What is a 501(c)(3)? The 501(c)(3) is a highly regulated American non-profit entity that operates under the Internal Revenue Code 26 U.S.C. § 501(c). And there are 29 types of nonprofit, tax-exempt entities that are recognized by the U.S. Internal Revenue Service. And 501(c) refers to several different classes of “tax-exempt” corporations. Therefore, companies granted 501(c)(3) status are commonly known as a “charitable organization”. Generally, CPAs, attorneys, and tax professionals file form 1023 for recognition by the IRS. The corporation must be organized for one of the following purposes in order to be considered a 501(c)(3) corporation.
· charity education.
· testing for public safety.
· promoting of amateur athletics.
· preventing cruelty to children or animals.
By the way, these corporations are typically funded by Federal, State, and Corporate Grants. But they also receive funds from individual donations and fundraising events held by the organization.
501(c)(3) corporations are registered in the state where the principal office is located and organized. And Form 1023 is used to start the process with the IRS. And form must be completed and submitted along with the company’s Articles of Incorporation (in some states Articles of Organization). But approval of 501(c)(3) applications can take as little as 2 months and as long as 12 months. Approval time varies dependent on the “inventory” of applications being reviewed. But a significant amount of this waiting period is due to the length of time that it takes your application to make it into an agent’s hands. And there are a few exceptions to this rule.
The application process can be expedited under the correct circumstances. And some circumstances which may warrant expedited service include immediate disaster relief. Or it may be that significant grants are contingent on 501(c)(3) status and grant deadlines which are pressing. And if getting the grant is contingent on the same, the application may be expedited. Often a professional preparer and/or grant writer can assist with the expedition of this process.
With so many nonprofit organizations that share many of the same benefits as a 501(c)(3) one may wonder: “Why to go through such a strenuous process to ensure this particular nonprofit status?” One distinct advantage which exists to set apart the 501(c)3 is the ability to extend a recompense of benefits to donors.
Under Internal Revenue Code 26 U.S.C. § 501(c), a 501(c)(3) corporation is the only nonprofit corporation for which donors may make tax-deductible donations. This makes the 501(c)(3) status an attractive choice among individual and corporate donors. 501(c)(3) status is also mandated by many federal and state grant programs. In essence, election for 501(c)(3) status opens doors to significantly more (and larger) funding opportunities for a nonprofit organization.
The IRS has several qualifications and stipulations as outlined by the IRC 26 U.S.C. § 501(c)(3). For instance, 501(c)(3) organizations are prohibited from using excess profits to the benefit of any individual or shareholder. and 501(c)(3) organizations must also abstain from involvement in any activities which promote a political agenda. But they may participate in non-partisan political activities.
501(c)(3) organizations have no individual owners. They have a board of directors, but they do not share ownership. And this must be understood from the beginning. However, 501(c)(3) organizations do have founders. So 501(c)(3) companies are founded by individuals. But they are not, consequently, owned by the individual who founded the company. A corporation is granted 501(c)(3) status under the condition that the company’s founder will relinquish sovereign ownership. And management is turned over to the board of directors, in exchange for a position on the board (usually chairman).
The company, at this point, becomes a public entity. And it is owned and operated by the board collectively. And the company is required to keep meticulous public records. Further, the company records must be available for review at any time. Also, public records are often the central focal point for grant programs and significant individual and corporate contributors.
Timely and consistent reporting requirements which are necessary to comply with standards of the IRC 26 U.S.C. § 501(c)(3). And it is widely expected and generally the practice of the savvy 501(c)(3) founder to anticipate this as an expense. So the expense is incorporated into the monthly accounting work into the corporation’s board approved yearly budget.
The 501(c)(3) can reap great rewards for the community by creating jobs. Additionally, it can help solve critical issues and motivate movement and change. So at the heart of every business is a purpose. And that purpose can be made more apparent through the 501(c)(3) status.
Business & Financial Solutions has everything you need to move forward. And we can help with you nonprofit from start, to ongoing operations. You can get all the services you need under one roof. Our CPA gets results. And we work in a timely manner. Because the measure of our services is marked in your success.
Lastly, BFS makes the process simple. And starting your IRS 501 (c)(3) could not be made easier. Additionally, we assist you in maintaining the integrity of the organization through accounting. And we even help with writing grant proposals. And we can file your 990 tax return at the end of the fiscal year. Moreover, BFS provides everything that you need to operate your nonprofit. And we have a full staff of CPAs, tax professionals, grant writers, bookkeepers, accountants, and consultants.