501(c)

Understanding 501(c) Organizations

Section 501(c) of the Internal Revenue Code defines nonprofit organizations that are exempt from federal income tax. These organizations serve public or member-focused purposes—charitable, religious, educational, social welfare, professional, recreational, or mutual—and must meet IRS requirements and, in most cases, apply for recognition to obtain and maintain tax-exempt status.

Key takeaways

• 501(c) is the IRC subsection that designates many types of tax-exempt nonprofits.
• Organizations must meet IRS rules and typically apply to receive 501(c) status.
• Donations to 501(c)(3) organizations are commonly tax-deductible for donors (subject to limits).
• The 501(c) family includes a wide range of organizations, from charities to trade associations and credit unions.

Common types of 501(c) organizations

The 501(c) designation covers many subtypes. Some of the more frequently encountered include:
* 501(c)(1): Corporations organized under an act of Congress.
* 501(c)(2): Title-holding corporations holding property for other exempt organizations.
* 501(c)(3): Charitable, religious, educational, scientific, literary organizations and private foundations.
* 501(c)(4): Social welfare organizations and advocacy groups.
* 501(c)(5): Labor, agricultural, and horticultural associations.
* 501(c)(6): Business leagues, chambers of commerce, and trade associations.
* 501(c)(7): Recreational and social clubs.

What is 501(c)(3)?

501(c)(3) is the most familiar category. Eligible entities include:
* Public charities and charitable organizations (e.g., food banks, educational nonprofits).
* Churches and religious organizations.
* Private foundations.

501(c)(3) status typically allows donors to claim federal income tax deductions for qualifying contributions (subject to IRS limits). These organizations must operate for exempt purposes and meet restrictions on political activity and the use of earnings.

Other notable 501(c) categories

Beyond the common types above, 501(c) also encompasses organizations such as:
* Fraternal beneficiary societies that provide member benefits.
* Local teacher retirement fund associations and certain benevolent life insurance associations.
* Mutual cooperative electric and telephone companies.
* Nonprofit cooperative health insurers.
* Cemetery companies operated for members’ benefit or not for profit.
* Credit unions without capital stock.
* Certain insurers with limited gross receipts.
* Trusts for supplemental unemployment benefits, pensions, and related purposes.
* Veterans’ organizations and affiliated auxiliaries.

Donations and tax deductibility

• Only contributions to qualified 501(c)(3) organizations are generally deductible on a donor’s federal tax return.
• Donors must itemize deductions to claim charitable contribution deductions.
• Deduction limits are typically expressed as a percentage of adjusted gross income (AGI): common limits include up to 50% (often 60% for cash gifts in certain years) of AGI for contributions to public charities; other organization types may be limited to 30% of AGI. Specific limits depend on the type of gift and recipient organization.
• Donors should request receipts and confirm which portion of any donation is deductible (for example, goods or services received in exchange for a gift reduce the deductible amount).

Verifying status and compliance

• Organizations should apply to the IRS for recognition of exemption and comply with filing and operational requirements to maintain 501(c) status (see IRS guidance such as Publication 557).
• Donors and the public can verify an organization’s tax-exempt status through the IRS Tax Exempt Organization Search tool.

Conclusion

501(c) covers a broad set of tax-exempt organizations that serve public and member interests. While 501(c) status relieves organizations of federal income tax obligations, it requires adherence to IRS rules and, in most cases, formal recognition. Donors seeking tax deductions should confirm that the recipient is a qualified 501(c)(3) organization and understand the IRS limits that apply to charitable deductions.