What Is a 501(c)(3) Organization?

Section 501(c)(3) is a portion of the U.S. Internal Revenue Code (IRC) and a specific tax category for nonprofit organizations. Organizations that meet Section 501(c)(3) requirements are exempt from federal income tax. While the Internal Revenue Service (IRS) recognizes more than 30 types of nonprofit organizations, only those that qualify for 501(c)(3) status can say that donations to them are tax deductible.

Most of the organizations that may be eligible for 501(c)(3) designation fall into one of three categories: charitable organizations, churches and religious organizations, and private foundations. The rules outlined in Section 501(c)(3) are regulated by the U.S. Treasury through the IRS.

How a 501(c)(3) Organization Works

To be considered a charitable organization by the IRS, a group must operate exclusively for one of these purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.

Furthermore, the IRS defines “charitable” activities as “relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”

Requirements of a 501(c)(3) Organization

To be tax exempt under Section 501(c)(3), an organization must not be serving any private interests, including the interests of the creator, the creator’s family, shareholders of the organization, other designated individuals, or other persons controlled by private interests. None of the net earnings of the organization can be used to benefit any private shareholder or individual; all earnings must be used solely for the advancement of its charitable cause.

A 501(c)(3) organization is also forbidden from using its activities to influence legislation in a substantial way, including participating in any campaign activities to support or deny any particular political candidate. It is typically not permitted to engage in lobbying (except in instances when its expenditures are below a certain amount).

People employed by the organization must be paid “reasonable compensation,” which is based on the fair market value that the job function requires.

To remain tax exempt under Section 501(c)(3), an organization is also required to remain true to its founding purpose. If an organization has previously reported to the IRS that its mission is to help less privileged individuals gain access to a college education, it must maintain this purpose. If it decides to engage in another calling—for example, sending relief to displaced families in poverty-stricken countries—the 501(c)(3) organization has to first notify the IRS of its change of operations to prevent the loss of its tax-exempt status.

While some unrelated business income is allowed for a 501(c)(3) organization, the tax-exempt charity may not receive substantial income from unrelated business operations. This means that the majority of the firm’s efforts must go toward its exempt purpose as a nonprofit organization. Any unrelated business from sales of merchandise or rental properties must be limited or the organization could lose its 501(c)(3) status. While the IRS doesn’t specify exactly how much is too much unrelated business income, the law firm of Hurwit & Associates, which specializes in representing nonprofits, estimates the amount at somewhere between 15% and 30%.

While organizations that meet the requirements of Section 501(c)(3) are exempt from federal income tax, they are required to withhold federal income tax from their employees’ paychecks and pay Social Security and Medicare taxes. They do not, however, have to pay federal unemployment taxes.

Special Considerations

Organizations that meet the 501(c)(3) tax category requirements can be classified into two categories: public charities and private foundations. The main distinction between these two categories is how they get their financial support. 

Public Charity

A public charity is a nonprofit organization that receives a substantial portion of its income or revenue from the general public or the government. At least one-third of its income must be received from the donations of the general public (including individuals, corporations, and other nonprofit organizations).

If an individual donates to an organization that the IRS considers to be a public charity, they may qualify for certain tax deductions that can help them lower their taxable income. Generally, the total amount of donations to a tax-exempt public charity that an individual can claim is limited to 50% of their adjusted gross income (AGI). However, there is no limitation on donations to qualified charitable organizations, such as a 501(c)(3).

Private Foundation

A private foundation is typically held by an individual, a family, or a corporation and obtains most of its income from a small group of donors. Private foundations are subject to stricter rules and regulations than public charities. All 501(c)(3) organizations are automatically classified as private foundations unless they can prove they meet the IRS standards to be considered a public charity. The deductibility of contributions to a private foundation is more limited than donations for a public charity.

To apply for tax-exempt status under Section 501(c)(3), most nonprofit organizations are required to file Form 1023 or Form 1023-EZ within 27 months from their date of incorporation. The charitable organization must include its articles of incorporation and provide documents that prove that the organization is only operating for exempt purposes.

However, not all organizations that qualify for the tax category need to submit Form 1023. For example, public charities that earn less than $5,000 in revenue per year are exempt from filing this form. Even though it is not required, they may still choose to file the form to ensure that donations made to their organization will be tax deductible for donors.

Advantages and Disadvantages of a 501(c)(3) Organization

The 501(c)(3) status offers a myriad of benefits to the designated organizations and the people they serve. For starters, 501(c)(3) organizations are exempt from paying federal income and unemployment taxes, and patrons who donate to them are allowed to claim a tax deduction for their contributions.

To help with funding and further their mission, these organizations are eligible to receive government and private grants. To qualify, the organization must have a mission aligned with the purpose of the grant and a need for it. In addition, 501(c)(3) organizations often receive discounts from retailers, free advertising by way of public service announcements, and food and supplies from other nonprofit organizations designed to help in times of need.

A 501(c)(3) could be the lifelong dream of its founder; however, once established as a 501(c)(3), it no longer belongs to its founder. Rather, it is a mission-oriented organization belonging to the public. To maintain its favorable tax treatment, it must operate within the confines of the law pertaining to 501(c)(3) organizations.

Because the organization serves the public, it must operate with full transparency. Therefore, its finances, including salaries, are available to members of the public and subject to their review.

Example of a 501(c)(3) Organization

The American Red Cross, established in 1881 and congressionally chartered in 1900, is one of the United States’ oldest nonprofit organizations. Its mission statement says that the Red Cross “prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.” Since its inception, its goal has been to serve members of the armed forces and provide aid during disasters.

Located in 191 countries, the Red Cross operates the largest network of volunteers in the world. This 501(c)(3) organization is segmented into three divisions: the National Red Cross and Red Crescent Societies, the International Federation of Red Cross and Red Crescent Societies, and the International Committee of the Red Cross.

The National Red Cross and Red Crescent Societies, which include the American Red Cross, aim to relieve human suffering globally by empowering subordinate organizations to operate within their nation’s borders to provide disaster relief, education, and other related services. The International Federation of Red Cross and Red Crescent Societies provides global humanitarian aid during peacetime, such as assisting refugees. The International Committee of the Red Cross provides humanitarian relief for people affected by war or other armed conflicts.

People who itemize their tax deductions can contribute to the Red Cross and claim the amount donated as a deduction. Taxpayers who use the standard deduction may still claim up to $600 of their 501(c)(3) contributions as a tax deduction in 2021.

The Bottom Line

501(c)(3) organizations are nonprofit groups with a dedicated mission. Most people are familiar with them as churches and charities, but they also include private foundations. As long as they operate to support their mission, they receive favorable tax treatment, such as avoiding federal income and unemployment taxes.

What Is the American Dream?

The American dream is the belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society in which upward mobility is possible for everyone.

The American dream is believed to be achieved through sacrifice, risk-taking, and hard work, rather than by chance.

Understanding the American Dream

The term was coined by writer and historian James Truslow Adams in his best-selling 1931 book Epic of America. He described it as “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Adams went on to explain, “It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motorcars and high wages merely, but a dream of social order in which each man and woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

The idea of the American dream has much deeper roots. Its tenets can be found in the Declaration of Independence, which states: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.”

In a society based on these principles, an individual can live life to its fullest as they define it. America also grew mostly as a nation of immigrants who created a nation where becoming an American—and passing that citizenship to your children—didn’t require being the child of an American.

Advantages and Disadvantages of the American Dream

Advantages

Achieving the American dream requires political and economic freedom, as well as rules of law and private property rights. Without them, individuals cannot make the choices that will permit them to attain success, nor can they have confidence that their achievements will not be taken away from them through arbitrary force.

The American dream promises freedom and equality. It offers the freedom to make both the large and small decisions that affect one’s life, the freedom to aspire to bigger and better things and the possibility of achieving them, the freedom to accumulate wealth, the opportunity to lead a dignified life, and the freedom to live in accordance with one’s values—even if those values are not widely held or accepted.

The books of post-Civil War writer Horatio Alger, in which impoverished but hardworking teenage boys rise to success through pluck, determination, and good fortune, came to personify realizing the Dream.

Disadvantages

Terming it a “dream” also carries with it the notion that these ideals aren’t necessarily what has played out in the lives of many actual Americans and those who hope to become Americans. The criticism that reality falls short of the American dream is at least as old as the idea itself. The spread of settlers into Native American lands, slavery, the limitation of the vote (originally) to white male landowners, and a long list of other injustices and challenges have undermined the realization of the dream for many who live in the United States.

As income inequality has increased substantially since the 1970s, the American dream has begun to seem less attainable for those who aren’t already affluent or born into affluence. According to U.S. Census family income data, real family income began to grow much more among the top income group than among other segments of American society.

These realities, however, do not diminish the luster of the American dream as an ideal and a beacon to all nations.

How to Measure the American Dream

Today, homeownership is frequently cited as an example of attaining the American dream. It is a symbol of financial success and independence, and it means the ability to control one’s own dwelling place instead of being subject to the whims of a landlord. Owning a business and being one’s own boss also represents the American dream fulfillment. In addition, access to education and healthcare have been cited as elements of the Dream.

Homeownership has steadily increased over time in the U.S., reflecting a key aspect of owning your own property as a sign of achieving the American Dream. For example, the homeownership rate at the end of 2020 was 65.8%, reflecting an increase of 0.7% higher than the previous year. Entrepreneurship has always been important to the U.S. economy too. In 2019, small businesses created 1.6 million net jobs alone.

Owning property, one’s own business, and carving a life of one’s own making is all part of the American dream, and the U.S. as a first-world country also offers the benefits of pursuing these passions, without having to worry about basics such as accessing good education and healthcare.

Special Considerations

In her book Spreading the American Dream: American Economic and Cultural Expansion, 1890-1945, sociologist Emily S. Rosenberg identifies five components of the American dream that have shown up in countries around the world. These include the following:

• The belief that other nations should replicate America’s development
• Faith in a free market economy
• Support for free trade agreements and foreign direct investment
• Promotion of a free flow of information and culture
• Acceptance of government protection of private enterprise

The American dream was aided by a number of factors that gave the United States a competitive advantage over other countries. For starters, it is relatively isolated geographically, compared to many other countries, and enjoys a temperate climate. It has a culturally diverse population that businesses use to foster innovation in a global landscape. Abundant natural resources—including oil, arable land, and long coastlines—generate food and income for the country and its residents.

The Bottom Line

The concept of the American dream is still one of the most uniquely “American” ideals—the ultimate idea that any individual should be able to pursue their dreams and build the life they want if they put in the hard work. This motivating drive influences the economy with entrepreneurship and individual ambition, infusing a romantic notion to anyone trying to be successful in the United States. Though the definition of the American Dream has changed to mean different things to different generations, it’s undoubtedly part of the American ethos, and always will be.

What Is an Assortment Strategy?

An assortment strategy in retailing involves the number and type of products that stores display for purchase by consumers. Also called a “product assortment strategy,” it is a strategic tool that retailers use to manage and increase sales. The strategy is made up of two major components:

1. The depth of products offered, or how many variations of a particular product a store carries (e.g. how many sizes or flavors of the same product).
2. The width (breadth) of the product variety, or how many different types of products a store carries.

How Assortment Strategies Work

Essentially, a product assortment strategy is a retail industry sales tool with the concepts of depth and breadth at its core. However, not all retailers will be able to use both components of this strategy at the same time.

An assortment strategy can have many layers of sub- and related strategies, as each store will need to tailor the strategy to address its own particular needs and goals.

A deep assortment—the opposite of a narrow assortment—of products means that a retailer carries a number of variations of a single product. A wide variety—the opposite of a narrow variety—of products means that a retailer carries a large number of different kinds of products.

A Challenge for Small Stores

Retailers face a trade-off when determining an assortment strategy. Choosing both a wide variety and a deep assortment of products simultaneously requires a large amount of space, and is typically reserved for big-box retailers.

Stores with smaller spaces may choose to specialize in a certain type of product and offer customers a variety of colors and styles; other stores may offer a deep assortment of products but a narrow variety—one reason why a 7-Eleven (private since 2005) might carry just one brand of canned cat food, for example, while a Kroger (NYSE: KR) likely would have the space to stock 12 brands of canned cat food, if it chose to.

A Brick-and-Mortar Term

Originally, assortment strategy referred only to brick-and-mortar stores because the strategy’s components of depth and breadth had a lot to do with physical space and the visual and tactile interaction between consumer and product. Recently, though, all sales venues—brick-and-mortar, click and mortar, and e-tailing—have used varieties of the strategy to gain competitive advantage.

Adjusting for Demographics

By grouping together items that they believe will appeal to certain types of customers, retailers may fine-tune their assortment strategies to target consumers’ demographic profiles. If a retailer wants to attract customers who are new parents, for example, it might fill the shelves with infant apparel from trendy brands, along with toys, bedding, and other products new parents need.

A Strategic Selling Tool

A strategically arranged product assortment can upsell customers on supplemental items as they search for the item that brought them to the store.

Grouping related items together strategically, whether or not they are necessities, is a common way to stimulate impulse buying:

• By placing garden hoses near sprinklers and other lawn-care products, a retailer might drive more into a customer’s basket. Likewise, installing a luxurious patio dining set—complete with attractive outdoor dishware and bar accessories—in the middle of the more prosaic yard-care products could even send some customers scurrying to the housewares section of the store.
• A presentation of flashlights—or any battery-driven product—could include a nearby display of the batteries needed to use the product. Or a manager could locate the batteries near the check-out counter to remind customers before they leave the store that the flashlight won’t work without batteries.

Potential Disadvantages of Assortment Strategies

Although the depth of product assortment may help attract customers, there are certain caveats to relying only on an assortment strategy. If items in an assortment are placed incorrectly, the demand for these products may vary drastically.

If less-popular items are mixed in with popular items, for example, they could detract from the more-popular items’ appeal. Or, if the assortment is too vast, customers may have difficulty finding the item they are seeking. Overwhelming shoppers with too many buying options can be counterproductive and discourage customer engagement.

What Is Affirmative Action?

The term affirmative action refers to a policy aimed at increasing workplace and educational opportunities for people who are underrepresented in various areas of our society.

Affirmative action focuses on demographics with historically low representation in leadership, professional, and academic roles. It is often considered a means of countering discrimination against particular groups.

Affirmative action programs are commonly implemented by businesses and governments by taking individuals’ race, sex, religion, or national origin into account when hiring.

How Affirmative Action Works

The main purpose of affirmative action is to diversify various parts of society. It is a government-backed policy that was developed to provide inadequately represented groups of people with access to opportunities in academia, the private workforce, and government jobs.

These opportunities include admission to schools and jobs in professional positions, as well as access to housing and financing.

History and Implementation

The affirmative action policy rose to prominence in the United States in the 1960s as a way to promote equal opportunity for various segments of society. The policy was developed to enforce the Civil Rights Act of 1964, which sought to eliminate discrimination.

Early implementations of affirmative action largely focused on halting the continued social segregation of minorities and other disadvantaged individuals from institutions and opportunities.

Despite legislation that outlawed discrimination practices in the U.S., tangible change in the status quo was not immediate.

In more recent years, campaigns have expanded to make organizations and institutions even more inclusive by pushing for greater gender diversity. Newer policies are also aimed at providing more access to opportunities for covered veterans and people with disabilities.

Elements of Affirmative Action

Efforts to stimulate change can take the form of financial assistance such as grants, scholarships, and other support earmarked to help with access to higher education opportunities.

In addition, hiring practices may be structured to require the inclusion of diverse candidates for consideration for job openings. Government agencies may mandate that companies and institutions populate their ranks with a minimum percentage of qualified professionals from varying ethnicities, genders, and cultures.

Failure to meet such requirements could disqualify institutions from receiving government funding or being able to compete for public contracts.

Examples of Affirmative Action

Affirmative action has been put to work since the 1960s, despite lack of progress at times and rulings by legal authorities such as the Supreme Court that have hindered it. Here are some examples of the policy in action.

• In 1965, President Lyndon B. Johnson issued Executive Order 11246. It required that all government contractors and subcontractors expand job opportunities for minorities. It also established the Office of Federal Contract Compliance (OFCC) to enforce the order.
• In 1970, the Labor Department ordered and authorized flexible goals and timetables to address the underutilization of minorities by federal contractors. In 1971, women were included in the order.
• In 1973, President Richard M. Nixon signed the Rehabilitation Act of 1973. It required agencies to submit an affirmative action plan to the EEOC that detailed the hiring, placement, and advancement of individuals with disabilities.
• In 1983, President Ronald Reagan issued Executive Order 12432. It required every federal agency with substantial procurement or grant-making authority to develop a Minority Business Enterprise development plan.
• In 1990, President George H.W. Bush signed the Americans with Disabilities Act. A year later, he signed the Civil Rights Act of 1991.
• In 1998, the U. S. House of Representatives and the U. S. Senate stopped attempts to eliminate specific affirmative action programs. Both houses of Congress prohibited the abolishment of the Disadvantaged Business Enterprise program. In addition, the House refused to allow the elimination of affirmative action in admissions in higher education programs funded through the Higher Education Act.
• In 2022, the Wall Street Journal reported that dozens of major U.S. companies including Apple, Alphabet, American Airlines, and General Motors were urging the Supreme Court to uphold the continued use affirmative action policies in college admissions. They asserted that greater diversity on college campuses contributed to ongoing innovation in commerce and successful business endeavors.

Advantages and Disadvantages of Affirmative Action

The implementation and continued use of affirmative action policies have drawn strong support as well as staunch criticism.

Advantages

An obvious benefit of affirmative action is the opportunities they provide to people who otherwise might not have them. These opportunities include access to education for students who may be disadvantaged and career advancement for employees who may be blocked from rising up the corporate ladder.

Proponents of affirmative action say that the effort must continue because of the low percentages of diversity in positions of authority and in the media, as well as limited acknowledgment of the achievements of marginalized or unrepresented groups.

Disadvantages

Opponents of affirmative action frequently call these efforts a collective failure. They cite as evidence the tiny changes to the status quo after decades of effort. The cost of such programs, coupled with a belief that affirmative action forces the populace to make unwarranted accommodations, drives a significant part of the opposition.

Certain individuals believe that there is little to no bias in society. They argue that affirmative action results in reverse discrimination, which can often lead to qualified candidates being overlooked in academics and the workplace in favor of less qualified candidates who meet policy standards.

Affirmative Action Statistics

Affirmative action is a very controversial topic and often leads to heated debates between those who support it and people who feel it doesn’t benefit society. Is there a way to quantify how people feel and how it’s working?

According to a Gallup poll, more than half of Americans (61%) believe in affirmative action policies. This level of support has increased since the last poll, where only 47% to 50% of individuals thought affirmative action was necessary. This increase in support is especially important, given the active issues surrounding race and identity in the U.S. and elsewhere.

Many Americans feel positive about diversity. They are comfortable with the makeup of their communities, saying diversity positively impacts society as a whole.

There is some divide when it comes to identifying race and ethnicity for purposes of hiring. In fact, about 74% of individuals feel that a candidate’s racial or ethnic background shouldn’t be considered when hiring or promoting them. These activities should only be based on someone’s merit and qualifications.