What Is a 501(c)(3) Organization?
A 501(c)(3) organization is a type of nonprofit corporation classified by the IRS as either a “public charity” or a “private foundation.” Within those two broad categories, a 501(c)(3) is further designated as one or more of the following:
- Testing for Public Safety;
- Fostering National or International Amateur Sports Competitions; or
- Promoting the Prevention of Cruelty to Children or Animals.
What distinguishes nonprofits is not whether they can make surplus income, but rather what is done with any “profit.” A for-profit company that generates net revenue can choose to distribute those profits to owners and shareholders, executives, and employees. Nonprofit organizations don’t exist to earn money for owners, stakeholders or employees. In fact, distribution of profits is strictly prohibited, and must be used to further the mission of the organization. This distinction, not the ability to generate a profit, is a major difference between nonprofits and businesses.
As a result of its qualification as a 501(c)(3) organization, this type of nonprofit is able to receive tax-deductible charitable contributions, and is exempt from business income and property taxes.
Last Modified: February 21st, 2010