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What is a 501(c)3?

A 501(c)3 does not strive to make a profit, but rather strives to provide a service to the community.
An example of a charitable organization could be one that provides food to the hungry in a community.
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  • Written By: John Sunshine
  • Edited By: Niki Foster
  • Last Modified Date: 20 July 2014
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A 501(c)3 is type of incorporation that is used to set up a charitable corporation. A charitable company is a type of company that is set up with the intention of providing a service to the community, rather than making a profit. Incorporating a company makes it a legal entity, responsible for its actions in the community. This is important, as it removes a great deal of the responsibility from the person who is starting the company. If you start a 501(c)3 company, you want the legal liability for possible damages to be the responsibility of the 501(c)3 corporation so that your personal possessions are safe from creditors.

Rules for forming a 501(c)3 corporation vary across every state, so legal and financial advice should be sought before using a 501(c)3 incorporation. Costs for forming a 501(c)3 corporation vary with the size of the corporation, increasing with the size of the organization. The 501(c)3 designation is a reference to the section in the Internal Revenue Code that deals with charitable corporations. This is a very dry document, which may explain why such an unwieldy and unimaginative name is used for this type of organization.

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501(c)3 corporations are exempt from paying income tax. In return for this exemption status, a 501(c)3 corporation may not take part in election campaigns in an attempt to cause one candidate to be elected in preference over another. 501(c)3 corporations are also prohibited from providing any monetary or material benefit to the principle or principles running the organization. These restrictions are for the entire life of the organization.

A corporation is either a 501(c)3 organization or it is not. It cannot change its function. If the organization ceases to be a nonprofit charitable organization, than the organization must be dissolved.

501(c)3 corporations are an important means to allow individuals to set up organizations with the intention of the betterment of the community at large, without undue risk to personal wealth. 501(c)3 corporations also allow charitable organizations to grow to a sufficiently large size that they are able to cause significant change. In effect, the organization can grow beyond the individual who started the organization, and even outlive him or her.

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Discuss this Article

anon336302
Post 22

There is a 501c3 non profit company that owns apartment complexes throughout California. What I see from this nonprofit company is that it destroys families and leaves them homeless.

After your three day notice, they will evict you. This company has a very, very high eviction rate -- higher than anyone else. This company should not be registered as a nonprofit. They claim to help people, but are only interested in money and not helping people. It's a smoke screen.

anon323744
Post 21

If a 5013c hospital has state retirement and it becomes too costly for the organization, can the the organization get out of the state retirement system?

anon281956
Post 20

Can more than one use the same 501(c)3?

anon218426
Post 19

How as a constituent can I get profit/loss information from a CA 501(c)3 entity in its first year of operation before the requirement for annual reports and/or tax return needs to be filed?

anon142236
Post 18

I have questions about a school PTC parent teacher club. How does this work? Does the PTC have to get a 501c3.

If they have a federal tax ID number is that enough?

anon120122
Post 16

A 501c3 company I am involved with is being run, I think on the shady side. The director does not provide a report to the board each month. He uses the company to sell his personal belongings without putting any portion of the profit toward the company. He takes a percentage of all profits on all sales.

The board is expected to "volunteer" to work regular shifts, clean toilets, sweep, arrange displays, etc., while I have never seen any of these changes when he works. He leaves us notes on why we didn't do a particular chore, yet none of these chores are done after his shift. Any comments?

anon85556
Post 15

If I am leasing to a 501C3 and agree that I will take a portion of their rent as a contribution from them, what percentage is allowed and how does this work?

anon71102
Post 14

If I have a nonprofit organization and I own an apartment complex, can I collect from funds collected? If not, why?

anon59992
Post 13

This all sounds like a C Corp acting like a 501C3. Can a C Corp convert to a 501C3 Status?

anon42884
Post 12

What are the pre-requisites regarding unemployment? Do we have to provide it for deployed personnel and if we do is that OK?

anon39601
Post 11

My 501c3 needs to change its web site from .org to .net and also the e-mail addresses for its members. Do I need to notify the federal government or NJ state government of this change?

anon39567
Post 10

If a 501c has its charter pulled by a national organization, the real property and assets must be donated to another 501c. If there are no designated trustees, who has the right to make this donation and who has control until this donation is made?

anon19489
Post 9

I am interested in finding out what funds raised through a charity organization can be used for and what they cannot be used for?

Moderator's reply: It's always smart to check out a charity before donating your time or money to it. Our articles, "What is the BBB Wise Giving Alliance?" and "What Should I Consider When Donating to a Charity?" have more information on the subject.

littleredbug
Post 8

I found answers to my own question. Even if you make less than $25000/annum, you have to file for 501c3. But if you don't expect more than $5000/annum, you don't have to file for 501c3. In the former case, the tax form to be filed after receiving the 501c3 status is 990-N online form.

Regarding not being able to drop any child from the team, I don't think that is true. Whatever your tax exempt purpose is, you have to state that and follow it. For the form f1023, just google f1023 and the first result will be from the IRS website.

Same goes for the instructions to it - i1023. This document includes who can apply and what they need to do retain their status

anon10874
Post 7

I have reason to believe that a 501(c)(3) organization in the area is not running their soccer club in the manner which is determined by their 501(c)(3) status. They presently have no treasurer (and have not had one for the last 12 months), there are no regular board meetings, no minutes have been taken for the last 18+ months, they owe money to many creditors and have a president who uses his own personal money to fund the organization (during cash flow problem periods) and then writes himself/signs a check from the 501 company back to his own personal or business account without presenting any form of documentation to support the fact that he put the money into the 501 company in the first place. There are so many more operating and financial irregularities. Questions:

How do I get access to this club's financial records (including copies of their check register etc)?

Where do I find details of how a 501 (c)(3) organization should be operating and what their reporting procedures are supposed to be (i.e., how should a board conduct itself, what changes should they report to the IRS, can they operate without a treasurer)?

littleredbug
Post 6

Does a charitable organization that has gross receipts of less than $25,000/annum have to file for 501c3 so that it's not taxed by the federal government?

Our organization was registered in Maryland and we file an exemption form with the State of MD every year. We don't have 501c3 yet. Do we have to pay taxes if we don't file it within 27 months of our inception?

anon4868
Post 5

My local boys and girls track club is seeking 501(c) status, but as a youth sports team we were advised that we would no longer be able to cut anyone from our team if we achieve this status. Is that true? Must we keep every child who attempts to join our organization regardless of ability and behavior?

TMallette
Post 2

My question is about the tax exempt status of the 501c3. We lease a space to a corporation that is a 501c3. Under the lease, they are responsible for additional rent in proportion to their % of the leased space, which includes real estate taxes. However, this tenant had advised me of their 501c3 status.

Are they exempt from paying real estate taxes?

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