What is a 501(c)3?
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Q:

What is a 501(c)3?

A:

Quick Answer

The term "501(c)3" refers to the most common type of nonprofit organization recognized by the IRS. According to About.com, this category embraces such diverse entities as old-age homes, charity hospitals, schools, churches and the Red Cross, among others. These organizations are exempt from taxation, and donations to them are generally tax deductible.

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Full Answer

Groups organized under the 501(c)3 designation operate in the public interest and promote charitable, religious, educational and literary objectives. Sometimes they organize sporting events or testing for public safety. Community groups, such as boys' and girls' clubs, are typically registered as 501(c)3s, as reported by About.com.

The IRS has strict rules governing the organizing and subsequent conduct of 501(c)3 groups. According to its official information page, the IRS expects 501(c)3 entities to be organized and operated exclusively for recognized exempt purposes. Such groups may raise funds and receive grants, but excess net funds must not be allowed to inure to the advantage of any private interest or individual. If an individual having substantial influence over a 501(c)3 entity engages in an "excess-benefit transaction" by, for example, leasing the charity's land for private purposes at a steep discount, the IRS might impose an excise tax to ensure the integrity of institution.

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Related Questions

  • Q:

    What is a 501(c)(3) organization according to the Internal Revenue Service?

    A:

    A 501(c)(3) organization is an entity which can sufficiently demonstrate that its sole purpose is to carry out a charitable (exempt) purpose, according to the Internal Revenue Service. The entity must follow particular guidelines relating to its organizational structure and operations to meet this standard.

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  • Q:

    What is a "Tax Gross Up?"?

    A:

    The term "Tax Gross Up" refers to the practice by employers of reimbursing an employee for taxes paid out of pocket when receiving money allocated for expenses such as relocation costs. For example, if an employee is promised a lump sum of $7,000 to move, then a payment will be issued for the initial sum plus the taxes levied by the IRS, honoring the agreed upon sum, as stated by Investopedia. While this practice is solid in theory, it still leaves a problem as in addition to the tax applied to the original sum, the gross up itself is subject to taxes.

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  • Q:

    Where can you find information on how to properly fill out a W-3 form?

    A:

    The Internal Revenue Service, or IRS, website has detailed instructions for filling out and filing the W-3 form, which is also called the Transmittal of Wage and Tax Statements form. The IRS site provides information on performing calculations, checking for errors and avoiding penalties. The Intuit website, which is known for its QuickBooks tax software, also offers help filling out the form.

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  • Q:

    How do you obtain the forms to file for 501(c)(3) tax-exempt status?

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    The forms to file for 501(c)(3) tax-exempt status are available at IRS.gov, states the Internal Revenue Service. Applicants complete Form 1023, Application for Recognition of Exemption Under Section 501 of the Internal Revenue Code, or a simplified application, Form 1023-EZ. Interactive and accessible versions of Form 1023 are also available.

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