What Is a 501c3 Organization?
Qualifying as a church has the added benefit of not having to file an annual Form 990. Churches, as well as church associations and integrated auxiliaries, are exempt from filing Form 990. As such, qualifying as a church requires a stricter standard than other religious purposes. In addition to the two standards above, the IRS requires definition of 501c3 church applicants to demonstrate that there exists a current membership or attendee group that meets at a regular place of worship at a regular publicized time. We have had a number of clients over the years wanting to start “online churches”, only to find out that the IRS hasn’t quite caught up with our cyber culture.
Your organization should have a specific purpose that benefits the public. After you determine your purpose, write a mission statement and establish bylaws. These should outline the classification of the organization, as well as additional context that covers aspirations and growth goals.
Private Foundation
Churches, religious schools, and other religious organizations are eligible for 501(c)(3) status. This includes all denominations and religious affiliations including churches, synagogues, mosques, and temples. Joanne Fritz is the expert on nonprofit organizations and philanthropy for The Balance.
For organizations that also get funds from sales of goods or services (this is called program revenue), such revenue counts toward the public support test also. An organization with a 501(c)(3) status starts out as a nonprofit corporation and then becomes a charity that is exempt from federal taxes. It is not subject to income and sales taxes and lets its donors write off their contributions.
Restrictions on Activities
Private foundation status is ideal for those organizations that specifically need that structure. For charities that find themselves downgraded, however, the consequences include having to file Form 990-PF each year, regardless of income, plus the addition of excise taxes not charged to public charities. Even worse, the organization cannot regain public charity status for at least 5 forward years. When an organization is granted 501(c)(3) status, it can claim tax exemption for charitable donations, apply for public and private grants and avoid financial liability for directors and staff. A 501(c)(3) organization must meet several additional requirements to receive the benefits of tax exemption, including being operated solely for exempt purposes. The organization can’t be operated for the benefit of any private interest; its net earnings can’t benefit any private shareholder or individual.
Public support must be broad rather than limited to just a few individuals or families. 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. Individuals who donate to an organization that the IRS considers to be a public charity may qualify for certain tax deductions that can help them lower their taxable income. Some unrelated business income is allowed for a 501(c)(3) organization but the tax-exempt charity may not receive substantial income from unrelated business operations.
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