What is the difference between 501(c)(3) and 501(a)

The c 3 status offers a myriad of benefits to the designated organizations and the people they serve. For example, c 3 organizations are exempt from paying federal income and unemployment taxes, and patrons who donate to them are allowed to claim a tax deduction for their contributions.

To help with funding and further their mission, these organizations are eligible to receive government and private grants. To qualify, the organization must have a need for and a mission aligned to the purpose of the grant. In addition, c 3 organizations often receive discounts from retailers, free advertising by way of public service announcements, and food and supplies from other non-profit organizations designed to help in times of need.

A c 3 could be the lifelong dream of its founder; however, once established as a c 3 , it no longer belongs to its founder. Rather, it is a mission-oriented organization, belonging to the public. To maintain its favorable tax treatment, it must operate within the confines of the law pertaining to c 3 organizations. Because the organization serves the public, it must operate with full transparency. Therefore, their finances, including salaries, are available to the public and subject to their review.

The American Red Cross, established in and congressionally chartered in , is one of the United States' oldest non-profit organizations. The Red Cross's mission is to prevent and alleviate "human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors. Located in more than countries, the Red Cross operates the largest network of volunteers in the world. The National Red Cross and Red Crescent Societies, which include the American Red Cross, aim to relieve human suffering globally by empowering subordinate organizations to operate within its nation's borders to provide disaster relief, education, and other related services.

The International Federation of Red Cross and Red Crescent Societies provide global humanitarian aid during peacetime, such as assisting refugees.

The International Committee of the Red Cross provides humanitarian relief for people affected by war or other armed conflicts. As a c 3 organization, patrons can contribute to the Red Cross and receive a tax deduction. To create a c 3 , you must define the type of organization and its purpose or mission. Before selecting a name, search to ensure that it is not taken.

Otherwise, secure the name when filing the articles of incorporation. The articles of incorporation must be filed with the state in which it will be organized and according to the state's rules for non-profit organizations.

After filing, apply for the c 3 IRS exemption Form and state tax exemption for non-profit organizations. Upon completion, create your organization's bylaws that specify how the organization will be structured and governed. Finally, appoint and meet with your board directors. The costs associated with creating a c 3 vary according to the needs of the organization. However, some costs can be approximated. It takes approximately three to six months to receive this letter after filing.

According to the IRS, to qualify for the c 3 status, the organization must be formed as a "trust, corporation, or association. A c 3 organization is a non-profit organization established for religious organizations e. These organizations are prohibited from engaging in lobbying. Alternatively, c 4 organizations, which are social welfare groups, are allowed to engage in lobbying.

Most people are familiar with c 3 organizations existing as churches and charities, but they also include private foundations. As long as they operate to support their mission, they receive favorable tax treatments, such as avoiding federal income and unemployment taxes. Internal Revenue Service. Accessed Jan. Red Cross. Finance Strategists. State Impact NPR. How To Start A Business. Income Tax. Tax Laws. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

Section a provides that organizations described under sections c , d , and a are exempt from federal income tax. Section d describes certain religious and apostolic organizations, and section a describes qualified pension, profit-sharing and stock bonus plans.

None of the organizations that meet the definitions set out in these sections has to pay federal income taxes. Section c 3 charities are further subdivided under Section a , basically between public charities and private foundations, such as the Gates Foundation or the Ford Foundation. Under the law, a charity is deemed to be a private foundation unless it can show that it is a public charity under section a of the Code.

Section a has four subdivisions:. Subsection a 1 includes churches, schools, hospitals, and other charities that are publicly supported by a broad range of donors, including those described in section b 1 a vi as your organization is.

Subsection a 2 includes charities that are broadly publicly supported primarily through fees for services, like a nursing home. Subsection a 4 describes organizations operated for testing for public safety. All of the organizations described in Section a are considered public charities. In contrast, a nonprofit may either 1 apply for formal IRS recognition of exemption under c 4 by filing Form or 2 self-declare itself as exempt under c 4.

In either case, the nonprofit must notify the IRS within 60 days after its establishment of its intent to operate as a c 4 organization by e-filing Form As noted above, most c 3 organizations are eligible to receive deductible charitable contributions. However, the actual provision of the Code that provides for the deductibility of contributions is found in Section c , which includes:. A created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; B organized and operated exclusively for religious, charitable, scientific, 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; C no part of the net earnings of which inures to the benefit of any private shareholder or individual; and D which is not disqualified for tax exemption under section c 3 by reason of attempting to influence legislation, 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.

Accordingly, a taxpayer could not take a charitable contribution deduction for a gift to a foreign c 3 organization or a domestic c 3 organization whose exempt purpose is testing for public safety. Contributions to c 4 organizations are generally not deductible with limited exceptions for certain contributions to volunteer fire companies and war veterans organizations.

Moreover, a c 4 organization not covered by such exceptions must disclose, in any fundraising solicitation, that contributions to the organization are not deductible for federal income tax purposes as charitable contributions. The disclosure must be expressed in a conspicuous and easily recognizable format.

Despite such restriction, public charities may engage in generous levels of lobbying without it being considered substantial if they make the h election.