How do you qualify as a 501(c)(3)?

Eligibility Criteria for 501(c)(3) Tax-Exempt Status

To be classified as a 501(c)(3) tax-exempt entity, an organization must meet specific eligibility criteria:

Organizational Structure

The entity must be organized as a corporation, trust, or association.

Exempt Purposes

It must be organized and operated exclusively for religious, charitable, scientific, literary, educational, or other specified tax-exempt purposes.

Operational Test

• The organization must engage primarily in activities that accomplish one or more of the exempt purposes specified in Section 501(c)(3).
• It must not be operated for the benefit of private interests, and no part of its net earnings may inure to the benefit of any private shareholder or individual.

Restrictions on Activities

• The organization is prohibited from participating in any political campaign activity for or against political candidates.
• Activities attempting to influence legislation as a substantial part of its operations are not allowed.

Asset Dedication

Upon dissolution, the organization's assets must be dedicated to an exempt purpose.

Documentation and Compliance

The entity must have the proper language in its articles of incorporation or other organizing documents to ensure it is dedicated to an exempt purpose and does not engage in activities that could compromise its tax-exempt status.

Community Benefit Standard

For charitable hospitals, the organization must meet the community benefit standard, which requires it to operate for the benefit of the community as a whole.

IRS Recognition

The organization typically applies for and receives recognition from the IRS as being exempt from taxation as organizations described in Section 501(c)(3).

State-Specific Requirements

Some states may have additional criteria that organizations must meet to be recognized as tax-exempt at the state level.

For more detailed information on the requirements for 501(c)(3) status, organizations can refer to the Internal Revenue Bulletin: 2021-45 and the Charitable Hospitals - General Requirements for Tax-Exemption Under Section 501(c)(3) on the IRS website. Additionally, entities should consult the specific laws and regulations of their state, such as those outlined for Puerto Rico in the Planilla de Contribución Sobre Ingresos para negocios con decretos de exención contributiva para el año contributivo 2023 and for other states as applicable.