View source for 501(c)(3) organization

{{Short description|US nonprofit exempt from federal income tax}}
{{Use mdy dates|date=December 2017}}
A '''501(c)(3) organization''' is a United States corporation, [[Trust (business)|trust]], [[unincorporated association]] or other type of organization exempt from federal  income tax under section 501(c)(3) of [[Title 26]] of the [[United States Code]]. It is one of the 29 types of [[501(c) organization|501(c)]] nonprofit organizations<ref name=":0" /> in the US.

501(c)(3) tax-exemptions apply to entities that are organized and operated exclusively for [[religion|religious]], [[Charitable organization|charitable]], [[science|scientific]], [[literature|literary]] or [[education]]al purposes, for [[Public security#Organizations|testing for public safety]], to foster national or international [[amateur sports]] competition, or for the prevention of [[Child abuse|cruelty to children]] or [[Cruelty to animals|animals]]. 501(c)(3) exemption applies also for any non-incorporated [[Community Chest (organization)|community chest]], fund, [[Cooperating Associations|cooperating association]] or foundation organized and operated exclusively for those purposes.<ref>{{cite web|url = https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3|title= Exempt Purposes – Internal Revenue Code Section 501(c)(3) |website = irs.gov}}</ref><ref name=":0">[https://www.irs.gov/pub/irs-pdf/p557.pdf IRS Publication 557 "Tax-Exempt Status For Your Organization", Page 19, (Rev. June 2008), Cat. No 46573C.], Retrieved March 9, 2009.</ref> There are also supporting organizations—often referred to in shorthand form as "Friends of" organizations.<ref name="Hopkins2011">{{citation | last=Hopkins | first=Bruce R. | year=2011 | title=The Law of Tax-Exempt Organizations | edition=10 | publisher=John Wiley and Sons | isbn=978-0-470-60217-1  | page=879 }}</ref><ref>Judith S. Ballan, "How To Aid a Foreign Charity Through an 'American Friends of' Organization", in Proceedings of the Twenty-Third New York University Conference on Tax Planning.</ref><ref>{{cite web |url=http://www.usig.org/legal/friends_of_organizations.asp |title=Legal Dimensions of International Grantmaking: How a Private Foundation Can Use "Friends of" Organizations |publisher=Usig.org |access-date= June 7, 2011 |url-status=dead |archive-url=https://web.archive.org/web/20110916031540/http://www.usig.org/legal/friends_of_organizations.asp |archive-date=September 16, 2011 |df=mdy-all }}</ref><ref name="Larkin2011">{{citation | last1=Larkin | first1=Richard F. | year=2011 | title=Wiley Not-for-Profit GAAP 2011: Interpretation and Application of Generally Accepted Accounting Principles | last2=DiTommaso | first2=Marie | publisher=John Wiley and Sons | isbn=978-0-470-55445-6  | page=Ch.11 }}</ref>

{{usc|26|170}} provides a deduction for federal income tax purposes, for some donors who make [[Charitable contribution deductions in the United States|charitable contributions]] to most types of 501(c)(3) organizations, among others. Regulations specify which such deductions must be verifiable to be allowed (e.g., receipts for donations of $250 or more).

Due to the tax deductions associated with donations, loss of 501(c)(3) status can be highly challenging if not fatal to a charity's continued operation, as many foundations and corporate [[matching funds]] do not grant funds to a charity without such status, and individual donors often do not donate to such a charity due to the unavailability of tax deduction for contributions.<ref>{{cite web|title=Donating to Charity|url=https://www.usa.gov/|access-date=9 October 2021}}</ref>

== Types ==
The two exempt classifications of 501(c)(3) organizations are as follows:
* A [[Charitable organization#United States|public charity]], identified by the [[Internal Revenue Service]] (IRS) as "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)(0) through 509(a)(4).<ref>{{Cite web|title=Exemption Requirements - 501(c)(3) Organizations {{!}} Internal Revenue Service|url=https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations|access-date=2021-03-23|website=irs.gov|language=en}}</ref>
* A [[private foundation (United States)|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 disbursed 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.<ref>{{Cite web|title=Private Operating Foundations {{!}} Internal Revenue Service|url=https://www.irs.gov/charities-non-profits/private-foundations/private-operating-foundations|access-date=2021-03-23|website=irs.gov|language=en}}</ref><ref>{{Cite web|title=Private Foundations {{!}} Internal Revenue Service|url=https://www.irs.gov/charities-non-profits/charitable-organizations/private-foundations|access-date=2021-03-23|website=irs.gov|language=en}}</ref>

== Obtaining status ==
The basic requirement of obtaining tax-exempt status is that the organization is specifically limited in powers to purposes that the IRS classifies as tax-exempt purposes. Unlike for-profit corporations that benefit from broad and general purposes, non-profit organizations need to be limited in powers to function with tax-exempt status, but a non-profit corporation is by default not limited in powers until it specifically limits itself in the articles of incorporation or nonprofit corporate bylaws. This limiting of the powers is crucial to obtaining tax exempt status with the IRS and then on the state level.<ref>"[https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations IRS Exemption requirements: 501(c)(3) organizations]". ''Internal Revenue Service''. April 15, 2016.</ref> Organizations acquire 501(c)(3) tax exemption by filing IRS [[Form 1023]].<ref name="atlantatribune">Phillips, Marlissa J. "[https://www.proquest.com/docview/212471376/ tax zone: Nonprofit Not Tax Exempt?]" ''The Atlanta Tribune''. December 2002. p. 64.</ref> {{As of|2006}}, the form must be accompanied by an $850 filing fee if the yearly gross receipts for the organization are expected to average $10,000 or more.<ref name="Form 1023">IRS [https://www.irs.gov/pub/irs-pdf/f1023.pdf "Form 1023"] (Rev. 6-2006), p. 12.</ref><ref name="IRS Exempt Organizations Website">[https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check IRS Exempt Organizations Website] {{Webarchive|url=https://web.archive.org/web/20160515100248/https://www.irs.gov/Charities-%26-Non-Profits/Exempt-Organizations-Select-Check |date=May 15, 2016 }} Retrieved on September 7, 2009.</ref> If yearly gross receipts are expected to average less than $10,000, the filing fee is reduced to $400.<ref name="Form 1023" /><ref name="IRS Exempt Organizations Website" /> There are some classes of organizations that automatically are 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. A convention or association of churches generally refers to the organizational structure of congregational churches.<ref>"[https://openjurist.org/758/f2d/1283/lutheran-social-service-of-minnesota-v-united-states Lutheran Social Service of Minnesota v. United States]". 758 F.2d 1283 (8th Cir. 1985).</ref> A convention or association of churches can also refer to a cooperative undertaking of churches of various denominations that works together to perform religious activities.<ref>"[https://www.irs.gov/pub/irs-tege/rr74-224.pdf Revenue Ruling 74–224]". 1974-1 C.B. 61.</ref><ref name=":1">{{uscsub|26|508|c||A}}</ref>
* Organizations that are not private foundations and that have gross receipts that normally are not more than $5,000<ref name=":1" />

The IRS released a software tool called Cyber Assistant in 2013, which was succeeded by Form 1023-EZ in 2014.

There is an alternative way for an organization to obtain status if an organization has applied for a determination and either there is an actual controversy regarding a determination or the Internal Revenue Service has failed to make a determination. In these cases, the [[United States Tax Court]], the [[United States District Court for the District of Columbia]], and the [[United States Court of Federal Claims]] have [[concurrent jurisdiction]] to issue a declaratory judgment of the organization's qualification if the organization has exhausted administrative remedies with the Internal Revenue Service.<ref>{{cite web|url=https://www.law.cornell.edu/uscode/text/26/7428|title=Internal Revenue Code 7428|publisher=via Legal Information Institute, Cornell University|work=Internal Revenue Service|access-date=October 2, 2013}}</ref><ref>{{cite web|url=http://www.venable.com/files/Publication/2d68ea47-838d-43c0-9b66-5c7e78bdac69/Preview/PublicationAttachment/e24a14f6-f2dc-47ea-8232-62e2865afdb7/Tools_for_Bypassing_IRS_Delays_in_EO_Applications.pdf|title=Tools for Bypassing IRS Delays in EO Applications: Organizations and their representatives missed opportunities to mitigate the consequences of the IRS' delays and requests for inappropriate information|last2=Ziffer|first2=Yosef|date=September 2013|last3=Tenenbaum|first3=Jeffrey S.|work=Venable LLP|first1=Matthew T.|last1=Journy|access-date=October 2, 2013}}</ref>

Prior to [[Tax Reform Act of 1969|December 30, 1969]], nonprofit organizations could declare themselves to be tax-exempt under Section 501(c)(3) without first obtaining Internal Revenue Service recognition by filing Form 1023 and receiving a determination letter.<ref name="403b">{{cite web|url=https://www.irs.gov/irm/part4/irm_04-072-013.html|title=Internal Revenue Manual, Part 4. Examining Process, Chapter 72. Employee Plans Technical Guidelines, Section 13. 403(b) Plans, 4.72.13.8.6 Eligibility – Examination Steps, Paragraph 1(F)|work=Internal Revenue Service|access-date=May 15, 2015}}</ref> A nonprofit organization that did so prior to that date could still be subject to challenge of its status by the Internal Revenue Service.<ref name="403b" />

==Tax-deductible charitable contributions==
Individuals may take a tax deduction on a charitable gift to a 501(c)(3) organization that is organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.<ref>Internal Revenue Code Section 170(c)(2)(B).</ref>

An individual may not take a tax deduction on gifts made to a 501(c)(3) organization that is organized and operated exclusively for the testing for public safety.<ref>Walden, Steve. "Not all charitable gifts tax-deductible, IRS says". ''The Oklahoman'' (Oklahoma City, Oklahoma). February 14, 1983.</ref>

In the case of tuition fees paid to a private 501(c)(3) school or a church school, the payments are not tax-deductible charitable contributions because they are payments for services rendered to the payee or the payee's children.<ref>Rev. Rul. 54-580, 1954-2 C.B. 97.</ref><ref>Rev. Rul. 71-112, 1971-1 C.B. 93.</ref><ref>Oppewal v. Commissioner, 468 F.2d 1000 (1st Cir. 1972).</ref> The payments are not tax-deductible charitable contributions even if a significant portion of a church school's curriculum is religious education.<ref>"[https://www.leagle.com/decision/196193236cktc8961844 DeJong v. Commissioner], 36 T.C. 896 (1961), affirmed, 309 F.2d 373 (9th Cir. 1962).</ref><ref>Rev. Rul. 76-232, 1976-1 C.B. 62.</ref> For a payment to be a tax-deductible charitable contribution, it must be a voluntary transfer of money or other property with no expectation of procuring financial benefit equal to the transfer amount.<ref>Rev. Rul. 67-246, 1967-2 C.B. 104.</ref>

Before donating to a 501(c)(3) organization, a donor can consult the searchable online IRS list of charitable organizations to verify that the organization qualifies to receive tax-deductible charitable contributions.<ref>{{cite web|title=IRS Search for Charities |url=https://www.irs.gov/charities-non-profits/tax-exempt-organization-search |publisher=Internal Revenue Service |access-date=June 1, 2020 |archive-url=https://web.archive.org/web/20200527222600/https://www.irs.gov/charities-non-profits/tax-exempt-organization-search |archive-date=May 27, 2020 |url-status=live }}</ref>

Consumers may file IRS Form 13909, with documentation, to complain about inappropriate or fraudulent (i.e., fundraising, political campaigning, lobbying) activities by any 501(c)(3) organization.<ref>{{cite web|title=Form 13909: Tax-Exempt Organization Complaint (Referral) Form|url=https://www.irs.gov/pub/irs-pdf/f13909.pdf|publisher=Internal Revenue Service|access-date=April 24, 2011 | archive-url= https://web.archive.org/web/20110429025659/https://www.irs.gov/pub/irs-pdf/f13909.pdf| archive-date= April 29, 2011 | url-status= live}}</ref>

Most 501(c)(3) must disclose the names and addresses of certain large donors to the Internal Revenue Service on their annual returns, but this information is not required to be made available to the public,<ref>{{Cite web|url=http://www.nonprofitissues.com/to-the-point/nonprofit-required-report-anonymous-donors-irs|title=Is a nonprofit required to report anonymous donors to the IRS?|date=2011-06-14|website=Nonprofit Issues|language=en|access-date=February 4, 2017 }}</ref>
unless the organization is an independent foundation.<ref>{{Cite web|url=https://www.irs.gov/pub/irs-pdf/f990ezb.pdf|title=Form 990, Schedule B|date=2016|website=U.S. Internal Revenue Service|page=5|access-date=February 4, 2017}}</ref> 
Churches are generally exempt from this reporting requirement.<ref>"[https://www.irs.gov/charities-non-profits/annual-exempt-organization-return-who-must-file Annual Exempt Organization Return: Who Must File]". ''Internal Revenue Service''. December 13, 2016. Retrieved February 4, 2017.</ref>

==Transparency==
Every 501(c)(2) organization must make available for public inspection its application for tax-exemption, including its Form 1023 or Form 1023-EZ and any attachments, supporting documents, and follow-up correspondence with the Internal Revenue Service.<ref name="pd">"[https://www.irs.gov/charities-non-profits/public-disclosure-and-availability-of-exempt-organizations-returns-and-applications-documents-subject-to-public-disclosure Public Disclosure and Availability of Exempt Organizations Returns and Applications: Documents Subject to Public Disclosure]". ''Internal Revenue Service''. April 17, 2018.</ref> The same public inspection requirement applies to the organization's annual return, namely its [[Form 990]], Form 990-EZ, Form 990-PF, Form 990-T, and Form 1065, including any attachments, supporting documents, and follow-up correspondence with the Internal Revenue Service, with the exception of the names and addresses of donors on Schedule B.<ref name= pd/><ref name="pd990t">"[https://www.irs.gov/charities-non-profits/charitable-organizations/public-inspection-and-disclosure-of-form-990-t Public Inspection and Disclosure of Form 990-T]". ''Internal Revenue Service''. April 2, 2018.</ref> Annual returns must be publicly available for a three-year period beginning with the due date of the return, including any extension of time for filing.<ref name= pd/><ref name= pd990t/>

The Internal Revenue Service provides information about specific 501(c)(3) organizations through its Tax Exempt Organization Search online.<ref>"https://www.irs.gov/charities-non-profits/tax-exempt-organization-search Tax Exempt Organization Search". ''Internal Revenue Service''.</ref><ref>{{cite press release|url=https://www.irs.gov/newsroom/new-irs-online-tool-offers-expanded-access-to-information-on-tax-exempt-organizations-newly-filed-data-available-to-public-for-first-time|title=New IRS online tool offers expanded access to information on tax-exempt organizations; newly-filed data available to public for first time|publisher=Internal Revenue Service|date=May 7, 2018}}</ref> A private nonprofit organization, [[GuideStar]], provides information on 501(c)(3) organizations.<ref>{{cite web|url=http://www.leaderherald.com/news/local-news/2016/12/police-beware-scammers-during-holiday/|title=Police: Beware scammers during holiday|work=The Leader-Herald|date=December 3, 2016|archive-date=20 December 2016|url-status=dead|archive-url=https://web.archive.org/web/20161220134154/http://www.leaderherald.com/news/local-news/2016/12/police-beware-scammers-during-holiday/|author-last1=Minor|author-first1=Kerry}}</ref><ref>"[https://learn.guidestar.org/about-us About Us]". ''[[Guidestar]]''. Retrieved July 26, 2018.</ref> ProPublica's Nonprofit Explorer provides copies of each organization's Form 990 and, for some organizations, audited financial statements.<ref>Tigas, Mike; Wei, Sisi, Schwencke, Ken; Glassford, Alec. "
"[https://projects.propublica.org/nonprofits/ Nonprofit Explorer]". ''ProPublica''.</ref>  WikiCharities, is a nonprofit database of nonprofits and charities by name, location, and topic,<ref>"[https://www.wikicharities.org/ WikiCharities]". ''Journal of Nonprofit Innovation''.</ref> that allows each organization to report its financials, leadership, contacts, and other activities.<ref>"[https://www.wikicharities.org/nonprofit/wikicharities/ Sample Nonprofit Webpage]". ''Journal of Nonprofit Innovation''.</ref> However, Open990 was a searchable database of information about organizations that had to shut down due to IRS delays in posting information online.<ref>[https://www.propublica.org/article/irs-hasnt-released-nearly-half-million-nonprofit-tax-records The IRS Hasn’t Released Nearly Half a Million Nonprofit Tax Records] ''ProPublica'' </ref>

==Limitations on political activity==

Section 501(c)(3) organizations are prohibited from supporting political candidates, as a result of the [[Johnson Amendment]] enacted in 1954.<ref>McLean, Chuck. "[https://trust.guidestar.org/perspectives-on-the-johnson-amendment Perspectives on the Johnson Amendment]". ''Guidestar''. February 9, 2017.</ref> Section 501(c)(3) organizations are subject to limits on [[lobbying]], having [[501(h) election|a choice]] between two sets of rules establishing an upper bound for their lobbying activities. Section 501(c)(3) organizations risk loss of their tax-exempt status if these rules are violated.<ref>{{cite web| title = Lobbying| publisher = [[Internal Revenue Service]]| date = April 18, 2013 | url = https://www.irs.gov/Charities-&-Non-Profits/Lobbying |access-date=May 14, 2013}}</ref><ref>Elacqua, Amelia. "[http://www.hbtlj.org/v08p1/v08p1elacquaar.pdf Eyes wide shut: The ambiguous "political activity" prohibition and its effects on 501(c)(3) organizations] {{Webarchive|url=https://web.archive.org/web/20170902142613/http://www.hbtlj.org/v08p1/v08p1elacquaar.pdf |date=September 2, 2017 }}". ''Houston Business and Tax Journal''. 2008. p. 119, 141. Referenced February 16, 2012.</ref> An organization that loses its 501(c)(3) status due to being engaged in political activities cannot subsequently qualify for 501(c)(3) status.<ref name="cpe">{{cite web |title= Political Organizations and IRC IRC 501(c)(3) |first1=Raymond |last1=Chick |first2=Amy |last2=Henchey |work= Exempt Organizations-Technical Instruction Program for FY 1995 |publisher= Internal Revenue Service |url= https://www.irs.gov/pub/irs-tege/eotopicm95.pdf }}</ref>

== Churches ==
Churches must meet specific requirements to obtain and maintain tax-exempt status; these are outlined in "IRS Publication 1828: Tax Guide for Churches and Religious Organizations".<ref name="p1828">{{cite web|url=https://www.irs.gov/pub/irs-pdf/p1828.pdf|title=Tax guide for churches and religious organizations|publisher=Internal Revenue Service|work=26 USC 501(c)(3)|access-date=April 24, 2011|archive-url=https://web.archive.org/web/20110429180346/https://www.irs.gov/pub/irs-pdf/p1828.pdf|archive-date=April 29, 2011 |url-status=live}}</ref> This guide outlines activities allowed and not allowed by churches under the 501(c)(3) designation.<ref name=p1828/>

In 1980, the [[United States District Court for the District of Columbia]] recognized a 14-part test in determining whether a religious organization is considered a church for the purposes of the Internal Revenue Code:
{{numbered list | A distinct legal entity; | A recognized creed and form of worship; | A definite and distinct ecclesiastical government; | A formal code of doctrine and discipline; | A distinct religious history; | A membership not associated with any other church or denomination; | A complete organization of ordained ministers ministering to their congregations; | Ordained ministers selected after completed prescribed courses of study; | Literature of its own; | Established places of worship; | Regular congregations; | Regular religious services; | Sunday schools for the religious instruction of the young; | Schools for the preparation of its ministers.}}

Having an established congregation served by an organized ministry is of central importance.<ref name="sos">"[https://law.justia.com/cases/federal/appellate-courts/F2/927/335/109709/ Spiritual Outreach Society v. Commissioner]". 927 F.2d 335 (8th Cir. 1991).</ref> Points 4, 6, 8, 11, 12, and 13 are also especially important. Nevertheless, the 14-point list is a guideline; it is not intended to be all-encompassing, and other facts and circumstances may be relevant factors.<ref name=sos/> 

Although there is no definitive definition of a church for Internal Revenue Code purposes, in 1986 the [[United States Tax Court]] said that "A church is a coherent group of individuals and families that join together to accomplish the religious purposes of mutually held beliefs. In other words, a church's principal means of accomplishing its religious purposes must be to assemble regularly a group of individuals related by common worship and faith."<ref>"[https://www.casemine.com/judgement/us/5914c251add7b049347bef00 Church of Eternal Life and Liberty, Inc. v. Commissioner of Internal Revenue]". 86 T.C. 916, 924 (1986).</ref><ref name="definingchurch">Louthian, Robert; Miller, Thomas (1994). "[https://www.irs.gov/pub/irs-tege/eotopica94.pdf Defining "Church" - The Concept of a Congregation]". ''Exempt Organization Continuing Professional Education Text''. Internal Revenue Service. 1994.</ref> The United States Tax Court has stated that, while a church can certainly broadcast its religious services by radio, radio broadcasts themselves do not constitute a congregation unless there is a group of people physically attending those religious services.<ref>"[https://caselaw.findlaw.com/us-federal-circuit/1535251.html Foundation of Human Understanding v. Commissioner of Internal Revenue]". 88 T.C. 1341 (1987).</ref> A church can conduct worship services in various specific locations rather than in one official location.<ref name="plr200530028">"[https://www.irs.gov/pub/irs-wd/0530028.pdf Private Letter Ruling 200530028]". ''Internal Revenue Service''. May 3, 2005.</ref> A church may have a significant number of people associate themselves with the church on a regular basis, even if the church does not have a traditional established list of individual members.<ref name= plr200530028/>

In order to qualify as a tax-exempt church, church activities must be a significant part of the organization's operations.<ref>{{Cite web |last=U.S. District Court for the Northern District of California |date=July 24, 1961 |title=De La Salle Institute v. United States, 195 F. Supp. 891 (N.D. Cal. 1961) |url=https://law.justia.com/cases/federal/district-courts/FSupp/195/891/1524529/ |url-status=live |archive-url=https://web.archive.org/web/20240126054332/https://law.justia.com/cases/federal/district-courts/FSupp/195/891/1524529/ |archive-date=Jan 26, 2024 |website=Justia}}</ref><ref>{{cite web |url=https://www.irs.gov/pub/irs-wd/0912039.pdf |title=200912039 |website=Internal Revenue Service |date=December 22, 2008 |first1=Robert |last1=Choi |url-status=live |archive-url=https://web.archive.org/web/20231216142246/https://www.irs.gov/pub/irs-wd/0912039.pdf |archive-date= Dec 16, 2023 }}</ref>

An organization whose operations include a substantial nonexempt commercial purposes, such as operating restaurants and grocery stores in a manner consistent with a particular religion's religious beliefs does not qualify as a tax-exempt church.<ref>{{Cite web |last=United States Court of Appeals, Seventh Circuit |date=1991 |title=950 F2d 365 Living Faith Inc v. Commissioner of Internal Revenue |url=https://openjurist.org/950/f2d/365/living-faith-inc-v-commissioner-of-internal-revenue |url-status=live |archive-url=https://web.archive.org/web/20230604070018/https://openjurist.org/950/f2d/365/living-faith-inc-v-commissioner-of-internal-revenue |archive-date=Jun 4, 2023 |website=OpenJurist}}</ref>

==Political campaign activities==
Organizations described in section 501(c)(3) are prohibited from conducting [[political campaign]] activities to intervene in [[election]]s to public office.<ref name="IRS-501c3">{{cite web|url=https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exempt-organizations |title=The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations |date=4 Dec 2023  |website=[[Internal Revenue Service]] |url-status=live |archive-url= https://web.archive.org/web/20240221024143/https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exempt-organizations |archive-date= Feb 21, 2024 }}</ref> The Internal Revenue Service website elaborates on this prohibition:<ref name="IRS-501c3" />

{{Blockquote|text=Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity.  Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

Certain activities or expenditures may not be prohibited depending on the facts and circumstances.  For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.

On the other hand, voter education or registration activities with evidence of bias that (a) favor one candidate over another, (b) oppose a candidate in some manner, or (c) favor a candidate or group of candidates, constitute prohibited participation or intervention.}}

===Constitutionality===
Since section 501(c)(3)'s political-activity prohibition was enacted, "commentators and litigants have challenged the provision on numerous constitutional grounds", such as [[Freedom of speech in the United States|freedom of speech]], [[Vagueness doctrine|vagueness]], and [[Equal Protection Clause|equal protection]] and selective prosecution.<ref name="Klapach">{{cite journal |first1=Joseph S. |last1=Klapach |url=http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2751&context=clr |title=Thou Shalt Not Politic: A Principled Approach to Section 501 (C)(3)'s Prohibition of Political Campaign Activity |volume=84 |journal=[[Cornell Law Review|Cornell L. Rev.]] |page=504 |date=Jan 1999 |issue=2 |url-status=live |archive-url=https://web.archive.org/web/20240222025902/https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?referer=https://en.wikipedia.org/&httpsredir=1&article=2751&context=clr |archive-date= Feb 22, 2024 }}</ref> Historically, [[Supreme Court of the United States|Supreme Court]] decisions, such as ''[[Regan v. Taxation with Representation of Washington]]'', suggested that the Court, if it were to squarely examine the political-activity prohibition of § 501(c)(3), would uphold it against a constitutional challenge.<ref name="Klapach"/> However, some have suggested that a successful challenge to the political activities prohibition of Section 501(c)(3) might be more plausible in light of ''[[Citizens United v. FEC]]''.<ref>Lepow, Hannah (2014). "[http://heinonline.org/HOL/Page?handle=hein.journals/colb2014&div=22&g_sent=1&collection=journals Speaking Up: The Challenges to Section 501(c)(3)'s Political Activities Prohibition in a Post-Citizens United World]". ''[[Columbia Business Law Review|Colum. Bus. L. Rev.]]'' 817.</ref>

==Lobbying==
{{Main|501(h) election}}
In contrast to the prohibition on political campaign interventions by all section 501(c)(3) organizations, public charities (but not private foundations) may conduct a limited amount of [[lobbying]] to influence legislation. Although the law states that "no substantial part" of a public charity's activities can go to lobbying, charities with large budgets may lawfully expend a million dollars (under the "expenditure" test) or more (under the "substantial part" test) per year on lobbying.<ref>{{cite web|url=https://www.irs.gov/charities/charitable/article/0,,id=120703,00.html |title=Political and Lobbying Activities |publisher=IRS |date=January 6, 2009 |archive-url=https://web.archive.org/web/20090507002752/https://www.irs.gov/charities/charitable/article/0%2C%2Cid%3D120703%2C00.html |archive-date=May 7, 2009 |url-status=dead |access-date=June 3, 2014 }}</ref>

The Internal Revenue Service has never defined the term "substantial part" with respect to lobbying.<ref name="lobbyinglaw">{{cite news|url=https://www.washingtonpost.com/archive/opinions/2003/11/30/the-lobbying-law-is-more-charitable-than-they-think/d0c3660d-6e51-48c4-b3f9-7403a4dac98b/|title=The Lobbying Law Is More Charitable Than They Think|last=Berry|first=Jeffrey M.|date=November 30, 2003|newspaper=The Washington Post|page=B1 |url-status=live |archive-url=https://web.archive.org/web/20200309194537/https://www.washingtonpost.com/archive/opinions/2003/11/30/the-lobbying-law-is-more-charitable-than-they-think/d0c3660d-6e51-48c4-b3f9-7403a4dac98b/ |archive-date= Mar 9, 2020 }}</ref>

To establish a [[safe harbor (law)|safe harbor]] for the "substantial part" test, the [[United States Congress]] enacted §501(h), called the Conable election after its author, [[U.S. House of Representatives|Representative]] [[Barber Conable]]. The section establishes limits based on operating budget that a charity can use to determine if it meets the substantial test. This changes the prohibition against direct intervention in partisan contests only for lobbying. The organization is now presumed in compliance with the substantiality test if they work within the limits. The Conable election requires a charity to file a declaration with the IRS and file a functional distribution of funds spreadsheet with their Form 990. IRS form 5768 is required to make the Conable election.<ref>{{cite web|url=https://www.irs.gov/pub/irs-pdf/f5768.pdf|title= Form 5768: Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To Make Expenditures To Influence Legislation (Under Section 501(h) of the Internal Revenue Code) |work= Internal Revenue Service |url-status=live |archive-url=https://web.archive.org/web/20240118025041/https://www.irs.gov/pub/irs-pdf/f5768.pdf |archive-date= Jan 18, 2024 }}</ref>

==Foreign activities==
A 501(c)(3) organization is allowed to conduct some or all of its charitable activities outside the United States.<ref name="71-460">"[https://www.irs.gov/pub/irs-tege/rr71-460.pdf Rev. Rul. 71–460, 1971–2 C.B. 231]". ''Internal Revenue Service''. 1971.</ref><ref name="1983eo-o">"[https://www.irs.gov/pub/irs-tege/eotopico83.pdf Domestic Organizations with Foreign Operations]". ''Exempt Organization Continuing Professional Education Text''. Internal Revenue Service. 1983.</ref> A 501(c)(3) organization is allowed to award grants to foreign charitable organizations if the grants are intended for charitable purposes and the grant funds are subject to the 501(c)(3) organization's control.<ref name="63-252">"[http://www.bradfordtaxinstitute.com/Endnotes/Rev_Rul_63-252.pdf Rev. Rul. 63–252, 1963–2 C.B. 101]". ''Internal Revenue Service'' via Bradford Tax Institute. 1963.</ref> Additional procedures are required of 501(c)(3) organizations that are [[Private foundation (United States)|private foundation]]s.<ref name= 1983eo-o/><ref>"[https://www.irs.gov/pub/irs-wd/0504031.pdf Memorandum 200504031]". ''Internal Revenue Service''. January 28, 2005.</ref>

===Allowance of tax-deduction by donors===
Donors' contributions to a 501(c)(3) organization are tax-deductible only if the contribution is for the use of the 501(c)(3) organization, and that the 501(c)(3) organization is not merely serving as an agent or conduit of a foreign charitable organization.<ref name= 63-252/> The 501(c)(3) organization's management should review the grant application from the foreign organization, decide whether to award the grant based on the intended use of the funds, and require continuous oversight based on the use of funds.<ref name= 63-252/>

If the donor imposes a restriction or earmark that the contribution must be used for foreign activities, then the contribution is deemed to be for the foreign organization rather than the 501(c)(3) organization, and the contribution is not tax-deductible.<ref name= 63-252/>

The purpose of the grant to the foreign organization cannot include endorsing or opposing political candidates for elected office in any country.<ref name= 63-252/>

===Foreign subsidiaries===
If a 501(c)(3) organization sets up and controls a foreign subsidiary to facilitate charitable work in a foreign country, then donors' contributions to the 501(c)(3) organization are tax-deductible even if intended to fund the foreign charitable activities.<ref name= 63-252/><ref>"[https://www.irs.gov/pub/irs-wd/201438032.pdf Public Letter Ruling 201438032]". ''Internal Revenue Service''. September 19, 2014.</ref>

If a foreign organization sets up a 501(c)(3) organization for the sole purpose of raising funds for the foreign organization, and the 501(c)(3) organization sends substantially all contributions to the foreign organization, then donors' contributions to the 501(c)(3) organization are not tax-deductible to the donors.<ref name= 63-252/>

== Differences between 501(c)(3) and 501(c)(4) ==
The main differences between 501(c)(3) and [[501(c)(4)]] organizations lie in their purposes and the tax-exempt benefits they receive. Here is a brief explanation of the differences:<ref>{{Cite web |title=501(c)(3) vs 501(c)(4): Differences, Pros & Cons – Forbes Advisor |url=https://www.forbes.com/advisor/business/501c3-vs-501c4/ |access-date=2023-06-08 |website=www.forbes.com}}</ref>
{| class="wikitable"
|+
!
!501(c)(3)
!501(c)(4)
|-
! Purpose
|501(c)(3) organizations are commonly referred to as charitable organizations. Their primary purpose is to serve the public interest by engaging in activities such as religious, educational, scientific, or charitable work. They must operate exclusively for exempt purposes, and any earnings must be used to further their mission.
|On the other hand, 501(c)(4) organizations are known as social welfare organizations. Their main purpose is to promote the common good and the general welfare of a community. While they can engage in some charitable activities, they have more flexibility to pursue a broader range of activities, including advocacy, lobbying, and political activities that promote social welfare.
|-
! Tax deductibility of donations
|Donations made to 501(c)(3) organizations are typically tax-deductible for the donors, meaning individuals and businesses can claim those donations as deductions on their tax returns, subject to certain limitations. This tax benefit encourages charitable giving.
|In contrast, donations made to 501(c)(4) organizations are not generally tax-deductible. This means individuals and businesses cannot claim deductions for donations to these organizations, as their activities are often focused on social welfare and may involve more political or lobbying efforts.
|-
! Political activity
|501(c)(3) organizations are subject to strict limitations on their involvement in political campaigns or activities. They are generally prohibited from engaging in any partisan political activity or endorsing or opposing specific candidates for public office. However, they can engage in limited non-partisan educational and advocacy activities related to specific issues.
|501(c)(4) organizations have more leeway in engaging in political activities. They can participate in lobbying efforts and engage in a certain amount of political campaign activities, as long as those activities are not their primary focus.
|-
! Financial reporting
|There are differences in financial reporting requirements between 501(c)(3) and 501(c)(4) organizations. 501(c)(3) organizations must provide detailed financial information through the IRS Form 990, which is publicly available. This transparency helps maintain accountability and trust in the nonprofit sector.
|501(c)(4) organizations also file Form 990, but they have more flexibility in reporting certain financial information. While they must still disclose some financial details, they have more options to protect the privacy of their donors.
|}

== References ==
{{Reflist}}

== External links ==
* [https://www.irs.gov/charities-non-profits/tax-exempt-organization-search Tax Exempt Organization Search]. ''Internal Revenue Service''.
* {{URL|https://www.irs.gov/forms-pubs/about-form-8940|IRS Form 8940: Request for Miscellaneous Determination}}

== Examples ==

* [[Khan Academy]] (https://www.khanacademy.org/)
{{Authority control}}

[[Category:501(c)(3) organizations| ]]
[[Category:Internal Revenue Code|0501c]]
[[Category:Non-profit organizations based in the United States]]
[[Category:Taxation in the United States]]
[[Category:Charity law]]