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What is a 501(c)(3) Corporation?

Many times we hear radio and television advertisements seeking contributions in which a claim is made that an organization is a “501(c)(3) corporation.” These advertisements generally tell the listener to check with his or her tax advisor to determine whether donations are tax deductible, and we wonder, what exactly is a 501(c)(3) corporation? In a nutshell, a 501(c)(3) corporation is a tax-exempt charitable corporation that has been organized and exists solely for one or more of the following purposes:

  • Religious
  • Charitable
  • Scientific
  • Testing for public safety
  • Literary
  • Educational
  • Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment)
  • The prevention of cruelty to children or animals

See Section 501(c)(3) Organizations

One creates the corporation by filing articles of incorporation, just as any other corporation would do. However, the articles must specify that the corporation is being created for the purpose of one or more of the  specific purposes listed above and must not authorize the corporation to engage in activities, to any substantial degree, that do not further those purposes. In addition, none of the net income of the corporation may inure to the benefit of any shareholder, officer or director and all of the corporation’s assets must be dedicated to one or more of the above purposes. As such, if the corporation is dissolved all of its assets must be distributed for one of those exempt purposes. Id. See also Exemption Requirements – 501(c)(3) Organizations.

Provided the 501(c)(3) corporation has been properly organized and maintained, it enjoys tax-exempt status and pays no federal (and in most cases, state) income tax. In addition, those making contributions to the 501(c)(3) corporation generally enjoy a tax deduction for most, if not all of their contribution, provided they “maintain

[] a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or letter) showing the name of the charity, the date of the contribution and the amount of the contribution.” See Charitable Contributions – Substantiation and Disclosure Requirements, Internal Revenue Publication 1717 (Rev. 3-2016).To understand the laws, rules, and regulations which will enable you to make informed decisions about your company, and how best to do business in California, you need the services of an attorney uniquely qualified to give you that advice. Michael Leonard, Esq. of San Diego Corporate Law, named Best of the Bar by the San Diego Business Journal in 2016, is that attorney. To schedule a consultation with Mr. Leonard to discuss any business-related matter, you can contact him by visiting San Diego Corporate Law or by telephone at (858) 483-9200.

Forming a tax exempt non-profit?


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