Let’s talk about what a 501c3 nonprofit organization is and how it can benefit you. A 501c3 nonprofit is a particular type of nonprofit governed by Section 501c3 of the Internal Revenue Code, and the I.R.S. approves as a charitable organization.

The most important thing to know is that Section 501c3 of the Internal Revenue Code shares very clear guidelines that a nonprofit must follow. By achieving this, the I.R.S. can approve your nonprofit as a “tax-exempt” charitable organization. 

Once approved by the I.R.S., the nonprofit no longer has to pay state or federal taxes on any donations received. Nonprofits that have achieved 501c3 tax-exempt status must follow a list of guidelines. These rules are designed to ensure that the nonprofit is for a charitable, educational, scientific, or religious purpose as defined by the I.R.S. Code. 

We will discuss more of those rules later.

But for now, you just need to know that 501c3 nonprofits are nonprofit organizations that do not have to pay federal or state taxes on the donations they receive when operating in compliance with Section 501c3 of the I.R.S. Code.

Do you qualify to be a 501c3 tax-exempt nonprofit?

Now that we understand what a 501c3 nonprofit organization is, let’s talk about becoming one. In other words, let’s know if the nonprofit you want to start qualifies to become a 501c3 nonprofit organization. 

Section 501c3 of the Internal Revenue Code is the section that lays out the criteria for nonprofits to become tax-exempt under this section of the Code. 

In this section of the I.R.S. code, a 501c3 nonprofit is “organized and operated exclusively for exempt purposes.”

This means that the only purpose of your organization should be a religious, educational, charitable, scientific, or literary sense.

There are other types of tax-exempt organizations, but many of them fall under other sections of the I.R.S. code. For example, there is a different section for civic leagues or real estate title companies.

Fraternal societies, as well as insurance associations, also have their sections of the Code. So, the first thing you want to do is make sure that you fall under Section 501c3.

Diving into all of the different types of nonprofits qualifying for 501c3 status is a bit beyond the scope of this book. However, you can visit the I.R.S. website for a complete listing of 501c3 criteria and qualifying organizations.

My law firm gives this evaluation for free to let you know upfront if your proposed nonprofit will be eligible.