Charitable and other organizations that meet the requirements of Internal Revenue Code section 501(c)(3) are exempt from federal income tax. Donations made by individuals and corporations to charitable and other tax exempt organizations are deductible under Internal Revenue Code section 170.
Exempt charitable organizations fall into one of two classifications: a public charity or private foundation. Public charities are typically those that (i) are churches, hospitals, qualified medical research organizations affiliated with hospitals, schools, colleges and universities, (ii) have an active fundraising program and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities, (iii) receive income from conducting its activities in furtherance of the organization’s exempt purposes, or (iv) actively support one or more existing public charities. On the other hand, private foundations, typically have a single major source of funding (usually gifts from one family or corporation) and most have making of grants to other charitable organizations and to individuals as their primary activity, instead of the direct operation of charitable programs.
If you think your charitable organization is or will be a public charity, read my article about whether or not your organization may qualify for tax exempt status. If you think it does, read the IRS’ article about the Life Cycle of a Public Charity and review the chart showing the life cycle of a public charity. There are a number of helpful links to information about forming and operating public charities. The chart also contains links to information and forms that your organization may need to file with the IRS.
The IRS also has a helpful chart for private foundations. Check out the Life Cycle of a Private Foundation to view a chart showing the life cycle of a private foundation. This chart contains links to helpful information about points of intersection between your organization and the IRS, including access to explanatory information and forms that your organization may need to file with the IRS.
If you haven’t yet formed your organization, call Powers & Neal Law to get started on your Arizona nonprofit corporation. If you have your organization, the next step is to obtain tax exempt status from the IRS. This is done by completing and filing an IRS Form 1023. Call Arizona non-profit attorney Abigail Neal at (480) 699-7992 to get started.