Question

Describe the requirements of an exempt organization.

Answer 1

As per IRS, organisations which are not required to pay income taxes are the exempt organisation. A 501(c)(3) organization is a corporation, trust, unincorporated association, or other type of organization exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is one of the 29 types of 501(c) nonprofit organizations in the US.

As per IRS, 501(c)(3) tax-exemptions apply to entities that are organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, for testing for public safety, to foster national or international amateur sports competition, for the prevention of cruelty to children, women, or animals.

As per IRS, The basic requirement of obtaining tax-exempt status is that the organization is specifically limited in powers to purposes that the IRS classifies as tax-exempt purposes. Unlike for-profit corporations that benefit from broad and general purposes, non-profit organizations need to be limited in powers to function with tax-exempt status, but a non-profit corporation is by default not limited in powers until it specifically limits itself in the articles of incorporation or nonprofit corporate bylaws.

Organisations can acquire the tax exempt status by filing the form 1023. There are some classes of organizations that automatically are treated as tax exempt under 501(c)(3), without the need to file Form 1023.

An approved 501(c)(3) exemption allows donors to the organization to reduce their own taxable incomes by deducting the amounts of their donations given, and thus to reduce their personal income taxes.