Private foundations Internal Revenue Service

Ever wonder what a 501(c)(3) or 501c3 nonprofit actually is, besides sounding like scientific code? Behind The Key Benefits of Accounting Services for Nonprofit Organizations that string of numbers and parentheses is a powerful designation that opens doors for organizations doing meaningful work in their communities. Organizations must apply to the IRS, provide detailed information, and meet requirements regarding their mission and activities.

• If you already run or plan to start a nonprofit organization, chances are good that you have considered filing to become tax-exempt.
• Links to helpful information about points of intersection between business leagues and the IRS, including access to explanatory information and forms that an organization may need to file with the IRS.
• Internal Revenue Code (IRC) and a specific tax category for nonprofit organizations.
• The IRS expects nonprofits to operate with the same level of accountability as for-profit businesses—if not more so.
• Brette Sember is a retired attorney who has been writing and editing law and legal topics for more than 25 years.
• Entire pro rata shares must be disclosed on the tax filings of each community member.

People of a Nonprofit

However, not-for-profit organizations must remit payroll taxes on behalf of their employees. Similarly, the employees and directors who receive income from a not-for-profit organization must report the income to the Internal Revenue Service (IRS). Fundraising activities range from major public events to smaller, private gatherings. Not-for-profit organizations may also solicit direct donations, sell products, or rely on major gifts. Use the core concepts above to review your organization’s purpose, mission statement, and goals.

How Many Nonprofits Are In The United States?

A brief description of the requirements for exemption for employees' associations under IRC sections 501(c)(4), 501(c)(9), and 501(c)(17). A brief description of the requirements for exemption under Internal Revenue Code ("IRC") sections 501(c)(8) and 501(c)(10). A brief description of the requirements for exemption under Internal Revenue Code section 501(c)(7). The executive director of a nonprofit reports to the board, and the board makes the final decisions on the programs that the nonprofit will pursue.

nonprofit organization

Section 501(c)(3) is the portion of the US Internal Revenue Code that allows for federal tax exemption of nonprofit organizations that meet the code’s requirements. These nonprofits may be considered public charities, private foundations, or private operating foundations, which we’ll explain in more detail later. A nonprofit organization or foundation (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is dedicated to furthering a particular social cause or advocating for a shared point of view. An organization needs to request 501(c) prior to operating with a tax exemption.

• However, in most cases, only donations made to nonprofit 501(c)(3) organizations are tax-deductible.
• Examples include schools, Boys and Girls clubs, churches and elderly care homes.
• There is a common misconception that organizations which provide for public safety are what fits in this category.
• Even though church groups are not required to formalize their 501(c)(3) status, they must adhere to all the same requirements as other nonprofit organizations.
• Even tax-exempt not-for-profit organizations are required to remit payroll taxes on behalf of their employees, who also must report the income to the IRS.

What is a Nonprofit Organization?

Transparency is not just a compliance requirement; it’s also vital to building trust with donors, grantmakers, and the communities you serve. U.S. tax laws incentivize organizations that increase the public good and the individuals who support them. That’s a great thing, especially if you’re an entrepreneur looking to reduce your tax burden. Mission-driven organizations still face plenty of challenges, like raising sufficient funding, recruiting and retaining volunteers, and the potential for mission drift. But at least the tax bill that arrives annually from Uncle Sam can relieve some of the financial pressure. Most importantly, organizations that hold 501(c)(3) status must not serve any private interests, and their earnings must be used for charitable purposes only.

• We often encounter people who think the purpose category is promoting public safety, when in actuality it is testing for public safety.
• For more information about lobbying activities by charities, see the article Lobbying Issues PDF; for more information about political activities of charities, see the FY-2002 CPE topic Election Year Issues PDF.
• The International Federation of Red Cross and Red Crescent Societies provides global humanitarian aid during peacetime, such as assisting refugees.
• The IRS outlines a broad range of activities that meet this threshold—but simply “doing good work” isn’t enough.
• A membership organization elects the board and has regular meetings and the power to amend the bylaws.
• Organizations that meet Section 501(c)(3) requirements are exempt from federal income tax.

We’ll also highlight how Rekonect can simplify the journey toward achieving and maintaining your nonprofit’s tax-exempt status. Strong governance keeps you in good standing with the IRS and strengthens your organization’s capacity to lead, grow, and secure funding. A well-run board can be powerful for mission alignment, strategic clarity, and community impact.

Charitable Purposes of a Not-for-Profit Organization

However, it should not represent more than 10-20% of the organization’s activities, nor consume any more than 10-20% of the resources of the organization. Nonprofits that engage in lobbying activity are discouraged from filing Form 1023-EZ and should file a complete Form 1023 instead. Learn more about the benefits, limitations and expectations of tax-exempt organizations by attending 10 courses at the online Small to Mid-Size Tax Exempt Organization Workshop. 501(c)(4) organizations, which are also nonprofit, are social welfare groups and are permitted to engage in lobbying.

Exempt Organizations Update newsletter

This means that the organization’s work should solely serve its charitable purpose, not aiming to benefit shareholders or influence legislation in any way. Individuals who donate to an organization that the IRS considers to be a public charity may qualify for certain tax deductions that can help them lower their taxable income. The total amount of donations to a tax-exempt public charity that an individual can claim is generally limited to 60% of their adjusted gross income (AGI) as of 2025. Only donations made to organizations that have a charitable purpose are allowed as itemized tax deductions by the IRS.