DEFINITION of 501 (c)
The 501 (c) is a subsection of the Internal Revenue Code of the United States. The subsection relates to nonprofit organizations and tax law and identifies nonprofit organizations that are exempt from paying federal income tax.
BREAKDOWN 501 (c)
Pursuant to paragraph 501 (c), several sections separate the different organizations by operation. The designation has expanded over time to include more types of organizations. In 2020, 29 types of organizations were listed under 501 (c).
The most common include:
501 (c) (1): Any corporation which is organized under an act of Congress which is exempt from federal law
501 (c) (2): Companies holding title to exempt organizations
501 (c) (3): Companies, funds or foundations that operate for religious, charitable, scientific,
literary or educational purposes
501 (c) (4): Non-profit organizations that promote social well-being
501 (c) (5): Labor, agricultural or horticultural associations
501 (c) (6): Commercial leagues, chambers of commerce, etc. which are not organized for profit
501 (c) (7): Recreational organizations
Growing types of organizations 501 (c)
Other organizations which are eligible for registration under this designation include fraternal beneficiary societies which operate under the lodge system and provide payment for life, illness and other benefits for its members and individuals dependent. Teacher pension fund associations, as long as they are local in nature and no net profit grows for the benefit of a private shareholder. Local voluntary life insurance associations can also qualify for this designation. Certain cooperative electricity and mutual telephone companies could also be classified under 501 (c). Non-profit cooperative health insurers may also be eligible.
Cemetery societies that are owned and operated for the exclusive benefit of their members or that are not operated for profit could receive this designation. Credit unions that have no organized share capital, insurance companies – except life insurance – with gross receipts of less than $ 600,000, and a variety of purpose trusts such as paying unemployment benefits and additional pensions may receive this designation and exemptions if they meet all of the underlying criteria.
There are also authorizations for organizations whose members are current and former members of the United States armed forces, or their spouses, widows, descendants and auxiliary units in support thereof.
Groups that might fit the designated categories should always apply for classification as a 501 (c) organization and meet all of the stipulations required by the IRS. Tax exemption is not automatic, regardless of the nature of the organization and federal authorization is required before it can be claimed.