Miron & Foster, PLLC Law Blog

Monday, December 16, 2019

What Qualifies for 501(c)(3) Status?

501(c)(3) status refers to an organization deemed to be in compliance with section 501(c)(3) of the Internal Revenue Code. 501(c)(3) entities are usually referred to as charitable organizations. A charitable organization that falls under section 501(c)(3) of the Internal Revenue Code is eligible to receive tax-deductible contributions pursuant to section 170 of the Code. The organization may also receive private foundation and government grants as well as tax exemption from several federal, state, and local taxes. These charitable organizations may also benefit from special postage and nonprofit advertising rates, among other discounts.

On top of all of these benefits is the fact that the charitable organization receives limited lawsuit protection. A charitable organization is usually set up as a corporation before seeking the tax exemption status. Lawsuits will only apply to the organization’s corporate holdings. Also, staff and board members of the organization have legal protection, although it may not apply in all circumstances (which is why charitable organizations should purchase certain types of insurance).

Qualifications for 501(c)(3) Status

In order to obtain 501(c)(3) status, the organization must comply with the requirements set forth in the Internal Revenue Code. First and foremost, the organization has to be organized and operated exclusively for the exempt purposes laid out in section 501(c)(3). The exempt purposes laid out in section 501(c)(3) of the Internal Revenue Code include the promotion of things such as science, literacy, and testing for public safety.

Additionally, exempt purposes include the prevention of cruelty to animals and the prevention of child abuse. 501(c)(3) entities may also be engaged in what the code refers to as “charitable” purposes. This is a general term and may involve an organization dedicated to:

  • Providing relief for poor, disenfranchised, or underprivileged populations
  • Promoting the advancement of religion
  • Building or maintaining public structures
  • Easing government burdens
  • Fostering positive neighborhood relations
  • Defending lawfully granted human and civil rights
  • Preventing and addressing juvenile delinquency
  • Fighting prejudice and discrimination

It cannot be operated for the benefit of private interests. None of the net earnings of the organization may inure to benefit a private shareholder or individual. Additionally, the organization cannot be an action organization. This means that a substantial part of the organization’s activities cannot involve toe participation in attempts to influence legislation or campaign activities for or against certain political candidates. Charitable organizations are limited in how involved they can be in lobbying activities.

Those organizations granted 501(c)(3) status do not enjoy this status indefinitely. A substantial number of organizations lose their 501(c)(3) exempt status each year. The IRS is tasked with reviewing exempt organizations to make sure they are in compliance with the pertinent regulations. The IRS regularly reviews 501(c)(3) organizations to verify whether the organization is continuing the work that qualified it for exempt status.

Arkansas Charitable Organization Attorneys

If you are looking to apply for 501(c)(3) status, need help with the administration of your charity, or have any questions relating to setting up or running a charitable organization, Hyden, Miron & Foster, PLLC is here to help. We have the answers you need to help your charitable organization succeed and maintain its exempt status. Contact us today.

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