Glossary
Nonprofit Specific

501(c)(3)

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

A 501(c)(3) is a tax-exempt nonprofit organization recognized by the IRS for charitable, religious, or educational purposes.
501(c)(3) refers to a section of the U.S. Internal Revenue Code that designates an organization as tax-exempt due to its charitable, religious, educational, scientific, or literary purposes. Organizations with 501(c)(3) status are not only exempt from federal income tax but also allow donors to make tax-deductible contributions. To qualify, the organization must operate exclusively for exempt purposes and avoid political or substantial lobbying activities. The IRS grants this status upon application and review, and organizations must adhere to ongoing compliance and reporting requirements to maintain it.

Key Takeaways

  • Grants federal tax exemption to qualifying nonprofits
  • Enables donors to make tax-deductible contributions
  • Requires strict compliance with IRS rules
  • Used for charitable, religious, and educational organizations

Why It Matters

It provides important tax benefits for nonprofits and their donors.

Real World Example

A local animal shelter applies for and receives 501(c)(3) status from the IRS. This designation allows the shelter to operate without paying federal income tax, making it easier to allocate resources directly to animal care and community programs. Additionally, supporters are more likely to donate because their contributions are tax-deductible. The shelter uses Aplos to track donations and generate the necessary reports for annual IRS filings, ensuring ongoing compliance and transparency for donors and regulators.

How Aplos Helps

Aplos helps nonprofits manage their finances, track donations, and generate IRS-compliant reports, supporting the operational and reporting needs of 501(c)(3) organizations. With Aplos, you can easily track restricted funds, prepare for audits, and ensure compliance with IRS requirements.
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Frequently Asked Questions

What is a 501(c)(3) organization?

A 501(c)(3) organization is a nonprofit that has received tax-exempt status from the IRS due to its charitable, educational, or religious mission.

What benefits do 501(c)(3) organizations receive?

They are exempt from federal income tax and can receive tax-deductible donations from supporters.

How does an organization become a 501(c)(3)?

Organizations must apply to the IRS, provide detailed information, and meet requirements regarding their mission and activities.

Can 501(c)(3) organizations engage in political activity?

They are prohibited from political campaign activities and limited in lobbying to maintain their tax-exempt status.

How does Aplos help 501(c)(3) nonprofits?

Aplos provides solutions for fund tracking, donation management, and generating reports needed for IRS compliance.

Related Terms

Permanently Restricted Net Assets
Unrestricted Fund
Statement of Cash Flows
Contribution
IRS Form 941
Expense Allocation

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