501(c): What is it?

501(c) is a section of the federal regulations which list the type of companies that can be exempt from paying taxes according to the Internal Revenue Service (IRS). These types of companies are referred to as 501(c)s.

Types of 501(c)s

There are 27 types of organizations that can file for 501(c) status. Many of these are not applicable to the average business. The organizations seeking tax exemptions are usually:

  • 501(c)(3) Public Charities and Private Foundations

  • 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 Recreation Clubs

  • 501(c)(19) Post or Organization of Past or Present Members of the Armed Forces

  • 501(c)(20) Group Legal Services Plan Organizations

Most Common: 501(c)(3)

The 501(c)(3) is the most common of the exempt groups, with over 1.5 million in the US today. To obtain exemption under 501(c)(3), an organization must serve an exempt purpose, such as:

  • Religious

  • Educational

  • Health (Hospitals)

  • Scientific

  • Foundation (Supports other organizations)

  • Charitable

  • And others

A significant benefit of this status is that donors can write off their contribution to your organization on their personal taxes. This encourages donations and helps grow the charity.

How to Apply for 501(c)(3) Status

There are different applications forms depending on the type of exemption you are seeking. These forms are lengthy, complicated, and raise many concerns that don’t necessarily meet the eye. When applying for 501(c)(3) status typically requires completion of the following:

  • Form 1023 and all related schedules (Application for Recognition of Exemption);

  • Form 2848 (Power of Attorney and Declaration of Representative);

  • Form 8821 (Tax Information Authorization);

  • Articles of organization with special provisions required by the IRS, and any amendments;

  • Bylaws with special provisions required by the IRS, and any amendments;

  • Documentation of nondiscriminatory policy for schools, as required by Schedule B;

  • Any other attachments, including explanations, financial data, and printed materials;

  • EIN; and

  • Application fee, which is either $850 or $400 (depending on the charity's gross receipts).  

You’ve Filed For Exemption - Now What?

After submitting a complete application, you will be notified if more information is required to support your request. If successful, you will receive a notice of the “Effective Date of Exemption.” Typically, the application process takes around 6 months. As a note, it is very common for 501(c)(3)s to receive exemption retroactively from the date of formation; as such, an organization can begin operations and receive donations while its application is pending, but nothing guarantees that the exempt status will be granted.

Accelerated Applications

Due to the high demand for 501(c)3 exemptions, the 1023-EZ form was created to ease the documentation burden for most charities. Unlike the other applications, this one must be filed online and there is a $400 user fee.