What is a Section 501(c)(3) Organization?
A Section 501(c)(3) Organization is a group that’s formed not to make a profit but to do some good in the world. Since the mission of a 501c3 is not to produce income, it’s exempt from paying federal income taxes. This is called a tax-exempt status. If your group fits this description, you would file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. That’s a hefty name but all it really means is that this form is used to obtain federal tax-exempt status.
What kinds of “good” count on the 1023? Well if your group tries to educate, test for public safety, promote literature & the arts, fund research, or foster good will by sponsoring amateur sports events, then it may qualify under Section 501(c)(3). Here are some examples of types of groups that have successfully filed IRS Form 1023 for tax exempt status:
- Iraq Afghanistan Veterans of America
- The Avon Foundation
- Environmental Working Group (EWG)
- Reason Foundation
There are countless organizations that have tax-exempt status under Section 501(c)(3), as you can tell from the range of issues covered in the list of examples.
Why File IRS Form 1023?
Well even though an organization may not in the business of making a profit, it may take in money…and that’s income. As we all know, the IRS can sniff out income from miles away, and will come after you to get its share. By filing IRS Form 1023, you are obtaining tax-exempt status so that “income” isn’t taxed. Some groups take in millions each year, so it’s a significant status, of course.
Some organizations, on the other hand, take in so little money that it’s not necessary to file IRS form 1023. If your group has gross receipts of less than $5000 it’s not necessary to file. That’s because it’s under the threshold for having to pay income tax anyway.
But you may want to file IRS Form 1023 anyway…that way anyone who gives you a donation will be able to take their tax deduction for giving to charity, if they want. You get a determination letter recognizing your Section 501(c)(3) status, which will help you solicit donations.
How to File IRS Form 10123
For Form 1023 Instructions go here on the IRS website. If you know what you’re doing and don’t need instructions, here’s the PDF form on the IRS website for form 1023.