Certain organizations are considered tax exempt as long as they meet the required conditions. The IRS has listed charitable organizations, churches and religious organizations, private foundations, political organizations, and other non-profits as qualifying institutions.
Charitable organizations, broadly known as 501(c)(3) organizations, must be operated for only exempt purposes; this can be educational, scientific, literary, religious, and more as long as it’s considered a legal charity. These organizations must ensure none of their earnings benefit private shareholders or individuals and must also not be actively attempting to influence legislation in any substantial way.
Churches and religious organizations also qualify for 501(c)(3) status. Churches are immediately considered as a tax exempt organization and are not required to formally apply and obtain their exemption status. Individuals who donate to these organizations are able to claim a charitable dedication for their donations. Additionally, because these churches and religious organizations are not required to file for recognition as an exempt organization, they don’t need to worry about the automatic revocation of exemption for failure to file tax returns. Nonetheless, there are reasons why a church may want to obtain 501(c)(3) status. See my blog entitled ‘Why Does a Church Need a 501c3’ here: https://lvbrownecpa.com/2021/09/why-does-a-church-need-a-501c3/
Private foundations are also considered as 501(c)(3) but meet the specific requirements of 509(a), labeling them as a private foundation. These organizations typically receive funding from a single major source. Private foundations’ main activity is the making of grants to other charitable organizations, instead of directing charitable programs themselves. Organizations like hospitals and universities generally fall under this category.
Political organizations are subject to Section 527 and can be political parties, committees, associations, or funds. These organizations operate primarily to accept contributions and/or make expenditures, directly or indirectly, for an exempt purpose. Unlike other 501(c)(3) organizations, political organizations are allowed to influence or attempt to influence politic matters such as nominations and elections, including the presidential race.
There are other organizations that are considered as tax exempt, despite not falling under any of the previous categories. These are organizations that meet more specified requirements like social welfare organizations, civic leagues, business leagues, and more. To learn more about these specific organizations, visit the IRS’ page of Requirements for Exemption.
At L.V. Browne, CPA, we are able to provide our services to all of these exempt organization types. Contact us here: calendly.com/brownecpa to schedule a free consultation.
Works Cited: “Exempt Organization Types.” Internal Revenue Service, 23 September 2021, https://www.irs.gov/charities-non-profits/exempt-organization-types. Accessed 11 May 2022.