What is a 501(c)(3) designation mean?
The 501(c)(3) of the Internal Revenue Code section grants an organization as "tax-exempt" but the IRS specifies that "the 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."
Furthermore, the IRS states that "the Organization 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".
The term "tax-exempt," when used in reference to nonprofit organizations, generally refers to the net income or profits of an organization being exempt from federal and/or state income tax.
A nonprofit organization can be established by incorporating but this does not result in an automatic tax-exempt status upon creation with the state. The Tax-exemption status can only be achieved by applying for and receiving Internal Revenue Service (IRS) approval.
Last edited by TaxGuru : 01-03-2008 at 07:55 PM.