When an organization is referred to as exempt from income tax by the Internal Revenue Service, it is typically assumed that the organization is a 501(c)(3) charitable organization. Organizations that are exempt pursuant to Section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. Some examples of charitable organizations are those organizations that provide relief to the poor, distressed or underprivileged; defend human and civil rights; and seek to combat community deterioration or juvenile delinquency.
While many organizations do fall under the requirements of Internal Revenue Code (“IRC”) section 501(c)(3), there are twenty-eight additional subsections of section 501(c) describing other types of organizations and entities that are tax exempt. For example, Section 501(c)(4) exempts qualifying social welfare organizations, which are operated primarily to further the common good and general welfare of the community. Certain agricultural/horticultural organizations and labor organizations are exempt pursuant to section 501(c)(5). Also, many business leagues and trade organizations are exempt under section 501(c)(6).
Entities organized pursuant to section 501(c)(3) have a limited ability to attempt to influence legislation through lobbying activities and may not contribute or participate, directly or indirectly, in any political campaigns. However, the other 501(c) organizations mentioned above may engage in unlimited lobbying that it is germane to the organization’s exempt purpose and may contribute or participate in political campaigns, provided such contribution or participation is not the primary activity of the organization.
In order to be exempt, all organizations established pursuant to section 501(c)(3) through 501(c)(6) must be organized as a non-profit. Furthermore, no earnings of the exempt organization may inure to the benefit of any private shareholder or individual. Engaging in activities that do not fall within the scope of section 501(c) could result in a loss of the exemption or a tax on the unrelated business income from such activity. A qualifying organization can obtain exempt status by filing an application with the IRS and supplying the relevant documentation and information required.
If you would like assistance with forming your 501(c) organization or applying to the IRS for exempt status, please contact me to set up an appointment in my firm’s Lawrenceville, New Jersey office.