Section 501 of the U.S. Internal Revenue Code exempts certain organizations from taxation. Sub-section 501(c)(3) identifies specific organizational purposes that qualify for exempt status, including, among others, religious, charitable, literary, educational and scientific purposes.

Organizational Test

According to the Internal Revenue Service (IRS), an organization "must be a corporation (or unincorporated association), community chest, fund, or foundation," which includes charitable trusts. Organizational assets must be always be used for the exempt purpose.

Operational Test

The organization must be "operated exclusively" for the exempt purpose, which means that activities must be primarily dedicated to the purpose and may include no substantial unrelated activities.

Contributions

Most 501(c)(3) entities, sometimes called charitable organizations, may receive tax-deductible contributions. The donor must keep a written bank record or an acknowledgement from the organization as evidence of the contribution.

Limitations

Charitable organizations may participate in lobbying or some political activities, but these activities are subject to specific restrictions.

Private Benefit

The organization may not conduct activities for the purpose of benefiting any private interest. Persons who receive such benefits are subject to an excise tax, as are any managers who agreed to the transaction.

Source:

FindLaw, 26 U.S.C. S. 501

IRS, "Exemption Requirements - Section 501(c)(3) Organizations"

Resource:

IRS, "Application Process"