501(c)

501(c) organization refers to 29 types of a U.S. nonprofit corporation or association, i.e., a nonprofit trade association or corporation.

501(c) explained

The 501(c) organizations or associations are partially exempt from federal income taxes. The status is granted upon application by the Internal Revenue Service and is conditioned on the publication of some financial documents and a restriction on political activities. The name and rights refer to Section 501 Title 26 subsection (c) United States Code (USC 26 § 501 (c) for short).

There are 1.6 million nonprofits in the U.S. and the nonprofit sector accounts for 8.5% of the gross domestic product. Nonprofits employ 9.3% of the workforce, the highest in the world. Americans donate $250 billion to nonprofits each year and these donations are tax-exempt. 36% of donations go to churches, 13% to education, 8.6% to health care and 5.4% to culture ($13 billion). Examples of cultural nonprofits include art house theaters, foundations, ballet companies, and academic publishers.

Nonprofits are governed on a volunteer basis by a Board of Trustees. Board members are often donors. They have broad powers and define the association's missions. They are responsible for raising funds.

The endowment is one of the sources of funding for associations: it is a sum of money invested in the stock market, with only the interest being spent each year (working capital).

501(c) classification

501(c) includes various company types that are divided according to the aim of an organization and its’ operation. The most common kinds are listed below.

501(c) 1: Corporations organized under acts of Congress such as the Federal Credit Union Act.

501(c) 2: Security holding corporations for an exempt organization.

501(c) 3: Foundations or other charitable, benevolent, religious, scientific, literary, or educational organizations, as well as certain athletic associations. American universities are covered by this paragraph, as well as certain U.S. private foundations (first defined in the Tax Reform Act of 1969). U.S. law distinguishes between nonprofit organizations and charitable organizations. Although both are exempt from taxation, only charitable organizations can receive grants and be tax-exempt. Among the latter, the law distinguishes public charities (e.g., community foundations, such as the Cleveland Foundation) from private foundations (such as the Rockefeller Foundation or the Wikimedia Foundation).

501(c) 4: Civic associations that promote social welfare or local associations of wage earners, whose membership is limited.

501(c) 5: Trade unions, agricultural or horticultural organizations.

501(c) 6: Trade associations, business associations, chambers of commerce.

501(c) 7: Leisure clubs.