Key Term

What is 501(C)(3)?

Definition

A 501(c)(3) is a tax-exempt designation granted by the Internal Revenue Service (IRS) to nonprofit organizations that operate for religious, charitable, scientific, literary, or educational purposes. Organizations with this status are exempt from federal income tax and can receive tax-deductible donations from individuals and corporations. To maintain this status, these organizations must not engage in substantial political activities or distribute profits to private individuals.

Significance

The 501(c)(3) designation is crucial in the charitable giving landscape as it provides donors with confidence that their contributions will be used for legitimate charitable purposes and offers them tax benefits for their donations. This status enables nonprofits to maximize their impact by operating tax-free and attracting more donations through tax incentibility. For donors, the ability to verify an organization's 501(c)(3) status helps ensure their charitable giving is both impactful and tax-advantaged, making it a fundamental component of strategic philanthropic planning.