Section 501(c)3 of the IRS Code exempts payment of federal income taxes for groups who are organized for charitable, religious, scientific, literary and educational purposes. It is one of many sections in the IRS code which grants tax exemption to certain entities, but the most common one. Section 501(C)(3) covers organizations formed for the following:

1. Charitable purposes are defined as "providing services beneficial to the public interest." Examples include a battered women's shelter or a low-cost medical clinic.
2. Religious purposes are valid as long as the organization's directors, officers and members appears to truly and sincerely hold the values and beliefs espoused by the religion.
3. Scientific purposes are defined as individuals and groups who conduct scientific research for the benefit of the public.
4. Literary and educational purposes include instruction of the public on topics for which there are sufficient facts to permit an individual or the public to form an independent opinion or conclusion. An unsupported opinion is not considered educational.

As previously noted, unless a non-profit corporation files a 501(c)(3) application with the IRS, it will not be exempt from paying federal income taxes. If your non-profit's purpose qualifies under 501(c)(3), then LegalZoom can help prepare the application for you. The state also requires a tax exempt application. However, most states will accept the federal application for tax exempt status in place of their own application

If you do not qualify under 501(c)(3), do not be concerned, because you may be eligible for tax-exempt status under a different IRS code section. Some of the other common ones include:
Labor and Agricultural organizations: 501(c)(5)
Business leagues: 501(c)(6)
Social and recreational clubs: 501(c)(7)
Fraternal benefit societies: 501(c)(8)
Credit Unions: 501(c)(14)
Farmer's Cooperatives: 501(c)(16) and 521(a)

You can certainly prepare the 501(c)(3) application on your own, but it can be tedious and time-consuming. The IRS estimates that it takes a first-time 501(c)(3) applicant in excess of 30 hours to complete the paperwork.

It will take the IRS 3-5 months to examine and approve your 501(c)(3) application. Keep in mind that a 501(c)(3) application is randomly assigned to an IRS agent for examination, and each agent has a different work load, so processing times will vary. Accordingly, we suggest that you get a jump start on the process by forming your corporation BEFORE completing the 501(c)3 application. While LegalZoom is filing your incorporation documents, you can use the time to select your board members, prepare your financial budget and refine your activities and programs.