501(c)(3) Tax Exemption for Nonprofits

501(c)(3) Tax Exemption for Nonprofits

Section 501(c)(3) of the IRS code exempts payment of federal income taxes for charitable, religious, scientific, literary and educational organizations. It is the most commonly used section in the IRS code granting tax exemption. Section 501(c)(3) covers organizations formed for the following purposes:

  1. Charitable organizations provide services beneficial to the public interest. Examples include battered women's shelters or low-cost medical clinics.
  2. Religious organizations are valid as long as the organization's directors, officers and members appear to truly and sincerely hold the values and beliefs espoused by the religion.
  3. Scientific organizations are individuals and groups who conduct scientific research for public benefit.
  4. Literary and educational organizations instruct the public on topics for which there are sufficient facts to permit the formation of an independent opinion or conclusion.

Unless a nonprofit corporation files a 501(c)(3) application with the IRS, it will not be exempt from paying federal income taxes. If your nonprofit's purpose qualifies under 501(c)(3), then LegalZoom can help create the application for you. Each state also requires a tax exempt application. However, many states accept the federal tax exempt application in place of their own.

  • Definition of a Nonprofit Corporation
    A Nonprofit corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes. To qualify for Nonprofit status, your corporation must be formed to benefit: (1) the public, (2) a specific group of individuals, or (3) the membership of the Nonprofit. Examples...
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  • Reasons to Form a Nonprofit Corporation
    As someone involved with a charitable cause, you might be weighing the benefits of formally organizing your nonprofit. While it might take a little extra work, only with a state-recognized nonprofit corporation can you obtain private and public grants, low-cost postage rates and be exempt from...
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  • Comparing a Nonprofit to an LLC or Corporation
    Nonprofit corporations enjoy the same liability protection as regular corporations and limited liability companies. In other words, your directors, trustees, members, and employees are not generally responsible for corporate debts and liabilities. There are also significant federal and state tax...
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  • Tax Exemption for Nonprofits
    Forming a nonprofit corporation with your state does not automatically qualify you for federal tax exemption with the IRS. Once you have created your nonprofit by filing the necessary documents with your state, if you want federal tax exemption, you must file a separate application with the IRS....
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  • Commercial Rights of Nonprofits
    The fact that a corporation is a nonprofit does NOT mean the corporation cannot sell goods or services for money. In fact, many nonprofits make money selling everything from clothing to medical services. A nonprofit can pay salaries to officers and employees. But, in order to maintain nonprofit...
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  • Managing a Nonprofit Corporation
    Directors are responsible for the management and operation of a nonprofit corporation. Nonprofit directors can serve with or without compensation. If you decide to compensate directors, remember that compensation must be deemed "reasonable" by the IRS. Directors are under the same constraints of...
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