A Short Primer on 501(c)(3) Chapter 1
I’m not a lawyer or a tax accountant, but you can get plenty of easily understandable information from the IRS at the irs.gov website on the ins and outs of charitable organizations. I stumbled across most of this while researching what it took to get an organization categorized as “tax-exempt”.
Per the IRS
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.
It’s very easy to be called a “non-profit” ( GM has been doing that for years). But the real trick is to get a tax status known as 501(c)(3). If you have this status, then people, and foundations, can give you tax deductible donations. But, with this benefit comes a few strings. The IRS has very detailed rules and regulations that control how a 501(c)(3) must operate. A lot of it has to do with financial reporting and filings. I won’t get into any of that. What I’m going to describe is the rule that bans a 501(c)(3) organization from any “political activity”.
As defined by the IRS HERE
Political activity. If any of the activities (whether or not substantial) of your organization consists of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). Such participation or intervention includes the publishing or distributing of statements.
Although, this seems clear cut, as with most legal language or tax law, it certainly is open for interpretation, and abuse. To clear up any misunderstandings, and to reduce abuse, the IRS has come up with a number of publications that offer guidance. This guidance comes in the form of more detailed explanations along with hypothetical situations. In the next Chapter, I’ll discuss the rules further. In Chapter 3, I’ll describe some of these situations. In Chapter 4, I’ll give you some “non” hypothetical situations that I’ve harvested from some of our local 501(c)(3) organizations.