Section 501(c)(3) of the Internal Revenue Code is the part of federal tax law that covers charities, churches, schools, and similar groups. Organizations recognized under it pay no federal income tax on income related to their mission, and donors can generally deduct their gifts. In exchange, the law sets firm conditions. The Treasury regulation that implements the section boils them down to one sentence: an organization must be both organized and operated exclusively for one or more exempt purposes, and if it fails either test, it is not exempt.
This guide walks through each requirement, then shows examples of activities that do and do not qualify.
The eight exempt purposes
Section 501(c)(3) lists the purposes that qualify: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. Your organization needs at least one.
"Charitable" is the broadest. The IRS instructions describe it as including relief of the poor, the distressed, or the underprivileged; advancement of religion, education, or science; erecting or maintaining public buildings or monuments; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
"Educational" covers instruction of individuals to develop their capabilities and instruction of the public on useful subjects. An organization can advocate a viewpoint and still be educational if it presents a full and fair exposition of the facts. Mere presentation of unsupported opinion does not count.
The organizational test: your founding documents
The organizational test looks only at your organizing document, which for a nonprofit corporation is its articles of incorporation (the charter filed with your state). Under the regulation, the articles must:
- Limit your purposes to one or more exempt purposes. A purpose clause that says the corporation is organized exclusively for charitable or educational purposes within the meaning of section 501(c)(3) works. A clause that also allows "any lawful purpose" does not.
- Not expressly empower you to engage, other than as an insubstantial part of your activities, in activities that do not further an exempt purpose, such as operating a social club or a manufacturing business.
- Dedicate your assets to exempt purposes. If the organization dissolves, its remaining assets must go to another exempt purpose, or to a government for a public purpose, never to members, directors, or founders. In some states, state law supplies this rule, but an improper dissolution clause is never cured by state law.
Bylaws, the internal rules for how your board operates, do not satisfy this test on their own for a corporation. If your articles are too broad, the IRS instructions say to amend them before you apply. Our guide to articles of incorporation for a 501(c)(3) covers the standard clauses.
The operational test: what you actually do
The operational test asks whether your real activities primarily accomplish your exempt purposes. The regulation says you fail if more than an insubstantial part of your activities does not further an exempt purpose. There is no published percentage. The IRS looks at the facts.
The test also bars operating for the primary purpose of carrying on a trade or business unrelated to your mission. Running a gift shop inside a museum is fine; running a for-profit factory and donating the profits is not. Smaller unrelated business activity is allowed but may be taxed, which our guide to unrelated business income explains.
No private inurement and no private benefit
Inurement means an organization's income or assets flowing to insiders, such as board members, officers, key employees, or founders, other than as reasonable pay for real services. The IRS instructions are blunt: any amount of inurement may be grounds for loss of exemption. Examples include paying dividends or unreasonable compensation.
A related rule, private benefit, bars serving private interests more than insubstantially, even if the people helped are not insiders. A scholarship fund that pays only pre-selected, named students serves private interests, not the public. You can pay reasonable salaries and buy goods at fair prices; the problem is excess. See private benefit and excess benefit for the details.
Limits on lobbying
Lobbying means attempting to influence legislation: contacting, or urging the public to contact, legislators to propose, support, or oppose legislation, or advocating adoption or rejection of legislation. Legislation includes action by Congress, state legislatures, local councils, and the public through ballot measures. It does not include actions by executive, judicial, or administrative bodies.
A 501(c)(3) can lobby, but not as a substantial part of its activities. Most public charities can instead elect a dollar-based expenditure limit under section 501(h) by filing Form 5768; private foundations cannot make this election. Our guide to lobbying limits and the 501(h) election explains both approaches.
A complete ban on campaign intervention
Unlike lobbying, there is no allowance for campaign activity. A 501(c)(3) may not participate or intervene, directly or indirectly, in any political campaign for or against a candidate for public office, at the federal, state, or local level. Endorsements, contributions, statements for or against a candidate, and distributing others' statements all violate the ban. Letting one candidate use your facilities without giving others the same opportunity does too.
Some election-related work is allowed if it is genuinely nonpartisan: candidate forums, voter education guides, and voter registration or get-out-the-vote drives. The IRS evaluates these on all the facts. See our guide to political activity rules.
The public policy requirement
An organization does not qualify if its purposes or activities are illegal or violate fundamental public policy. The IRS instructions cite a ruling that a private school without a racially nondiscriminatory policy toward students does not qualify. A religious organization's practices likewise cannot be illegal or contrary to clearly defined public policy.
Examples: what qualifies and what does not
The table below uses hypothetical organizations, plus situations drawn from the examples in the IRS instructions.
| Activity | Likely result | Why |
|---|---|---|
| A neighborhood food pantry giving groceries to low-income families | Qualifies | Relief of the poor is a charitable purpose |
| An after-school homework club open to local students | Qualifies | Educational purpose serving a public class |
| A program subsidizing spay and neuter surgery for pet owners who cannot afford it | Qualifies | Prevention of cruelty to animals |
| A cooperative gallery formed by artists to exhibit and sell their own work | Does not qualify | Serves the members' careers and sales |
| A fund raising money for one named person's medical care, controlled by that person's family | Does not qualify | Benefits a specific individual, not a charitable class |
| A scholarship fund for pre-selected, named students | Does not qualify | Serves private interests |
| A literacy group that endorses a mayoral candidate | Loses eligibility | Campaign intervention is prohibited |
Help for one family is not a charity. The IRS instructions explain that disaster relief or hardship organizations must serve a charitable class. Helping only a few specific people injured in a single event does not qualify, and donors cannot earmark gifts for a particular individual or family.
Who does not have to apply
Under IRC 508(c), churches, their integrated auxiliaries, and conventions or associations of churches are not required to apply, and neither is any organization that is not a private foundation and whose gross receipts in each taxable year are normally not more than $5,000. They must still meet every requirement above, and many choose to apply anyway to receive a determination letter, the IRS letter confirming exempt status. Our guide to churches and 501(c)(3) covers religious organizations.
Everyone else must apply on Form 1023 or, if eligible, Form 1023-EZ. If your plans do not fit 501(c)(3), another category may, as described in other 501(c) organizations.
Frequently asked questions
Can a 501(c)(3) pay its founder a salary?
Yes, if the pay is reasonable for the services actually performed and is set through a fair process. What is prohibited is unreasonable compensation or other transfers of earnings to insiders. A conflict of interest policy and comparable salary data help show the pay is fair.
Does an organization have to be a corporation?
No. The Form 1023 instructions list corporations, limited liability companies, unincorporated associations, and trusts as eligible structures. Sole proprietorships, partnerships, and loosely affiliated groups of individuals are not eligible. Most founders choose a nonprofit corporation, and an LLC cannot use Form 1023-EZ.
How much lobbying counts as "substantial"?
There is no fixed percentage under the general rule; the IRS weighs the facts. Public charities that want a clear dollar limit can elect the 501(h) expenditure test on Form 5768. Campaign activity is different: none is allowed.
Can we charge fees for our programs?
Yes. Charging fees for services that further your mission, such as tuition for classes or admission to a museum, is consistent with exemption. The question is whether the activity furthers an exempt purpose and serves the public, not whether money changes hands.
If our articles have the wrong language, are we out of luck?
No. Amend the articles with your state to fix the purpose or dissolution clause, then apply. The IRS instructions direct organizations with overly broad purposes to amend before applying.
Sources
- IRS: Instructions for Form 1023 (Rev. December 2024). irs.gov
- IRS: Instructions for Form 1023-EZ (Rev. January 2025). irs.gov
- IRS: Publication 557, Tax-Exempt Status for Your Organization (Rev. January 2025). irs.gov
- IRS: Publication 4220, Applying for 501(c)(3) Tax-Exempt Status (Rev. 3-2018). irs.gov
- eCFR: 26 CFR 1.501(c)(3)-1, Organizations organized and operated for religious, charitable, scientific, testing for public safety, literary, or educational purposes. ecfr.gov
- Cornell LII: 26 U.S. Code ยง 508, Special rules with respect to section 501(c)(3) organizations. law.cornell.edu
IRS forms, fees and inflation-adjusted amounts change. We review this page when the IRS publishes new instructions.
501Nonprofit.com is a private company, not the IRS. This page is general information, not legal or tax advice for your organization. Example organizations and figures are hypothetical.
