What is a 501c3? An501c3, or tax-exempt, organization, is defined as any group that is not a nonprofit. An organization can be a religious organization such as a church, but it can also be non-profit groups such as a business. Nonprofit organizations are those that are registered with the Internal Revenue Service and are allowed to operate with tax-deductible contributions. In order for an organization to be considered a tax-exempt organization, it must meet certain requirements for tax exemption, which include meeting the basic definition of an exempt organization.Checkout How To Start A 501c3 for more info.
Although nonprofit organizations enjoy many tax advantages, some states do not allow them to operate. Many states are very strict when it comes to operating non-profits. Nonprofits have been found to be more vulnerable to fraud, less transparent in their financials, and to lack the accountability to their members as a result of being nonprofit. A tax-exempt organization may be required to make donations to organizations that are not part of the foundation or to provide funds to groups that are in violation of IRS rules or are not allowed to qualify for tax-free status due to their activities. In addition, non-profit organizations that are not operated for profit are not required to disclose their finances, including their profit margin, to the general public and are not obligated to maintain a separate legal identity from their members.
The IRS has taken an aggressive approach to regulating nonprofit organizations. In order to be exempt, a group must first meet several tests to determine if the group is engaged in an activity that is primarily intended to benefit a charitable or religious cause. If an organization meets all the requirements, it is then qualified to apply for tax-exempt status. To become tax exempt, an organization must be operated primarily for exempt purposes. Although they are not prohibited from engaging in conduct that may not be deemed charitable or religious, nonprofit organizations must make donations to other, non-exempt sources. They must also ensure that all contributions they receive are given to the specific groups they were intended to benefit. Once the necessary requirements are met, the organization is considered a tax-exempt organization.