What is a 501 (c) Organization?
Julianne Shenk
JBS Nonprofit Consulting
15 June 2015
The first question I am asked in a consultation is, “I want to start a charity, how do I start
one?” It is immediately followed up by
(usually before I can answer the first question) “How can I get a tax number,
because I don’t want to pay taxes?”
My answer:
1.
Why do you want to start a charity?
2.
What is the cause you are supporting?
3.
Who are you trying to help/reach with your
charity?
4.
Do you know what a 501 (c) is?
5.
Are you doing this for intrinsic motivation? Or
tax free status?
I will guide you…right up to you telling me you want a tax
number to get out of paying taxes. Then…I shut you down.
I have dedicated more years than not to establishing, volunteering,
fundraising, marketing, representing, and directing nonprofit organizations. I
am passionate about weeding out the frauds in the charity world.
From here on out, we will limit the use of the word
“charity”. A nonprofit organization, or 501 (c), is the terminology we will use
going forward. It is these two terms that the IRS uses and recognizes.
In simpler terms, a nonprofit organization must put any
profit “after paying the bills” back into the organization’s coffers/reserves.[1] A
nonprofit has no owners. Its sole purpose is to help/foster/support others, not
to enrich those that run it.[2]
A 501(c) organization is
a tax-exempt nonprofit organization. Section 501(c) of the United States Internal Revenue Code (26 U.S.C. § 501(c)) provides that 29 types of nonprofit
organizations are exempt from selected federal income taxes. (http://www.irs.gov/Charities-&-Non-Profits/Types-of-Tax-Exempt-Organizations-)
501(c) organizations can receive unlimited contributions from individuals,
corporations, and unions.[3]
The
most common type of tax-exempt nonprofit organization is the 501(c)(3). This
category of nonprofit organization is exempt from federal income tax if its
activities meet/support the following purposes: charitable, religious,
educational, scientific, literary, testing for public safety, fostering amateur
sports competition, or preventing cruelty to children or animals.
Per IRS Publication 557 (Organization Reference Chart section):
The following is a list of the 29 types of 501(c) organizations and their
corresponding descriptions.
·
501(c)(1) — Corporations Organized
Under Act of Congress (including Federal Credit Unions)
·
501(c)(2) — Title Holding Corporation
for Exempt Organization
·
501(c)(3) —
Religious, Educational, Charitable, Scientific, Literary, Testing for Public
Safety, to Foster National or International Amateur Sports Competition, or
Prevention of Cruelty to Children or Animals Organizations
·
501(c)(4) —
Civic Leagues, Social Welfare Organizations, and Local Associations of
Employees
·
501(c)(5) —
Labor, Agricultural and Horticultural Organizations
·
501(c)(6) —
Business Leagues, Chambers of Commerce, Real Estate Boards, etc.
·
501(c)(7) — Social and Recreational
Clubs
·
501(c)(8) — Fraternal
Beneficiary Societies and Associations
·
501(c)(9) — Voluntary Employee Beneficiary
Associations
·
501(c)(10) — Domestic Fraternal
Societies and Associations
·
501(c)(11) — Teachers' Retirement Fund
Associations
·
501(c)(12) — Benevolent Life Insurance
Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies,
etc.
·
501(c)(13) — Cemetery Companies
·
501(c)(14) — State-Chartered Credit Unions,
Mutual Reserve Funds
·
501(c)(15) — Mutual Insurance Companies
or Associations
·
501(c)(16) — Cooperative Organizations
to Finance Crop Operations
·
501(c)(17) — Supplemental Unemployment
Benefit Trusts
·
501(c)(18) — Employee Funded Pension
Trust (created before June 25, 1959)
·
501(c)(19) — Post or Organization of
Past or Present Members of the Armed Forces
·
501(c)(20) — Group Legal Services Plan
Organizations
·
501(c)(21) — Black Lung Benefit Trusts
·
501(c)(22) — Withdrawal Liability
Payment Fund
·
501(c)(23) — Veterans Organization
(created before 1880)
·
501(c)(24) — Section 4049 ERISA Trusts
·
501(c)(25) — Title Holding Corporations
or Trusts with Multiple Parents
·
501(c)(26) — State-Sponsored
Organization Providing Health Coverage for High-Risk Individuals
·
501(c)(27) — State-Sponsored Workers'
Compensation Reinsurance Organization
·
501(c)(28) — National Railroad
Retirement Investment Trust
·
501(c)(29) — Qualified Nonprofit Health
Insurance Issuers (Recently created in section 1322(h)(1) of the Affordable Care Act)
You want to help people, I applaud that. I will support you
100%. Learning and recognizing if your planned venture is or is not a 501 (c)
is the first step. We can get you the answers and start the journey towards
philanthropy.
I will dive deeper into different types/categories of
nonprofits in upcoming blogs. Check back often or shoot me an email with a
topic that you are interested in.
[1]
Hutton, Stan and Frances Phillips. Nonprofit
Kit for Dummies. Indiana: Wiley Publishing, INC, 2010.
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