If you have decided to incorporate your non-profit as a public benefit corporation with the ultimate goal of obtaining a 501(c)(3) status and federal tax exemption, please consider the following explanation of one of the terms commonly used in the non-profit lexicon.
The requirements for a federal tax exemption for qualifying as a 501(c)(3) organization are contained in 26 U.S.C. §501(c)(3) state:
“Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
Although the organizations qualifying under 501(c)(3) are commonly called charitable organizations, that term is a bit misleading. While a charity is designed to provide an act of kindness or other such gift to a person in need, the term “charitable” encompasses actions beyond acts of charity. The word “charitable” includes every gift for a general public use, for the benefit of an indefinite number of people, and designed to benefit them from an educational, religious, moral, physical or social standpoint. So DO NOT rule out your eligibility under 501(c)(3) because your non-profit is not a charity – the statute allows a wide range of non-profits to qualify for the federal tax exemption. Please continue reading with our next blog post entitled Public Benefit Corporations Qualifying Under 501(c)(3): Public Charity vs. Private Foundation.