501(c)(3) Non-Profit Status by Todd Chawansky, Associate Attorney and Rachel A. Hobbs, CLA
Being a 501(c)(3) corporation means that organization has received a tax-exempt status from the Internal Revenue Service. In order to obtain tax-exempt status under section 501(c)(3) of the Internal Revenue Code, an organization must demonstrate to the IRS that the funds it receives are not-for-profit and are used to support a charitable cause or purpose. The corporation relies on donations and fundraising in order to carry out the organization’s mission.
A 501(c)(3) status is a benefit to the corporation and its donors. Some of those benefits are:
A 501(c)(3) organization is exempt from federal income tax for all activities relating to its mission. Additionally, in Michigan, a 501(c)(3) organization is exempt from state sales tax.
The 501(c)(3) status demonstrates to the greater community that the organization is held accountable through its established bylaws, mission statement, corporate records, and financial reporting requirements. Maintaining the 501(c)(3) tax-exempt status with the IRS encourages the future success of the organization by establishing a foundation of professionalism and legitimacy to generate and encourage membership as well as to entice donors to support the organization.
Tax Deductible Donations.
In order for the IRS to recognize that a donation to a charitable organization is tax deductible, the organization must have 501(c)(3) status (or pending application status). Such status is particularly appealing if you solicit donations for large events like an auction or carnival. Due to the known tax advantage, some large companies or corporations will donate only to an organization with the 501(c)(3) status.
Various grant programs require applicants to possess 501(c)(3) status in order to receive funding to benefit the organization’s mission and cause.
To learn more about obtaining 501(c)(3) status for your organization, contact Ed Pear or Todd Chawansky of Pear Sperling Eggan & Daniels, P.C. at (734) 665–4441.