A nonprofit designation and tax-exempt status are given only to organizations that further religious, scientific, charitable, educational, literary, health, or other beneficial causes. Examples of nonprofit organizations include hospitals, universities, charities, churches, and foundations. The IRS has issued a long list of the types of nonprofit organizations that can qualify for 501(c) status. Common examples include charitable organizations, churches and religious organizations, social advocacy groups, and trade organizations.

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Other examples include some alumni associations, childrens’ sports leagues, and even nonprofit daycares. Religious nonprofits that do not qualify as a church or church-related entity are not exempt from Form 990. Nonprofits that don’t follow the rules for 501(c)(3) status may receive accounting services for nonprofit organizations fines, penalties, and loss of tax-exempt status.

Forms & Instructions

The IRS has also recognized 501(c)(3) exemption for organizations that promote health or protect and promote the preservation of the environment. The IRS offers an exempt organization database that allows you to check an organization’s status. Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. With all this in mind, new and future nonprofit leaders may wonder which status fits their organization.

What are the categories for nonprofits?

Failure to continuously meet all of the requirements for a 501(c)(3) can result in a costly loss of that designation. Even if you are still meeting the broad requirements, your organization can lose its status if it changes its focus and starts supporting a cause or community not included in its original mission statement. Changes like this require you to file a Form 5768 with the IRS to maintain tax-exempt status. Some religious communities are tax exempt if they share a common or community treasury. To fund the community treasury, the community or association must engage in a business for the common benefit of its members. To qualify for this status, the organization must document itself as a religious organization with members belonging to a church or church group.

Partisan organizations

Next, compare the differences between the two nonprofit types against your mission and activities list. As you do, narrow down which nonprofit status best accommodates your organization’s actionable mission. Because they are using their income to further a cause, the U.S. tax code allows many nonprofits to be tax-exempt. Many nonprofits post their completed 990 forms on their websites so that https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ donors, stakeholders, and members of the public can review the organization’s financial information and assess its operations and impact.

• To receive a tax exemption, an organization must request 501(c)(3) status from the IRS.
• Links to helpful information about points of intersection between business leagues and the IRS, including access to explanatory information and forms that an organization may need to file with the IRS.
• Organizations engaging with literary and educational endeavors and prevention of cruelty to animals and children are also included.
• And, given that the examples they provide are so few, it can often be challenging for someone looking to start a new nonprofit to determine exactly where their idea fits in the list of purposes.
• Section 501(c)(3) includes both public charities and private foundation.

Strengths and Challenges of 501(c)( Organizations

The IRS outlines a broad range of activities that meet this threshold—but simply “doing good work” isn’t enough. Your nonprofit must demonstrate that it exists to benefit the general public, not just specific individuals, interest groups, or board members. The IRS provides tax incentives to other types of nonprofit organizations under different sections of the tax code. Political organizations, social welfare organizations, civic leagues, social clubs, and labor organizations may qualify for tax incentives—but not under section 501(c)(3).

Purely recreational sports, such as church softball leagues, are usually tagged as 501(c)(7) social or recreational groups…tax-exempt, but not charitable. Also, youth-only sports groups, such as Little League baseball, can qualify for 501(c)(3) status, but they are considered educational. Further still, professional athletic competition is a commercial activity, not a nonprofit one. To qualify as a 501(c)(3) under this purpose, the nonprofit should have as a primary activity testing finished products, ingredients, or other components specifically for the safe use by the general public. There is a common misconception that organizations which provide for public safety are what fits in this category. We often encounter people who think the purpose category is promoting public safety, when in actuality it is testing for public safety.

• It’s best to outline the responsibilities and obligations of both parties in a written agreement between the fiscal sponsor and the sponsored organization.
• Once you’ve decided which type of nonprofit you want to establish, you’ll need to apply for tax-exempt status with the IRS.
• These organizations typically operate exclusively for religious, charitable, scientific, literary, or educational purposes.
• A private foundation is typically held by an individual, a family, or a corporation.
• Some tax-exempt statuses put restrictions on the types or locations of beneficiaries the nonprofit can serve.

How to Apply for 501c3 Status

Even though church groups are not required to formalize their 501(c)(3) status, they must adhere to all the same requirements as other nonprofit organizations. While 501(c)(3) organizations benefit from donations, individuals who make donations also benefit from donating to nonprofits in the way of tax donations. That’s a great incentive for people and businesses to lower their taxable income while supporting their favorite charities. To receive the status from the IRS, qualified charitable organizations must meet requirements under section 501(c)(3) of the IRC.