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501(c) is a section of the Internal Revenue Code that grants various types of nonprofit tax-exemption.
This guide explains the different types of nonprofits with 501(c) status, their requirements, and the benefits and drawbacks of each status. You'll also learn the step-by-step process of establishing a 501(c) organization and how to choose the right category for your nonprofit's mission and goals.
501(c) is a section of the Internal Revenue Code (IRC) that grants tax-exemption to certain types of nonprofit organizations. The 501(c) tax exemption enables charitable organizations to focus more resources on their change-making or social purposes by reducing their tax liability.
The most common designation is 501(c)(3) which encompasses all charitable, religious, educational, scientific, and literary organizations. Below, we’ll be breaking down even more specific statuses that you may align with so you can have a full picture of the best status to achieve your goals.
Each of the 501(c) statuses come with their own requirements, rules, and restrictions but being tax exempt organizations is the greatest commonality.
How are 501(c) Organizations Impacted by Federal Income Tax?
The Internal Revenue Code encourages charitable organizations to support the public good with tax deduction benefits. In the Internal Revenue Code, you'll find the activities allowed for each subsection to maintain tax exemption.
Let’s dig even deeper to break down tax-specific considerations for 501(c) organizations:
Exemption from Federal Income Taxes
501(c) organizations are largely exempt from having to pay federal income tax on their earnings as long as those earnings are related to their purpose for being exempt. So basically, that means revenue from charitable donations, programs and services, event proceeds, or membership fees are all activities eligible for deductions in income taxes.
Unrelated Business Income Tax (UBIT)
So, where does all the other money go? Any income from unrelated activities such as the following may be subject to the Unrelated Business Income Tax (UBIT):
Revenue from selling advertising space in a university’s alumni brochure
A hospital’s rent for a space that a for-profit business uses, unrelated to its healthcare mission
A gift shop attached to a museum or educational organization
Deductibility of Donations
Tax deduction for donations are the norm for 501(c)(3) organizations specifically. Other 501(c) organizations may not have the same deductibility rules for any charitable contributions from supporters or members. Hence, it's essential to make a distinction as you determine the role of donations in your structure.
Reporting Requirements
501(c) organizations have to file IRS Form 990 annually. This helps to keep income, expenses, and activities transparent, especially regarding which monetary values are tax-exempt and which are not. Tax-exempt status can be removed if Form 990 is not filed.
Prohibited Activities
Organizations involved in some political activity may risk their tax-exempt status. This is especially true for 501(c)(3) organizations that may engage in legislative reform, lobbying, or endorsement of political candidates.
At the same time, specific 501(c) groups exist to limit those restrictions and allow for more political engagement.
Tax Treatment of Investment Income
Federal tax exemption depends on the purpose of investment income such as interest or dividends. If it's related to the mission and purpose of 501(c), this income may be tax-exempt.
Eligible 501(c) organizations may have capital stock represented, but it will not be considered taxable income.
10 Types of Nonprofits Under the IRS 501(c) Section for Tax Exemption
The IRS publication 557 lists the details of all 501(c) organizations. Here are some of the most common types of charitable organizations under this section:
1. 501(c)(3)
501(c)(3) organizations have to be organized and operated exclusively by the Internal Revenue Service standards. Tax exemptions apply to private foundations and public charities but also to those who operate exclusively for religious, scientific, and literary testing for public safety or to foster national or international competition in amateur sports.
This can also include organizations centered around children or animal cruelty prevention. Section 501(c)(3) charitable organizations are of two different types:
Public Charities
These organizations can apply for grant funding from the government and private foundations or organizations. The funds support initiatives such as running a homeless shelter or offering medical support for the less fortunate.
Private Foundations
Private foundations are 501(c)(3) charitable organizations funded by a single person, family, or business to give back. The initial donation is invested to generate income and then distributed as grants to individuals or other charities.
A nonprofit organization can work without the tax exemption and receive donations, but 501(c)(3) organization status has added benefits. Filing Form 1023 or Form 1023-EZ is required to apply for the nonprofit 501(c)(3) tax exemption status.
501(c)(4) tax-exempt charitable organizations focus on social welfare. While 501(c)(4)s can engage in political advocacy and lobbying, donations to these nonprofit organizations are not tax-deductible for donors.
501(c)(5) tax exempt organizations involve labor, agricultural, and horticultural activities, working for community betterment in these areas.
Labor organizations educate members and improve work conditions, while agricultural and horticultural organizations support animal welfare and agricultural activities.
Unlike 501(c)(3)s, donations to 501(c)(5)s are not tax-deductible for donors.
501(c)(6) organizations promote business and improve processes for their members, focusing on common business interests rather than the general public. These organizations cannot engage in commercial activities for profit.
As the Internal Revenue Code defines, 501(c)(6) organizations cover:
Business Leagues
Chambers of Commerce
Real Estate Boards
Boards of Trade
Professional Football Leagues
Attach Form 8718 to Form 1024 with the application to receive their Letter of Determination, proof of your tax-exempt status.
All social or recreational clubs fall under the 501(c)(7) category for the tax-exempt status. By the Internal Revenue Service definition, these social clubs focus on activities organized for pleasure, recreation, and other nonprofitable purposes.
Here are some examples of 501(c)(7) nonprofits:
Sports clubs and competition leagues
Hobby clubs
Country clubs
Dinner clubs
Homeowners associations
College fraternities and sororities
Variety clubs
501(c)(7) organizations, such as social and recreational clubs, serve their members by pooling funds for shared activities. Members often join to develop leadership skills and learn about running an organization.
Social clubs can formally submit Form 1024 to apply for Internal Revenue Service tax-exempt status, but it is not mandatory.
501(c)(8) organizations are lodge or fraternal societies. Their activities revolve around paying members for life, sickness, accident, or other benefits.
For example, college fraternities Formed based on religion, previous members, or common interests can register 501(c)(8)s for tax exemption. A nonprofit must complete IRS Form 1024 to register as 501(c)(8) tax-exempt.
501(c)(10) organizations are domestic fraternal societies that operate under a lodge system. These organizations do not provide benefits to members but support external causes.
They aim to support religious, charitable, educational, scientific, literary, international amateur sports competition, or fraternal activities. 501(c)(10) organizations get involved in activities supporting community service projects, offering educational scholarships, or organizing recreational activities.
Here are a few things to keep in mind if you’re considering 501(c)(10 status:
Fraternal purpose: An organization exempt to federal income tax needs to focus on fraternal, social, or charitable activities for members—think supporting your community or offering benefits to members, not just fundraising.
Membership-based: It should have a membership structure with people sharing a common bond (e.g., religious or professional ties).
Lodge or chapter system: You need a system of local chapters or units contributing to the leading organization.
Income rules: That income might be taxable if you make money from activities unrelated to your fraternal purpose (like a fundraiser).
Donations: Donations aren’t tax-deductible unless they’re for charitable purposes (not for fraternal benefits like insurance).
Annual filings: You must file Form 990 or 990-EZ annually to maintain transparency and compliance.
Leadership: Keep a board of directors and have clear records of meetings and decisions.
Insurance benefits: If you offer life insurance or other benefits, follow the Internal Revenue Service and state insurance rules.
State laws: Check with your state for additional fraternal organization regulations.
Like other associations, you must apply for 501(c)(10) status using Internal Revenue Service Form 1024.
9. 501(c)(13)
501(c)(13) organizations include cemeteries and related entities. These organizations must use all revenue to maintain their facilities and provide burial, cremation, and related services. They can provide monuments, markers, flowers, vaults, and other funeral items.
More details on applying for 501(c)(13) status:
Nonprofit operations: The organization must be nonprofit, meaning it’s not operating to make money for personal gain. Income should be used to maintain the cemetery or burial grounds.
Exempt income: Income used for cemetery care, maintenance, or related purposes is exempt from taxes. Just make sure the focus is on keeping the cemetery in good condition, not running a profit.
No private benefit: No individual or group should personally benefit from the organization’s income—everything goes back into the cemetery’s upkeep.
Fundraising rules: If you’re fundraising, donations may be tax-deductible, but the funds must be used for cemetery maintenance or other exempt purposes.
Annual reporting: Like other nonprofits, you must file Form 990 annually to stay compliant and report on the organization’s financials.
State regulations: Check any state-specific rules for cemeteries, as some states have additional laws governing cemetery operations.
10. 501(c)(19)
Section 501(c)(19) is for veterans' organizations, with at least 75% of their past or present members being United States Armed Forces members.
Any trust or private foundation can get 501(c)(19) status if it works only for the Armed Forces. This means its activities must focus on improving the lives of veterans or current armed forces members.
More details on 501(c)(19) organizations:
Membership: Most of your members must be veterans or related to veterans (e.g., surviving spouses or family members). Your organization must primarily serve veterans' interests.
Exempt purpose: The organization must benefit veterans through social activities, charitable support, or advocacy.
Nonprofit operations: Your group must be nonprofit, meaning any income should be reinvested to further your mission, not for private gain.
Tax-deductible donations: Donations made to your organization can be tax-deductible, mainly if they’re used for charitable purposes like veterans’ support or community service.
Annual filings: You must file Form 990 or 990-EZ each year to stay compliant and provide transparency about how funds are used.
State regulations: Be aware of state-level rules specific to veterans’ organizations, as each state may have different laws or requirements.
Benefits and Considerations of a 501(c) Organization
Choosing the right 501(c) for your nonprofit can feel overwhelming with many options. It’s important to take a step back and consider what each option offers—and what comes with it.
Each type has its benefits and rules, and they can impact how you run things, how you raise funds, and who you’re able to serve. By pausing to consider your mission and goals, you can make a more confident choice that sets your nonprofit up for success without getting bogged down by all the details.
Benefits of starting a 501(c) organization:
Tax-exempt status: 501(c) nonprofit organizations are exempt from federal income tax. This makes tax season a bit easier, but it also means that financial stability remains top of mind, and more funds go to the cause that really matters.
Increased credibility and trust: The label gives donors, grantors, and the public the confidence to associate with the organization, especially if it has recognition from the government as a legitimate charity.
Eligibility for grants: Many grants require the organization's 501(c) status to be eligible. Having an IRS status means you can confidently apply to fund your nonprofit.
Potential for tax-deductible donations: Tax deductibility of charitable contributions is a significant incentive for donors to support a 501(c) organization.
Drawbacks of getting 501(c) status:
Application process and fees: The 501(c) registration process and fees can be challenging for some nonprofits, tiny organizations with limited resources.
Must fulfill reporting requirements: 501(c) organizations are on the hook to send in detailed reports to the Internal Revenue Service which means maintenance of accurate and real-time data is key. Even the smallest lag can put tax-exempt status at risk.
Restrictions on activities: Some organizations with 501(c) status restrict lobbying, political campaigns, advocacy, and anything that might influence legislation. That might mean activities are limited, especially when public policy change is a focus.
Public disclosure of financial information: 501(c) nonprofit organizations must make their financial information publicly available to maintain transparency. This mandates nonprofits to publicly disclose copies of their IRS Form 990, 990-PF, 990-EZ and 990-N returns through the Internal Revenue Service website.
Define your nonprofit's tax purposes by aligning them with your mission and cause. Consult with stakeholders and experts to ensure clarity and compliance on the topic.
Consider answering these questions to understand the purpose:
Who will you support with your nonprofit's services?
What is your mission statement?
How does your vision align with the mission?
What are the short-term and long-term goals of your organization?
Will it create an impact in the local community, nationally or internationally?
How will you accomplish your goals?
What will be your fundraising plan for running the organization?
Step 2: Form a Nonprofit Board
Forming a board is an essential requirement under most state laws and the Internal Revenue Code.
Forming a board involves the following:
Decide on the number of board members. Most states require a minimum of three members.
Nonprofit paperwork will mainly involve the following:
File for Articles of Incorporation: This document contains the basic details of your nonprofit and legally registers your organization with the state.
Employer Identification Number (EIN): Visit the official Internal Revenue Service website to register for the EIN. Use IRS Form SS-4 to identify your organization for federal income tax purposes for the EIN.
Internal Revenue Service Form for 501(c) Status: Identify your category and file the correct status from the list of the tax-exempt organizations.
Step 5: Submit Returns and Reports
Charitable organizations or nonprofits must file tax returns annually to maintain their status. For this, you will need Form 990, which you should make publicly available to maintain financial transparency.
It’s one thing to see a 501(c) organization in action and another to see examples of successful nonprofits making a difference and raising more each year. Below are a few 501(c) organizations leaning on Zeffy to see real results.
Prairie Classical | $16,627 Raised
Prairie Classical, founded by concert violinist and classical music radio host Destiny Ann Mermagen, is a nonprofit organization dedicated to bringing joy and healing through music in Kansas. With a mission of "Music is the Best Medicine," Prairie Classical hosts concerts featuring world-class musicians collaborating with local youth, offering life-changing educational experiences.
Inspired by her transformative childhood experiences with music, Mermagen has raised over $16,000 using Zeffy, a fee-free fundraising platform. The savings allowed her to fund an additional concert in the 2023-2024 season, allowing more students to perform at a professional level while fostering empathy and community through the power of music.
Allegiance Color Guard, a nonprofit based in Dundee, Illinois, empowers youth ages 9-23 through the vibrant performing art of Color Guard, fostering character, confidence, and teamwork. Since 2010, they have offered educational and competitive programs that create lifelong friendships while preparing members for high-level performances.
Allegiance switched to Zeffy in 2023 and saved over $5,425 in expenses to redirect funds toward essential needs like competitive floor coverings while streamlining operations and improving volunteer accessibility. This transformation ensures Allegiance can continue providing life-enhancing experiences for its members.
Tied Together, founded by Glenn Outlaw in 2014, is a nonprofit dedicated to positively shaping young men’s lives by teaching essential life skills, such as tying a tie and shaking hands, while connecting them with positive male role models. Inspired by Glenn’s experience as a father and volunteer, the organization has reached over 26,000 students across all 28 public middle and high schools in Brevard County, Florida.
Volunteers from the community, including fathers and professionals, mentor students and provide ties in their school colors as a symbol of unity and growth. Tied Together modernized its donation process through Zeffy, saving funds to invest directly in its mission of empowering the next generation.
The Outer Circle Foundation, founded by Matt and Buffy Payne, is dedicated to supporting veterans and first responders struggling with PTSD and mental health challenges. Inspired by Matt’s journey with PTSD and the loss of service member friends to suicide, the foundation works to break the stigma surrounding mental health care.
They provide individualized resources, including therapy referrals, assistance transitioning to civilian life, and service animal support. Their work ensures every dollar raised helps save lives and brings hope to those who have sacrificed for others.
Choosing the Right Category for Your Tax-Exempt Organizations
Mission and Purpose
Research and compare your nonprofit's mission and purpose with various 501(c) categories, focusing on organizations similar to yours to determine the most appropriate classification.
Clarify Your Primary Activities and Objectives
Do we consider ourselves to be within charitable, educational, or religious organizations (501(c)(3))?
Are we promoting social welfare (501(c)(4))?
Are we advocating for trade or professional interests (501(c)(6))? Your primary purpose will guide you toward the appropriate category and ensure compliance with Internal Revenue Service requirements.
Evaluate the Sources and Use of Funding
Consider where your funding will come from and how it will be used. For instance:
If your organization plans to rely on tax-deductible donations, 501(c)(3) may be the best choice.
If membership dues or contributions from industry partners are primary, a 501(c)(6) might align better.
If your activities involve substantial lobbying, anything that might influence legislation or political advocacy, 501(c)(4) may be more suitable.
Understanding funding implications ensures alignment with Internal Revenue Service limitations on lobbying or political campaigning activities.
Review Similar Organizations
Look at organizations with missions similar to yours and analyze which 501(c) category they fall under. Research their tax-exempt status, funding methods, and operational focus. This benchmarking can provide real-world examples of how your mission and activities align with a specific category, offering clarity as you apply.
You can consult an expert for federal income tax purposes, business, or law to get advice for maximum benefits.
Take Time to Start the Paperwork
Before starting the application process, invest time understanding the implications of your chosen 501(c) category for your nonprofit organization bylaws and operations.
That could look like:
Tailoring your bylaws to IRS requirements to explicitly reflect the restrictions and permissions associated with your chosen 501(c) category. Regularly reviewing and updating bylaws ensures they remain compliant and aligned with legal obligations.
501(c)(3): Include clauses prohibiting private inurement, restricting lobbying activities, and ensuring dissolution assets are used for charitable purposes.
501(c)(4): Highlight allowances for lobbying and advocacy work while maintaining a focus on social welfare.
Understanding the expectations for reporting and compliance for different 501(c) categories with specific operational requirements helps you structure internal policies for record-keeping and decision-making.some text
A 501(c)(3) requires Form 990 filings to demonstrate compliance with charitable purpose rules and restrictions on political activity.
A 501(c)(6) (trade association) must track lobbying activities or anything that might influence legislation and avoid directly endorsing political candidates or anything that may influence legislation.
Planning rules for governance and membership ensures that policies align. Thoughtfully crafting operational policies will help maintain transparency, accountability, and compliance.some text
A 501(c)(3) may need a broad, community-focused board to reflect its public benefit mission.
A 501(c)(6) often relies on member-driven initiatives, requiring governance rules prioritizing member voting and input.
Find an Early Sponsor
Partnering with existing nonprofit private foundations or public charities can provide insights into your organization's most suitable 501(c) category and streamline your application process. Keeping detailed records across activities and finances can also help.
Some pro tips to find a great sponsor for your 501(c) organization:
Connect with like-minded sponsors: Look for businesses, foundations, or people who share your nonprofit’s values and vision. It’s all about finding the right fit.
Tap into your network: Don’t be afraid to reach out to friends, colleagues, or anyone in your circle who might know someone interested in supporting your cause.
Put together a compelling proposal: Create a proposal that clearly explains what your nonprofit is about, what you’re working toward, and how sponsoring you will benefit them. Keep it simple and to the point!
Offer flexible sponsorship options: Give potential sponsors various options that work for their budget so they can choose what makes the most sense for them. Flexibility goes a long way.
Start Your 501c Organization With Zeffy
If you’re feeling a little bit lost or confused about where to begin the process of filing for your 501c status, Zeffy is here to help. In supporting 50,000 nonprofits in North America, we’ve become experts in moving through the legal steps.
While legal fees cost some organizations $2,000, our help is 100% free just like our fundraising tools that can support you as you’re ready to launch that first campaign or build donor relationships over time.
When you fully understand the details of 501(c) organizations, you’ll be in a much better position to move forward with confidence. You won’t have to worry about Internal Revenue Service regulations hanging over your head; you’ll know you’re on the right track from the start.
Understanding the nuances of each 501(c) designation helps you make the decisions that align with your nonprofit’s mission and long-term goals. By making those right choices early on, you can focus on what truly matters—growing your impact, securing the funding you need, and building solid relationships with the community.
It’s all about setting yourself up for success so you can spend less time on the “what ifs” and more time making a difference. Keep moving forward, knowing that with the proper knowledge, you’re equipped to handle whatever comes next. You’ve got this!
501(c) is an abbreviated version of Section 501(c) of the Internal Revenue Code (IRC) that governs tax-exempt organizations. The ‘c’ is a subsection that helps categorize the various tax-exempt organization types under Section 501.
A 501(c) status aims to give nonprofit organizations a tax break and support their presence working for the public benefit. This helps NPOs commit to their mission and use entire funds for their success without tax liability.
A 501(c) and 501(c)3 nonprofits are similar in status but differ slightly in their tax benefits. Both types of nonprofits get tax exemption from Federal income tax, but 501(c)3 may allow its donors to write off donations, whereas 501(c) does not.
501(c)(3) and 501(c)(4) organizations are both tax-exempt nonprofits, but they serve different purposes and have distinct requirements.
501(c)(3)s are charitable, religious, or educational organizations eligible for tax-deductible donations. They are limited in their political and lobbying activities and can't influence legislation.
501(c)(4)s are social welfare organizations that can engage in more substantial political activities and lobbying efforts, but donations to these organizations are generally not tax-deductible.
The Internal Revenue Service grants tax-exemption to any nonprofit organization registered under the 501(c) section. 501(c) tax benefits can differ from one subcategory to another, as the government defines 32 different types of nonprofits
Here's a quick list of nonprofit organizations who can file for 501(c) status under various categories from 501(c)(3) to the many other options:
Charitable organizations (public charities and private foundations)
Educational organizations
Religious organizations
Fraternal beneficiary societies
Cooperative service organizations
Amateur sports organizations
Benevolent life insurance associations
Organizations not recognized as 501(c) include:
Mutual savings banks
Cooperative hospital service organizations
Organizations funding a political campaign or public office
Corporations organized for profit as a sole purpose
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