501(c)(3) Requirements: Overview, Rules, and Regulations

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When starting a nonprofit, it’s important to follow 501(c)(3) requirements. Learn about the key rules and regulations of obtaining 501(c)(3) designation.

Planning to start a nonprofit organization? Then you’re probably interested in learning about the necessary steps to officially launch the organization. Whether you have a charity that’s dear to your heart or want to enact change within your community, it’s important to understand the rules and regulations that govern 501(c)(3) entities.

You also need to consider how modern nonprofit governance models use board management software to enhance communication, generate meeting minutes and agendas, conduct virtual board meetings, and store critical information in a secure hub.

It’s worth noting that a nonprofit is accountable to federal and state laws, including those governed by the IRS. This is where a 501(c)(3) comes in. Read on to learn more about 501(c)(3) requirements and other essential components of operating a nonprofit organization.

What is 501(c)(3)?

According to the IRS, Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170. The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization’s net earnings may financially benefit of any private shareholder or individual.

Articles of incorporation for a 501(c)(3) include the name, purpose of the organization, contact information, and founding board of directors.

Why might it be a good idea to apply for 501(c)(3) status?

Starting a nonprofit organization is a primary reason to apply for 501(c)(3) status. It’s critical to note 501(c)(3) requirements vary by state. For example, the links below demonstrate some of the key differences from state to state:

501(c)(3) Requirements

The IRS requires organizations to meet the following criteria:

Obtain official 501(c)(3) status through the IRS: To be recognized as a 501(c)(3), you must apply for tax-exempt status and fill out the IRS form 1023 application.
Provide a valid reason for tax exemption: You must provide the purpose of the nonprofit, which can include religious, charitable, scientific, public safety, literary, educational, and other topics.
Profits must be used for charitable activities: Earnings generated from the nonprofit may not benefit individual stakeholders.
Must not support a political party or other affiliation: When setting up a nonprofit under section 501(c)(3), note that the organization cannot support or intervene in any political campaigns on behalf of any candidate.
Support the needs of the public or community: One of the leading 501(c)(3) requirements is to focus on supporting the community by providing essential services to enhance economic mobility and stability.

501(c)(3) Benefits

People apply for 501(c)(3) for various reasons. Consider these top benefits:

Federal tax exemption status
Access to public and private grants
Tax-deductible contributions during tax season
Separate entity status
A statutory right to exist in perpetuity
Limited liability protection of directors, members, and officers
Discounts on bulk mail rates
Easy and inexpensive to start

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Getting Started with OnBoard

Effective management and governance of a nonprofit board begins with investing in software to help you prepare for a board meeting and manage other crucial aspects of the board.

OnBoard’s nonprofit board management solution helps nonprofits manage their operations with ease and automation. The platform facilitates effective meetings by supporting real-time collaboration, powering virtual meetings, managing meeting minutes, and simplifying administrative tasks.

Additionally, OnBoard reduces the risk of non-compliance with federal and state rules, and makes it easy for board members and staff to collaborate and work together from anywhere.

And for assistance with running a nonprofit board meeting, download OnBoard’s free board meeting minutes template.

Frequently Asked Questions

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About The Author

Josh Palmer: Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.