Tax exempt organizations are entities which qualify for tax exempt status under one of several IRS sections. These organizations are typically corporations, trusts, or certain non incorporated entities.
The most common tax exempt organization is a charitable organization, frequently known as a 501(c)(3) organization. Other tax exempt organizations include Social Welfare Organizations, Labor Organizations, Trade Associations, Social Clubs, Fraternal Societies, Employee Benefit Associations, and Political Organizations.
501(c)(3) organizations must be organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to animals or children.
Charitable organizations are the most common type of 501(c)(3) organization and are discussed the most frequently. Charitable organizations can be one of two types, a public charity or a private foundation. Private foundations typically receive most of their income from investments and endowments, while public charities typically receive most of their income via contributions from individuals and the government.
Certain donors who make contributions to qualified 501(c)(3) organizations are eligible to deduct such contributions. Additionally, these organizations are able to avoid federal income taxes on the the difference between their revenues and expenses.
Charitable organizations are typically prohibited from supporting political candidates, and are typically subject to limits on lobbying.