If you're running a charitable or non-profit group, your good works may earn recognition in federal tax law through section 501(c). The Internal Revenue Service exempts a variety of 501(c) groups from income tax as long as they follow rules on raising and spending money. Non-profits must file detailed reports and an annual tax return with the IRS to keep that treasured status.

Types of 501(c)s

The IRS has two dozen varieties of 501(c)s. One, 501(c)(29) for non-profit health insurance providers, came in with the passage of the Affordable Care Act in 2010. A 501(c)(3) is for religious, charitable, educational or scientific organizations. These groups risk their tax-exempt status if they support candidates for public office or try to influence legislation. A 501(c)(4) is a political lobbying or social welfare group, while a 501(c)(5) is organized by labor or agricultural groups. The 501(c)(6) is a business or trade organization, a professional group or a chamber of commerce.

Donations and Deductions

Non-profit groups rely on donations, which the IRS treats kindly. Donations to a 501(c)(3), for example, are deductible from the donor's gross income. Donations to other 501(c) groups are not deductible but can be written off as a business expense. This includes the social welfare groups and civic associations that operate as 501(c)(4)s, and recreational groups organized as 501(c)(7)s. Big donors beware: the IRS may slap you with a gift tax on contributions if you've exceeded the lifetime exclusion of $5 million on gifts.

Organizing a 501(c)(3)

The IRS doesn't grant the status to just any group. A 501(c)(3) group seeking a tax exemption has to file a Form 1023, Application for Recognition of Exemption, and prove it's either a corporation, unincorporated association or trust. The group must list the names of all officers, directors and trustees, and reveal what the key people are paid. The IRS also needs to know the group's history and activities, and to whom it provides benefits. Other 501(c)s apply for exempt status with a Form 1024.

Returns and Public Information

Even if they're exempt, non-profit groups must file annual tax returns. Groups with less than $25,000 in gross annual income do this with a Form 990-N, or an e-postcard. No matter what their size, 501(c) groups must make their Form 990 returns public, which most do with a link on a website. The IRS enforces the 501(c) rules with enthusiasm, and is pretty touchy about how a non-profit solicits donations. If a non-profit promises your gift is deductible, but it really isn't, that group could lose its tax-exempt status.

Bender Consulting can help your organization with the following:

• Determine viability of your organization for 501(3) status. 
• Provide reports and application to register with the IRS.
•  File annual tax returns, Form 990-N.
• Define the role of Treasurer, Finance Committee and Audit Committee of the organization
• Oversee donations and gifts to keep them in line with Tax exempt status.
  
  

  DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.