According to the IRS Publication 557, in the Organization Reference Chart section, there are twenty-eight 501(C) organization types. Laypeople often refer to any or all of these as "501(C)3's" or even "501(3)(C)'s". This is a very confusing area of the tax code and is best left to professionals. The requirements for filing and compliance are quite stringent and far too often well-meaning public servants attempting to respond to them may create serious problems for the non-profit organization. Not to mention the fact that the rules are very complex and difficult to understand. That's when your non-profit organization might need "501(C) Help". See the page entitled 501(C) Services for a list of services which I can provide your organization.
501(c)(3) exemptions can apply to corporations, and any community chest, fund or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, to foster amateur sports competition, to promote the arts, or for the prevention of cruelty to children or animals. These bodies are often referred to in shorthand form as "Friends of" organizations. "Friends of" organizations are one of the most commonly misunderstood and misused forms of non-profit organizations.
Many of the clients that I serve have experienced difficulty with their reporting and classification requirements as well as their ongoing legal compliance requirements. This is understandable considering the fact that there are so many nuances to the exempt classifications within the tax code.
The two exempt classifications of 501(c)(3) organizations are as follows:
1. A public charity, identified by the Internal Revenue Service (IIRS) as something which is "not a private foundation," normally receives a substantial part of its income, directly or indirectly, from the general public or from the government. The public support must be fairly broad, not limited to a few individuals or families. Public charities are defined in the Internal Revenue Code under sections 509(a)(1) through 509(a)(4).
2. A private foundation, sometimes called a non-operating foundation, receives most of its income from investments and endowments. This income is used to make grants to other organizations, rather than being dispersed directly for charitable activities. Private foundations are defined in the Internal Revenue Code under section 509(a) as 501(c)(3) organizations, which do not qualify as public charities.
The majority of the assistance that I provide falls within the two exempt classifications of 501(c)(3), however, there are a host of other classifications within the 501 segment. One of the more common ones which I also encounter quite a bit are 501(c)(6) organizations which include various clubs, business leagues, associations, etc.
Most organizations acquire tax exempt status by filing IRS Form 1023. The form must be accompanied by a filing fee along with an estimation of the yearly gross receipts for the organization. The form can be confusing and complex to those who have never dealt with it before. It requires legal understanding of the exempt classification as well as an accounting and finance understanding of the proposed organization. As both a CPA and an Attorney, I have successfully filed Form 1023 for organizations of various categories.
There are some classes of organizations that are automatically treated as tax exempt under 501(c)(3), without the need to file Form 1023:
• Churches, their integrated auxiliaries, and conventions or associations of churches
• Organizations that are not private foundations and that have gross receipts that normally are not more than $5,000.
It's extremely important to understand that simply because the automatic tax exemption applies, compliance is still required to maintain the tax exemption. Far too often, these organizations fail in their non-profit compliance believing that it is not required of them. This is false! I also provide services for churches which can help them save valuable time and money and limit their risk and exposure.
I provide compliance services from both a legal and accounting perspective that will help your organization comply with both federal and state requirements.