Understanding 501(c)(3) Nonprofits

A nonprofit is an organization whose primary objective is to support some issue or matter of private interest or public concern (such as the arts, charities, education, politics, religion, scientific research, or some other endeavor) for non-commercial purposes. There are different kinds of nonprofits, one known as a 501(c)(3).  This particular nonprofit gets its name from the specific section of the Internal Revenue Code (Section 501(c)(3)), which exempts the organization from paying federal income tax.

There are two primary benefits of an organization obtaining 501(c)(3) status. First, the 501(c)(3) company is exempt from all federal income and (sometimes) property tax and frequently receives beneficial treatment from states. Second, 501(c)(3) companies are qualified to receive tax-deductible donations. This means, subject to certain limitations, contributions to a 501(c)(3) company can be deducted from the donor’s taxable income -  more incentive for individuals to give to the organization.

It is important to know that tax exempt organizations, other than churches, must file a yearly return or statement with the IRS.  The required return is most typically IRS Form 990.  If the 501(c)(3) does not file the Form 990 as required for three consecutive years, the law provides the organization automatically loses its tax-exempt status.  Loss of this important exempt status means an organization must file income tax returns and pay tax, and its contributors will not be able to deduct their donations.

IRS Form 990 may also be used by donors as the starting point for any financial analysis of a charity. The Form 990 details sources of funds received, use of funds, and changes in assets and liabilities.  Anyone may obtain a copy of an organization’s exemption application or annual information return (Form 990).  A request may be made directly to the organization or by submitting a request at the IRS.gov website or directly to the Internal Revenue Service on Form 101 4506-A.  Further, many Central Florida charities are profiled by the Central Florida Community Foundation at their website mycfcf.org.

            Individuals that want to leave a legacy often consider lifetime or testamentary gifts to 501(c)(3) charitable organizations.  If you have questions about creating a lasting legacy or updating your estate plan to include your favorite charity, don’t hesitate to contact The Law Offices of Hoyt & Bryan at 407-977-8080 or visit our website at HoytBryan.com.