Exempt Organizations

TCP — Exempt Organizations Exam: CPA — TCP (Tax Compliance & Planning Discipline) Last Updated: June 2026 --- ## Overview of Tax-Exempt Organizations Organizations exempt from federal income tax under §501(a) are listed in §501(c). The most common types: | Code Section | Organization Type | |---|---| | §501(c)(3) | Charitable, religious, educational, scientific, literary organizations; public charities and private foundations | | §501(c)(4) | Social welfare organizations (civic leagues) | | §501(c)(5) | Labor unions; agricultural organizations | | §501(c)(6) | Business leagues, chambers of commerce, real estate boards | | §501(c)(7) | Social clubs (must serve member interests) | > Exam Tip: §501(c)(3) is the most frequently tested. Know the distinction between public charities and private foundations. --- ## §501(c)(3) — Charitable Organizations ### Qualifying Purposes The organization must be organized and operated exclusively for: - Charitable - Religious - Educational - Scientific - Literary - Testing for public safety - Fostering national/international amateur sports competition (no facilities) - Prevention of cruelty to children or animals ### Organizational and Operational Tests Organizational test: Articles of incorporation must: - Limit purposes to one or more exempt purposes - Prohibit net earnings from inuring to private individuals - On dissolution, assets distributed only to exempt organizations or government Operational test: Substantially all activities must further exempt purposes. ### Prohibitions | Activity | Rule | |---|---| | Private inurement | No net earnings may benefit private shareholders or individuals | | Private benefit | Incidental private benefit allowed; substantial private benefit disqualifies | | Lobbying | Insubstantial part of activities (H election under §501(h) provides safe harbor) | | Political campaign activity | Absolutely prohibited for §501(c)(3) organizations | >…