History

The House Committee on Ways and Means created the Revenue Act of 1938. The Committee said: "The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare."

Types

Organizations qualifying for 501(c)(3) include religious, charitable and professional associations, and groups with common interests, such as environmental and sports. Donors can deduct their contributions from their income taxes.

Considerations

Non-profits must keep careful financial records to protect their non-profit tax-exempt status from being revoked. Donations, contributions, membership fees and expenses must be recorded and reported. Another consideration is that some retailers will sell merchandise to non-profits tax free. Some states do not allow for this provision. You must check with your Secretary of State's office for regulations about tax-free sales. It is up to you to know your tax liability.

Warning

Tax-exempt organizations making less than $25,000 are required to file Form 990-N (e-Postcard). Churches and certain religious organizations are excepted from the annual return filing requirement.

Quick Fact

According to the Urban Institute, National Center for Charitable Statistics, there were 1,514,821 tax-exempt organizations registered with the IRS in 2008.

Source:

501(c)3

Definition of a 501(c)3

History of Non-Profit Status

Resource:

Federal Tax Information

Non Profit Facts